Outbound Cashflow--2111 Lincoln Avenue, Alameda, CA
The market runup gave rise to a new class of imbecile, the "weekend real estate investor." Now, real estate investors have been around for millennia, I'm sure, and as a group they're not imbeciles. But the newly-minted, self-appointed investors of recent years are a different breed. Risk isn't really a factor for them--real estate always goes up. Neither is cashflow, because even if you're losing 5 figures because your rents don't pencil out, you'll make a killing selling the place in a couple of years--real estate always goes up.
Today's stellar example of financial savvy is a lovely 2-story Victorian duplex, with two 2-bedroom, 1-bathroom units in a 2,104-sqft building sitting on a 5,250-sqft lot (MLS(r) #40365778; no link until EBRD issues are resolved).
Today's stellar example of financial savvy is a lovely 2-story Victorian duplex, with two 2-bedroom, 1-bathroom units in a 2,104-sqft building sitting on a 5,250-sqft lot (MLS(r) #40365778; no link until EBRD issues are resolved).
Renovated [...] both 2bdrms 1 bath. Separated laundry rooms, & meters. [...] granite countertops, mini golf course in backyard, & fish pond. [...] close to schools, main library, theatre, etc. Move in condition.
My guess based on current rents is that this property might gross $3,000 a month or so. That means your mortgage and property tax should be no more than $3,000 a month (right?), i.e. a purchase price around $500,000 tops. Otherwise you're losing money. And real estate doesn't always go up, actually (shocker!).
(light blue = 94501, dark orange = Alameda, green = California, yellow = US).
The last sale price was already cashflow-negative from the get-go:
So what is the list price, you ask?
A mere $839,000. A 7% interest 80% LTV mortgage costs about $4,500 a month. Add the customary $8,390 a year for maintenance and about $10,000 property tax, and your fixed monthly costs add up to a hair over $6,000. That's twice your monthly gross rental income assuming full occupancy.
This is hardly an isolated case. What is wrong with people?
The good news is that Darwinian forces are hard at work purging the market of any excess real estate investors that have cropped up in recent years.
Update 10/4/08: Price dropped 16%, from $839,000 to $699,000, in one fell swoop on 9/29.
Update 11/2/08: Not only does it not cash flow, it'snot even fully rented it's not rented at all. Both units are looking for tenants. Rents are $2,100 and $1,800, $900 more than my guesstimate, but still too low to cover your fixed costs. Give me an M, give me an O, give me an R, you know the rest.
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The last sale price was already cashflow-negative from the get-go:
And who knows how much was spent to renovate the whole building (how much to minigolf courses cost?)Last sale and tax info
- Sold 11/21/2005: $570,000
- 2007 Property Tax: $7,465
So what is the list price, you ask?
A mere $839,000. A 7% interest 80% LTV mortgage costs about $4,500 a month. Add the customary $8,390 a year for maintenance and about $10,000 property tax, and your fixed monthly costs add up to a hair over $6,000. That's twice your monthly gross rental income assuming full occupancy.
This is hardly an isolated case. What is wrong with people?
The good news is that Darwinian forces are hard at work purging the market of any excess real estate investors that have cropped up in recent years.
Update 10/4/08: Price dropped 16%, from $839,000 to $699,000, in one fell swoop on 9/29.
Update 11/2/08: Not only does it not cash flow, it's
Announcement: read about EBRD, Inc.'s DMCA content removal complaint against this blog
Regarding the overpriced, overdone attempt at flipping: I think people buy the house they can afford, and it tends to be something tiny or otherwise undesirable. Then they pour way too much time and money into it, somehow expecting to get it all back. Apart from being grossly overpriced, it's putting "upgrades" into a place that many buyers may not want, especially cosmetic upgrades (like the bizarre obsession w/ granite countertops).
It would be helpful to get some of your thoughts re 728/732 Taylor and 152 Santa Clara -- both are baffling. I remember when 728/732 Taylor went on the market previously not that many years ago -- it's now been on the market since 9/1/07 for $750K, for two 1-bedrm apts. (~712 sf each) on a tiny lot. I don't get this. And as for 152 Santa Clara -- that's asking $850K for a very unimpressive 1100 sf house, in the far West End. That's beyond baffling.