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IR - I can not find your email address on your site, so I am leaving this message here. Check out the comments in this post: http://www.cotohousingblog.com/?p=11116
Too funny. Actually I have been more right than either of you, but I did not want to brag.
Yes you have been more right. It takes balls to re-evaluate and change course based on a dynamic mutable situation.
It’s one thing to say some one has cancer. It’s another thing to predict how it will progress and predict the new drugs that will be tried.
Now here we are. All the players want house price to at least stabilize. They can and will do anything to achieve this. Areas like Irvine are impacted big time by these drugs. Irvine is the more healthy cell that does not need the cancer drugs as bad, hence it can thrive.
“Actually I have been more right than either of you, but I did not want to brag.”
Mark and I wrote about it publicly, but you acted on what you saw and sold your home in 2005 and rented. That does make you more right than either of us.
He wrote about it publicly too, many people have. Making money off the knowledge is more impressive.
If you want to go up several levels from marginal bubble observers:
Roubini didn’t put his money where his mouth was.
Schiff got slaughtered.
It’s not enough to be right. I’d rather be in the shadows making money.
Planet Reality: It’s not enough to be right. I’d rather be in the shadows making money.
Wait a minute, I’ve heard this before. I don’t mean something kinda like it somewhere. I mean I’ve heard exactly this phrase, and I’ve heard it several times on this very blog/board. Long-time IHB readers, help me out, who used to say this all the time? I can’t recall who it was. I think we may have just outed PR.
PR, you’re welcome to fess up and tell us which realtard’s or homedebtor’s doppel you are. Confession is so much more cathartic than exposure.
-Darth
See John Paulson
http://lansner.freedomblogging.com/2010/04/21/another-real-estate-skeptic-turns-bullish/63235/
I don’t know awgee’s story…
The real winners were those who bought a few homes in 2002/3 with a 5 year IO ARM, then sold at market value just before the peak. I wonder how many smart people did this, resisting the HELOC temptation, and coming out way ahead in 2007.
I remember a friend telling me about this in 2003, and trying to convince me to buy a house. I was relatively young at the time and was just starting my career. At the time, the IO ARM didn’t make sense to me. I couldn’t afford the fully amortizing payment, so why would I want a loan product like that?
I’m ready for the next big housing bubble!
It’s a bit sad to say, but the real winners were the people who bought at the peak. Why?
1) They did not have to put cash down. -0- risk capital expense.
2) They did not have to document anything to get their home. In 2000-2003, just as it is today, you need your most recent prostate exam results just to get a mortgage.
3) They could then overleverage their home post closing and withdraw a mountain of tax free cash.
4) When the tap was shut off, they stopped making payments - up to 2 years by some accounts.
What do they show for it? A boatload of cash - if they were smart and saved their funds during the 2 yrs they squatted (a miniority I know). Roughly 5 years (2005 - 2010) living La Vida Loca in a home they would never be able to afford, and only the shame of bad credit - which goes away in 4 years - before they can buy again THE SAME HOME NOW GREATLY REDUCED.
Will the Feds come after these people? Doubtful as they’ve become a newly minted victim class. Will banks come after them for the cash they lost since Cali is a recourse state? Meh, who has the time? Besides, bailouts papered over those old wounds.
The cynic in me salutes these “winners” for gaming the system at the expense of the prudent.
My .02c
Soylent Green Is People
How positive are you that you can get $2,050 a month for this? I see 2 bedroom condos in Irvine going for much less on Craigslist. I see some for more as well, but they are probably newer units or ones without a neighbor above or below.
$1,395: http://orangecounty.craigslist.org/apa/1702406872.html
$1,524: http://orangecounty.craigslist.org/apa/1702411744.html
$1,650: http://orangecounty.craigslist.org/apa/1702214557.html
Rents are certainly softening, particularly at the low end. The properties in your links are likely not good comparables. Rents at Irvine Company properties are probably closer comps, but they don’t appear on the MLS.
It was difficult to find a property in Irvine with even reasonable cashflow. If this property with renovation and updating could not obtain the $2,050 rent, then it will not perform as a cashflow investment, and it should be dumped.
IR,
Whoever is running your comps needs to be retrained. You will DEFINITELY not get $2,050/mo for this unit. Not even close! These 2/1’s have never rented for $2,050. Good units with A/C in these complexes were renting for LESS THAN $1600/mo this past summer, and rents have softened further since then. IF the new buyer installed A/C, you might get lucky and find a renter that would fork over $1,500/mo, but I doubt it.
Irvine Company (TIC) properties are generally not good comps for privately-owned properties. For starters, you can’t compare with their marketing and visibility. Having said that, the 3 properties that Geotpf listed above are also not good comps for this property. The lower-priced 2/1 is in Orangetree, which generally won’t compete in price with Woodbridge even though that unit has A/C and washer/dryer included. The other 2 higher-priced listings are both 2/2’s, one of them with a garage and both with w/d included.
This property on Briarwood will probably rent for $1,400-1,500/mo. Definitely no more than $1,500.
-Darth
Agreed.
I’m not sure where IR is getting his comps either.
Yesterdays property was said to be at or below rental parity, yet there is a unit for rent on the same street for $1550 and I’ll bet it could be negotiated down.
http://orangecounty.craigslist.org/apa/1674025533.html
IAC has rents as low as $ 1645.00 for 1072 Square feet 2 bedrooms. Special at Quail on 3/19 Craigslist. And thats with Direct access Garage
and all Granite and Appliances. IR. Rents are going DOWN and the IAC has to move the prices down or they cant fill the vacancies.
And this “dump” in your example is 32 years old
and has no A/C or Garage. You would be lucky to get $ 1200.00 for this place in this market.
Based on the astute observations presented here, I went back and updated the graphics to reflect the current market rents (or thereabout).
With rents at the low end being where they are, prices are still far too high. Nothing justifies these valuations.
How many of these auction purchases has IHB done?
IR, what about the impact of taxes on the income?
I have intentionally left off any tax implications of this deal. Investors have a wide variety of tax situations, and tax modeling should not be a reason to do a deal like this. If this is owned in an IRA, there are no taxes. If this is owned by someone in the highest marginal bracket, the tax savings can be significant. Also, It gets very difficult to model depreciation because it impacts capital gains, and it is further impacted by how long the property is held or if it is sold at all.
The tax implications are important on a primary residence because people will adjust their take home pay to increase their exemptions, but cashflow investors may or may not want to do this. There are income tax benefits available, but the deal should still stand alone.
The problem that is still lurking is comps when foreclosures finally hit enough of Irvine. Many have called this the next wave when reality hits housing.
Will banks allow you to sell it higher than comps? Will you be able to get lending? This should bring down housing even further and IR has mentioned this in many of his posts.
HE has done a fantastic job at posting information more than ANY analyst I have read.
But as any investor you do look for green shoots it just may not be the time yet for Irvine. But if Benny B keeps rates low enough desperate people may still have time to get out of their homes and you could find that needle in the haystack and buy really low. And still get a loan.
Buying cash still has it’s risks of putting your money into a home that still has to get through the next wave of new comps Sellers are still trying to get the WTF pricing.
The problem is one of time. How long will you live here, long enough to see housing go back up in price? The government is pulling out all the stops to keep housing stable. But without new jobs how long can this last?
RE is a high risk investment but the best thing Irvine has going for it is price controls new housing is still priced higher than old housing with mello roos taxes. The folks buying into this want the schools for their children and are willing to pay for it.
This constraint on new homes keeps older homes from falling even further. You look at a home from 1979 who wants 1.5 million and you just have to say are you kidding me!!!!!
These folks are still hoping someone will pay for their heloc. And many a fool may do so.
I own 207 Briarwood, which is right across the path from 203. I have it rented for $1,450/mo.
And yes, it’s cash flow positive at that price. I bought a long time ago…
—Ron
If this unit would only get $1,450 rent, the cashflow value is almost 30% less, and it makes no sense at all at this price point.
I wish I could have found a better example in Irvine. I wanted to demonstrate how the math works, but as I mentioned in the post, garbage in, garbage out. It really makes we wonder what the buyer at auction was thinking.
I orignally had it listed at $1600 and it probably would have rented at that price. It’s nice on the inside. No granite counters, but hardwood floors, all new windows, plantation shutters, textured paint, etc.
I had shown it to several people who were considering it. But I wanted a larger pool of potential renters to choose from, becasue I really wanted someone in there who was stable and would take care of the property. To me that was more important than the price. I really didn’t want to see someone tear it up.
It’s cashflow positive even at $1,450, and that doesn’t include the monthly paydown of the mortgage, so even though I could possibly have gotten more for it, I’m glad I lowered the price. I think the tenants are happy as well, which is good.
—Ron
OK…somewhat on topic.
I’m sure we all read the article in the NYTimes today.
<url>http://www.nytimes.com/2010/04/21/business/economy/21leonhardt.html?src=me&ref=homepage</url>
From the article.
“A two-bedroom Spanish-style condominium in Beverly Hills, Calif., for example, recently went on the market for $1.075 million, notes Don Heller of Prudential California Realty. Including taxes, condo fees and the tax deduction for mortgage interest, a typical buyer making a 20 percent down payment would face an effective monthly payment of about $6,000. Compare that with the monthly rent on a similar two-bedroom condo nearby — $7,600. “
Here’s what’s for rent in a carbon copy building RIGHT ACROSS THE F***ING STREET.
<url>http://losangeles.craigslist.org/wst/apa/1692663488.html</url>
$4500 ASKING price.
Fucking piece of shit reporter.
This is hilarious. Compare this to the Irvine rental parity examples from the 1990s showing a $700 per month Irvine condo. My, my have times changed.
This just goes to show you…do your own homework.
I don’t know the 90210 market that well, but $7600/month for a 2 bedroom condo is fucking ridiculous, my bullshit detector went off instantly. For that price, you can rent a really nice house in that area…stupid reporter.
The mess that got us here continues onward
http://www.housingwire.com/2010/04/21/private-label-securitization-market-starts-to-thaw-with-jumbo-prime-rmbs/
http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/04/21/financial/f114610D02.DTL&type=business#ixzz0llZnxlgQ
you guys can’t miss this
The former head of construction giant KB Home was convicted Wednesday of four felony counts in a stock option backdating scam.
A federal jury in Los Angeles found Bruce Karatz guilty of two counts of mail fraud, one count of lying to company accountants and one count of making false statements in reports to the Securities and Exchange Commission.
Karatz was acquitted on 16 other counts.
Sweet.
Mail fraud is a big one from what I understand.
When I worked in the insurance industry as a claims adjuster we would have the insureds mail in a “proof of loss” form.
The reason we would have them mail it in was so that if we ultimately found the claim to be fraudulent, mail fraud would be added to their list of offenses which is more serious than insurance fraud and we could just turn it over to the Feds.
I used to work for KB Home when Bruce Karatz was CEO. One of his sons worked for the company then, and I had several meetings with him working on a project in north LA. He was pretty cool. The youngest son works locally and has posted here on the blog. He hates my guts.
I wouldn’t worry if I were you. It’s similar to market longs hating you for buying DIA put options. There’s always opposing force somewhere.
Keep up the good work IR.
Those articles would bother me…but I’ve gotten so used to crappy journalism. The media’s desire to see the light at the end of the tunnel wherever they can find it the last year has been gross, and I can only guess it has something to do with the obama love that is likely still going on around the editorial cubicles. How many readers really buy what is being reported about the economic turn around? DOW @ 11,000+! It’s over!
...uh…referring to the Beverly Hills post…not IR’s
It’s just a pump to get you to buy because renting is more expensive and he says so.
Do you really believe anything anyone tells you—
Never—always do your own homework.