Today’s featured property shows what happens when you do everything wrong when investing in real estate. The result is the wrong house in the wrong neighborhood at the wrong time. Someone is going to lose money on this one; it is only a matter of who and when.
Asking Price: $1,399,000
Address: 4931 Karen Ann Ln, Irvine, CA 92604
{book4}
April Fools — Rufus Wainwright
Oh what a shame that your pockets did bleed on st. valentine’s
And you sat in a chair
Thinking “boy i’m such a prince!”
Irvine is working class, despite its attempts to recreate Versailles and erect homes for the nouveau riche royalty. Does anyone remember the Castle at Kron and Ecclestone Circle? Or perhaps the monstrosity at Angell and Michelson? There are always properties that are out of place in their neighborhoods because eccentric owners over-improve them, but these people do it for themselves, not for profit. The people who build these structures in Irvine are generally trying to flip them for a profit.
In recent post I noted “…our economy accumulates unsound business plans, Ponzi Scheme financing
arrangements, idiotic investment strategies, and behavioral moral
hazards.” Building and flipping properties like these are examples of idiotic investment strategies. Let’s look at what they did wrong.
The Wrong Neighborhood
People who want to buy a $1,000,000 home want to be surrounded by $1,000,000 homes. If you over-improve a home to the point that it is worth double the rest of the neighborhood (which all of these homes are), it is very difficult to find a buyer. Values in a neighborhood will tend to cluster within a range. It is far easier to increase resale price by improving the least valuable property in a neighborhood. If you improve a property beyond the surrounding values, diminishing returns set in quickly.
The Wrong Design
Another trait all these properties have in common is ostentation. There is nothing subtle about their designs. They want to stand out as unique and apart from their surroundings. Perhaps this does attract those special buyers who wants to feel superior to their neighbors, but this makes for a very limited buyer pool (thankfully). If you lived in these neighborhoods, would you want to go make friends with the neighbors that moved in to these places? What would you have in common? If they can truly afford the home, they are in a completely different economic bracket. Perhaps these things should not matter, but we all know they do.
The Wrong Time
The property on Angell, and today’s featured property were both improved after the property bust. Creating high-end McMansions for the nouveau riche doesn’t work particularly well during a bust. One common characteristic of financial busts is that that over-leveraged nouveau riche get wiped out. These people fly high during the expansion and flame out when the bills come due. This is the worst possible target market to pursue when the markets turn, just ask the luxury automakers how they are doing right now.
This investment strategy must die, and everyone pursuing it must be wiped out. That is the nature of recessions; they cleanse the system of dumb ideas like this one. I hope it happens before more of these eyesores are built.
Asking Price: $1,399,000
Income Requirement: $349,750
Downpayment Needed: $279,800
Monthly Equity Burn: $11,658
Purchase Price: $$627,500
Purchase Date: 6/28/2007
Address: 4931 Karen Ann Ln, Irvine, CA 92604
| Beds: | 5 |
| Baths: | 6 |
| Sq. Ft.: | 5,752 |
| $/Sq. Ft.: | $243 |
| Lot Size: | 7,920
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary/Modern |
| Year Built: | 2008 |
| Stories: | 2 |
| Area: | El Camino Real |
| County: | Orange |
| MLS#: | S567921 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 8 days |
NEWLY BUILT *DRAMATIC* CUSTOM HOME IN THE MIDDLE OF IRVINE steps to
school! You MUST see this hidden jewel built with so many exquisite
details. Truly a diamond! The first thing you will experience walking
in is the private & peaceful courtyard with bubbling fountain
leading to the grand entry of a 29 foot high foyer with Swarovski
chandeliers and dual circular staircases. Almost 6,000 sqft have been
carefully planned with 5 bedroom suites (each with walk-in closet and
bath), jacuzzi and sauna, 4 fireplaces, home theater room, family room,
casual eating nook, formal dining room and spectacular gourmet kitchen.
Many other features include marble and granite and crown moulding
throughout, built-in sound system and central vacuum, voluminous 10
foot ceilings both upstairs and downstairs, dual heating and cooling
plus dual water heating. Many, MANY other features abound. Imagine the
possibilities of such exquisite luxury without the luxury price!
Truly a diamond! Yes, a diamond in the rough. This property is in an undesirable neighborhood, and the realtor had to stop from herself from saying it.
For those with sophisticated tastes, don’t miss the “Swarovski
chandeliers.” I assume that makes them special. Commoners like me don’t know things like this, so whoever buys here will undoubtedly be superior to me.
What do you think of this front elevation. I wonder if it was inspired by Kilroy.
Think about your sense of arrival. IMO, it has all the warmth of a federal penitentiary.You approach the overpowering front entry over a barren wasteland of concrete; there isn’t a plant within 20 feet of your trek. The square, prison-block appearance and wrought-iron gates add to the jailhouse motif. If you were to buy this place and watch home values plummet, you would be literally trapped in your own gilded cage.
Almost 6,000 sqft… Why would anyone need 6,000 SF? The heating and cooling bill would match your mortgage payment. You better have a full-time maid to keep the place clean. And why would you put a 6,000 SF home on a lot that isn’t even 8,000 SF? Perhaps in Corona Del Mar this might be understandable, but here in Irvine?
The property records do not show the construction loan for the renovation, so I do not know how much debt is on the property. It is possible this owner built everything with cash, but I doubt it. When the property was purchased for $627,500 on 6/28/2007, the owner used a $502,000 first mortgage, a $62,750 second mortgage, and a $62,750 downpayment. It isn’t likely that he only put 10% down but yet had the cash to finance the complete renovation.
If he can manage to sell the place for $1,399,000, he will make money. I am guessing about $400,000. Since the rest of the neighborhood is drifting from the low 600s into the high 500s on its way down to the mid 400s, I believe this property will ultimately bottom in the $750,000 range. In short, all the renovation money was wasted.
BTW, Marilyn Kalfus from the OC Register sent me a link to a story about a $2,000,000 REO that is completely trashed. You have to wonder who trashed the place…
{book5}
Oh what a shame that your pockets did bleed on st. valentine’s
And you sat in a chair
Thinking “boy i’m such a prince!”
Well, life’s a train that goes from february on
Day by day
But it’s making a stop on april first
And you will believe in love
And all that it’s supposed to be
But just until the fish start to smell
And you’re struck down by a hammer
April Fools — Rufus Wainwright
We are thinking about starting the Irvine Housing Brokerage.
Are we joking?
New Listing (24 hours)
