Wednesday, June 2, 2010

Bungling Buffoon Badly Burned by "Bottom" Buying: FINAL UPDATE

Things have been nuttier than squirrel shit around here, so forgive the lack of posts. I wish I could say things will mellow out soon, but that's not the case.

Anyhow, this condo ended up selling in May for just under full asking price. That represents a loss of about -$80,000 after commissions. Wow. Losing your entire cash down payment is one expensive way to find out all the 2008 bottom callers were dead wrong.

You could have saved yourself some serious loot by reading this blog.

What's interesting is that in April the REO from the same post also sold...for only $326,000. Now, we don't know the condition of that bank-owned unit, so it may not be apples to apples, but I am curious why the bank approved $395,000 for Unit G2 when Unit H1 -- an identically sized unit in the same building -- sold for a whopping $70,000 less just a month earlier.

Unless H1 was a complete dump, it looks like the new owner of G2 is already in the hole. Ouch.

Look, although I think he waaaaaaaaaaaaaaaaay overpaid for this outdated apartment relative to what it's actually worth, I am on record as saying I really like this place. The listing doesn't show it (why, I have no clue), but the old listing shows it even has a little balcony off the dining room. Freakin' sweet. I'd live here in a hot minute, and I'd pay a premium to do so.

Just not as much as this dude.

Let's hope he doesn't need to sell in the near future lest he end up like his predecessor and eat a big fat loss for his impatience.


2662 East 2ND St Unit G2, Long Beach, 90803
Asking Price: $399,000
Beds: 2
Baths: 1.75
Sq. Ft.: 1,292
$/Sq. Ft.: $309
Year Built: 1966
MLS#: P727352
On Redfin: 2 days
HOA: $213
Down Payment: $80,000
Income Requirement: $114,000
Monthly Nut: $2,300
Description: Look no further! You have found one of the nicest and most spacious 2 bedrooms PLUS office currently available in Bluff Park. This END UNIT boasts gleaming hardwood floors, plantation shutters, a formal dining area, a huge remodeled eat-in kitchen with amazing storage and counterspace, a large guest room, updated guest bath with spa-like feel, oversized master bedroom with a dressing area and remodeled bath, french door enclosed sunny office area, and an in unit stackable WASHER/DRYER. Finally, no community laundry!!! The condo also comes with an oversized parking space and additional storage above the space in the garage. One of the nicest and well maintained buildings in Bluff Park or Belmont Heights you will show. Just a pleasure! Pets are allowed and you are just one block to the beach, bike path, Long Beach Museum of Art and fine retail and restaurants. The perfect elegant and stylish neighborhood. This is a standard sale!

The 2008 losers just keep stacking up. Today's seller was yet another sheep who allowed himself to be misled by CNBC hyper-bulls and his commission-hungry realtor that he was "buying at the bottom" in late '08.

And now, predictably, he is being sent to slaughter.

Just a short 19 months ago he foolishly purchased this apartment for $451,000 from a pre-bubble owner who paid a mere $165,500 ("Thanks for the bubble profits, noob!). Considering the original asking price was $469,750, I bet he thought he was pretty slick negotiating a whopping 4% discount.

Sadly, he abruptly discovered that his negotiating skills were about as strong as Corey Haim's willpower (too soon?). Armed with the sudden realization that he grossly overpaid in a rapidly declining market(!) and could never afford such a monstrous payment in the first place, he threw it on the MLS for an ego-deflating $399,000 and is now begging for the market's mercy.

After commissions, that represents a -$75,000 loss. Ouch.

Hey guy, is the smoke bothering you?

You know, from the smoldering crater where your bank account used to be?

The thing is, I quite like this place. I think it's an "updater," a term I first became familiar with by way of Jim the Realtor's site. It's certainly not a "fixer," (by the way, have you noticed that hardly any properties are listed as a "fixer upper" on Redfin anymore? Here is a prime example of someone in "fixer" denial) but it's also not quite "turn-key" and requires $10,000 to $15,000 in lipstick and blush.

For example, the kitchen:


But add some new countertops and mild updating and you'll be set.

And the master bath, while not horrendous, could use some freshening up. You might disagree, but remember this is a property demanding $400,000!

Don't get me wrong, this place is pretty slick. Crown molding, nice floors, two bedrooms plus an office, reasonable square footage, in-unit laundry, only one common wall, decent HOA fee...pretty impressive.

Plus it's in a great neighborhood in close proximity to those killer Long Beach waves.

I'd live here, no doubt.

However, I would never pay this much. Way overpriced for what you get.

But that's just me. I think some buyers will find $309 per square foot reasonable given the location and sold comps. Unfortunately, they, just like our seller, will be catching a falling knife.

Let's look at the fundamentals:

Rent vs. Buy: I seriously doubt it rents for anywhere near $2,300, but I'm open to being proven wrong. But most buyers probably focus on after-tax payments, so let's call this one a wash for the typical (imprudent) buyer.

Local Incomes: The median income in this zip is $82,765, and I would imagine someone looking at these beach-close units would earn above median. Let's say $100,000 per year. At 3.5X income, they would need to make $91,000 to reasonably afford the mortgage (assuming 20% down). However, if you calculate the more conservative figure of House Price/3.5X income, they would need to pull in $114,000 per year. Could be a wash depending on how you calculate the numbers, but a conservative buyer would be stretching too thin to make the monthly nut.

Pre-bubble pricing/fundamental value: Here's where it gets tricky. If you apply a generous 4% per year appreciation to the 1999 sales price (and remove the bubble and ensuing crash), today this apartment would be worth $255,000. Add in a little extra for the few upgrades it does have, how well-maintained it is, and the fact that the '99 price seems low, and at most you're looking at a 2010 value of $300,000 - $310,000.

"El Bee, you're smoking Plymouth Rocks if you think this place is only worth $310,000!"

Well then I guess I'm not the only one because a certain bank is robbing its sister for a taste of that sweet, sweet crack too. In the very same building a lender is trying to offload a larger unit and believes it's only worth $325,000 (FYI that's a $100,000+ discount from the 2004 price!).

How the shit is our featured beggar--ERRR...seller going to compete with that? He's not. And that means this joint won't be a "standard sale" for long.

Assuming the REO isn't a complete turd pile inside (thanks for the photos, dick!), this is horrendously bad news for our overly optimistic seller. If the bank-owned property sells for full asking price (which, frankly, I'm surprised it hasn't already), then that comp guarantees our seller eats a -$150,000 loss instead of the -$75,000 hit he was initially worried about.

How pissed do you suppose the residents are at that dastardly bank?

Anyhow, this dummy listened to the wrong people and thought he could beat the odds. But now he's just going to get beat down. Just like pretty much every other 2008 "bottom buyer" who tries to sell today. If only they had been readers of this blog.

Look, if you ignored my (absolutely correct) prediction that prices would continue to slide and bought during the last two years, I'm not trying to pick on you. There are a million reasons to buy in a declining market and a million more ways to fudge the numbers to justify it. Hell, I'm ready to get on with my life too!

But if you did your homework and paid close to rental parity, got a fixed-rate 30-year mortgage, have a healthy emergency fund, can reasonably afford your payments, and absolutely adore the place you live, then you'll be able to ride this thing out just fine -- and get to live in a house you love in the meantime.

But if you bought way before the bottom like this dude and want to sell in today's environment, just know that you are in neck-deep in shit and have no one to blame but yourself.


  1. Ha!
    I live in the area, earn 6 figures, and yet I don't ..nor will I ever pay anywhere in this range for housing.

    Burn in hell greedy RE mongers.
    The economy is going DOWN. For a lengthy period. Likely permanently for the US as we equalize with China and others.

    I've lived here for over a decade and seen oh so many empty lights at night on the apartments near the ocean.

    Long Beach RE investors are about to eat s*** and die!

  2. Anon, I like you!!

    I also agree with you. I think things are headed for a "likely permanent" downturn, as so many idiots have been bred, who are fascinated by socialism.

    As for this place? Well El Bee you must be smokin "the kind"! hehe Not sure what you like about THESE patios, unless the one you saw was different than the ones that show in the street view.

    Granted this is on 2nd street, where things are much better than from 3rd and up, but still, not much to look at, overcrowded, and just downright depressing hood.

    Nice to be able to get on the bike and go right out on the ocean, but other than that, it's not worth much premium, imho.

    I also think this building is ugly, don't like these kinds of buildings (where all the units look the same), and the block is filled with OTHER multi-unit buildings. Aye carrumba!

    In the market, I can see 325K being a "fair" price, but personally I wouldn't spend more than 250K on this place, and even then, I wouldn't be a happy camper. F that.