Thursday, August 26, 2010

$50,000 Off in Just Four Weeks...How Low Will it Go? FINAL UPDATE

Sold on 08/24/10 - $325,000

I can't say that I'm terribly surprised, given the location, ultra-low interest rates and woeful lack of quality inventory in Long Beach.

But I still believe the new owner substantially overpaid.

Sorry, I don't care how close it is to the ocean -- when you're plunking down nearly TWICE what it costs to rent, you're getting ripped off and you obviously haven't done your homework.

Oh well, it's a nice pad and the new owner can move on with his life and start enjoying his close proximity to the action. I'm a tad jealous. This was one of the few properties to actually pique my interest during 2010.

And by the way, since this one-bedroom has now become a sold comp at $360 per square foot, what do you think this idiot is thinking right now, still languishing at $450 per square?

"Well I'm not just going to give it away!"

Sorry for the lack of posts, but like I warned my readers a few months ago, real life has taken a more prominent role and I simply don't have as much time to research and write about real estate. The good news is that my professional life is really taking off, the bad news is that impinges on my free time.

I will be traveling pretty much non-stop until October -- and possibly beyond. It's worth noting that I just turned 839,000 airline miles. And that's just on American Airlines.

But, I will try my hardest to keep you updated on the Long Beach real estate scene as the double-dip recession takes hold (that's assuming you believe we've exited the 2008 recession in the first place), free government ponies die off as we approach the mid-term election, and the economy slows once more.

Who knows, by then we might have 4.0% interest rates. Should be interesting!


I sent my buddy W the link to this apartment a while back and when I saw him at the BBC a few nights ago he mentioned it had already been on his radar. We tried to determine how overpriced it is (there was no debate about whether it actually is overpriced) while agreeing it is big, very nice inside, and in a prime location.

3819 East LIVINGSTON Dr #4, Long Beach, CA 90803
Wishing Price: $329,000
Beds: 1
Baths: 1
Sq. Ft.: 902
$/Sq. Ft.: $365
View: Peek-A-Boo
Year Built: 1959
MLS#: S619384
On Redfin: 31 days
HOA: $300
Down Payment: $13,000 (FHA)/$65,800 (20% down)
Income Requirement: $94,000 (income = home price/3.5)/$75,000 (income = mortgage/3.5)
Monthly Nut: $ 2,400 (FHA)/$2,000 (20% down)
Description: * * * Complete Remodle * * * Reduced price for quick sale. .. This beautiful one bedroom condominium is turn key and ready to move-in. New gourmet kitchen with top of the line stainless steel appliances, custom cabinets, granite counter top and custom lighting. The dinning room features custom cabinets finished with granite counters. The newly remodeled bathroom features a beautiful shower with travertine and marble design enclosed with custom glass door, the new bath tub is surrounded with custom tile and marble, the vanity has a marble counter top and glass bowl sink. This home has new lighting, new paint, new base boards, new windows, new carpet, new tile floors and much much more.



Although the realtor they chose is obviously an illiterate dummy, the sellers at least seem to possess some common sense. I say that because they have demonstrated a willingness to meaningfully slash the price in a short amount of time:

Jun 27, 2010 - Price Changed $329,000
Jun 18, 2010 - Price Changed $349,000
Jun 01, 2010 - Listed $379,000


Besides hinting at a determination to get it sold, all that $50,000 in price reductions (in four weeks!) really tells us is that this joint was $50,000 overpriced. You have to be aggressive when you start out with a WTF $379,000 asking price.


You must be pals with this moron.

So, given how effortless it was for this seller to lop off so much "value," how do we know this place isn't still 50k overpriced? Fundamentals, my friends, fundamentals.

The income requirement of $94,000 seems high, even for this area, but if you calculate the less conservative 3.5 times mortgage (and not 3.5 times price), $75,000 per year seems totally feasible. And Southern California buyers are clearly not conservative when it comes to home ownership, so I'd say that fundamental has been met.

Interestingly, there are no sold comps for reference. Not a single 1 bed/1 bath has sold in this area during the last six months. So we have to fall back on Rent vs. Buy. With 20% down, your monthly nut will be $2,000. I seriously doubt this place, as nice as it is, could get more than $1,400 in rent. Not without a direct ocean view.

Which means if the going got rough and you had to relocate for work but couldn't sell (thanks to hefty sales commissions and the likelihood that appreciation is dead for the next few years), you would eat, at a minimum, $600 a month just to keep this "investment" and maintain your FICO score.

Yikes. I hope that new job pays a lot more than your last gig.

Worse, if a buyer goes FHA (which, let's be honest, is exactly what's going to happen) then the monthly outflow jumps to nearly $2,400!


So, clearly that fundamental has not been met because (debt)ownership entails a $1,000 monthly premium over renting. Yes, yes, the mortgage interest deduction will somewhat narrow that margin (you'd still paying [EDIT: at least] $400 per month more to own even after the tax write-off), but as an owner you need to factor in the likelihood of future tax increases and HOA assessments on a 50-year-old building, and as a landlord you need to factor in vacancy rates and repairs. That's why I think the only reason to buy a one-bedroom is when it's cheaper to own than rent. Period.

Because one-bedrooms are shitty investments to begin with. Compared to a two-bedroom, the rental options are incredibly limited. Either you rent to a retiree or a single professional. That's about it. Students are out because very few can afford to live without roommates. Families are out because one-bedrooms are too small for couples with a kid.

But one-bedrooms are even worse investments when they are upgraded units like this. That's because you need to charge more rent to cover your inflated monthly nut. Which puts you further into the shallow end of the renter pool.

Making matters worse, even if you find a wealthy retiree or cash-flush single (or childless couple without personal-space needs), you're going to have a difficult time keeping them. The retiree is either going to kick the bucket or get sent to a nursing home eventually, and a young single professional is likely to meet someone and get nagged out of the "bachelor pad" and into a house.

High turnover rate is death by a thousand cuts for landlords.

And as spacious and gorgeous as this place is, there's no way you -- or anyone -- will live here for the next 30 years. Which leaves you with two options: Sell for a higher price in 3-5 years, or rent it out for more than the monthly nut.

At this price it would obviously be insanely cashflow negative, leaving only the option to use it as a starter platform and try to sell in a few years for a profit, allowing you to move up into a larger property. Since you'll be paying up to $2,400 each month to live here, you certainly won't be able to save much -- meaning you are betting the farm that rampant appreciation will save you.

And what do you think the odds are that a ONE-BEDROOM APARTMENT will appreciate enough during the next five years to cover your 6% sales commissions and provide enough profit to leverage up into another place?

Infinitesimally small, Chachi.

You see, the disadvantages landlords face in renting out one-bedrooms are the same issues owners face when looking to sell and move up. Who are you going to sell to? That same narrow field of buyers: Well-heeled singles and retirees. Which is why one-bedrooms typically don't appreciate in price as quickly.

Most people don't think about this stuff, but they should.

It's worth noting that the taxable value is $121,947, indicating this is a long-term owner with tons of equity. Which explains the aggressive pricing. And the seller's equity rich status could provide an opportunity for a good negotiator to get a decent price ($280,000 sounds about right for this location). It's not like you'd have to put any money into the thing -- it's fully upgraded and pristine.

Oh, but what's this? No mention of a washer and dryer?

Uh oh. I smell a deal killer.

After poring over the listing details and photos, any mention of in-unit laundry is conspicuously missing.

So let me get this straight: I'm going to pay $2,400 per month for a FOR A ONE-BEDROOM APARTMENT, including a whopping $300 per month in HOA fees, and I have to deal with the colossal pain in the ass known as community laundry?

I rescind my $280,000 target price. The inconvenience of coin-operated community laundry is a huge penalty. And I realize my life is privileged when my biggest concern is avoiding the indignity of having my Brooks Brothers dress shirts dumped on the counter because I left them in the community dryer four minutes too long, but we're talking about shelling out TWO THOUSAND FOUR HUNDRED DOLLARS PER MONTH and having to deal with that bullshit.

For that kind of money, FOR A ONE-BEDROOM APARTMENT, I expect to have a plethora of amenities, the least of which is my own goddamn washer and dryer.

And what was this seller thinking dumping $40,000 to $50,000 into creating a "luxury" unit if the building itself doesn't have any comparable "luxury" features (no pool, no gym -- I wonder if it even has elevators)?

That's like hiring Rolls Royce to install a hand-stitched Corinthian leather interior complete with champagne cooler and suede a rusted-out Edsel with manual windows and no engine.

What's the point?


  1. Paid 325K for a ONE bedroom nine hundred square feet apartment (not including HOA fine)?!

    Have at it new owner.

    Hope you enjoy it thoroughly.

  2. Keep up the posts, when you have time. They are among the most interesting, (and humorous), among all the blogs about real estate.
    One thing stood out- Not a single NEW construction home over $750,000. was sold last month, anywhere in the nation. NOT ONE. Considering that in Calif. that is not a very extravagant home, that is truely amazing!!

  3. Homeboy overpaid a little but no worse than anyone else buying in SoCal since about 2004 or so. Depending on the tax bracket, this guy actually may be coming close to renting for a place right near the pier, including mortgage interest deduction.

  4. I would drive by this place on my way to and from work in the mornings 6:30 AM... and the birds in those palm trees on 2nd street can be so LOUD... its amazing. I don't know if it's seasonal... I'll have to roll down my windows next time I drive by. I hope those windows are double pane.

  5. Qualified,

    I guess there's more to life than being 10% underwater for a few years. You're right -- SoCal residents have been overpaying for real estate for a long time. This guy gets to move on with his life, build equity, and live in a nice place.

    And me, trying to save $30,000, am still renting, saving, and waiting to move on with mine.

    I'm starting to wonder which is the better move.

  6. Anon,

    Those are the famous wild parrots of Belmont Shore. And it appears the windows are double-paned. Although, if you've heard how loud those things squawk, I don't know that it really matters.

  7. El Bee,
    WAY off topic but...

    I feel like a piker at a mere 550k. What's your max for a year? Mine was 183k.

    The automatic First Class is great, but damn that's a grind these days. I now have a position reflects my distinguishedness/awesomeness and only travel when TSHTF.

  8. SR,

    Well, that's over the course of like five years. That's not actual miles flown -- just total miles earned.

    Depending on how crazy the rest of the year is, I should make Executive Platinum (I already requalified for Platinum). I've come close but never quite made it to EP before, so that should be interesting. But I'm a high enough Platinum that I usually get upgrades (not out of John Wayne though).

    I hope to be in your position of awesomeness some day (sooner rather than later) that does not require as much travel. It can be really fun though!

  9. El Bee-

    you're completely in the right to chill and save while you can. Let the market come to you, and you will get a great deal at a great price. Wifey and I felt pressured to buy because of kids and schools and such, but if it had been up to me I'd have continued to save and wait until the market came to some semblance of sanity. Which it will, it's just taking a LOOOONG time.

  10. Dude, you cannot go anywhere. We'll pay you to stay home. Keep writing...about anything. If your real life/job doesn't involve writing, you're wasting some serious talent. Seriously, I can't count the number of times I nearly peed my pants laughing at your caustic humor. At least join some teabagger website and take the piss out of them under a nom de guerre.

    If not, fuck it, thanks for the ride. Much appreciated. Ridiculously good writing and I've sent at least a few dozen friends to your site who feel the same way.

    Oh, and we're not gay. Yet.