What would you pay for this condo?

Question

This condo is new development. I'm interested in making this my primary residence. The complex is in a not so busy area, not unlike downtown los angeles. rarely any foot traffic.

It is listed for $347k, however I think they are expecting to net at least $300k. Let me know what you think.. I don't think its worth anywhere near that price, given the problem with the columns. It is the only unit in the complex that has this "feature" and has been on the market since the early 2007.

http://www.flickr.com/photos/scottyscott/sets/72157617848158735/

The HOA is $369/mo. Property Tax is 1.19%.

There is no pool, or gym. only an enclosed courtyard with BBQ stations and seats..

The neighborhood is not quite a location someone would raise a family. . more for young professionals like myself. Just businesses, but no nearby schools. mostly in an industrial area.

Anyway suggestions would be much appreciated!

Thank you!

Jon Holdman · Answer

I agree with Dory that residences aren't an investment. I'd go further to say they aren't an investment at all. They may sometimes seem like a good investment if you compare the purchase price to the sales price and neglect all the interest, maintenance, taxes, and insurance you've paid along the way. If you do a real analysis and account for what you pay, what you might sell if for and all the costs of holding it, you're likely to find you're "rent", i.e., the net monthly cost, will be in the same ball park as actual rent. Yes, you may have a nice chunk of change at the end, but that's because of the forced savings aspect of having a loan. Apply the "use your property as an ATM" money management theory and you won't even have that.

You still don't say anything about what other 2/2's sold for in this complex in the last 90 days. That's the most important piece of information. Without this data, its impossible to know if your proposed offer is low, high, or correct.

Realtor.com shows 26 2 BR condo listings in that zip code ranging from $155K to $922. So, at least you're in that range. ziply.com shows median rent for that zip code for 2BR at $1400. My max price for $1400 in rent is $126K for a property in rent-ready condition. So, you're a long ways off of that.

Are the sold units occupied by their owners? Tenants? Unoccupied?

You're not exactly selling the place with your description of it being a low income area

Dory Peters · Answer

Without an appraisal, you won't know whether $200K is too much to offer.

Also, please keep in mind that one's residence isn't an investment. Retail buyers (such as yourself) and investors purchase properties with very different goals in mind. We (investors) are most concerned about whether a purchase will turn a profit via its cash-flow for a rental, or the proceeds of a flip. Although location, schools, the color of the walls, etc matter somewhat for us (with respect to the marketability of a property), we're not as concerned about that stuff. People in the 'hood buy homes or rent--just as people in the 'burbs do; we simply want to be on the receiving end of those transactions.

However, if you really want to know what I'm willing to pay for a home (as an investor), then I'll gladly tell you. I like to evaluate residential properties using CMA/BPO/appraisal, and using an income analysis. I'll weigh the results thereof depending upon my exit strategy. You're probably already familiar with the prior, so I'll address the latter. Let's say that 3/2 SFHs rent in your area for $500/month. The most I'd be willing to pay for it is $500*7.41/.1 (or $37050). That doesn't mean that I'll offer $37050; instead, I might pay less if my inspection(s)/appraisal(s) brought certain issues to light.

Scotty Scott · Answer

Thank you for your responses.

Jon, I admit, I didn't take much thought into the investment aspect of this property, however after reading your response, I realize ultimately every home purchase is an investment, good or bad.

And to answer the other gentleman's question, the property located in downtown San Pedro CA, near the harbor.

To simplify things, the complex has 100 units, with 85% units sold. The remaining unsold units are all 2+2's, similarly listed between $340k and $370k.

Because I don't believe anyone would consider buying the property for even $300k, I would like to know if anyone else shares my skepticism, and if so, what you would offer, from the perspective of a residential buyer?

Would I be way off base in a lowball offer of $250k? While I feel this is a justifiable offer, I wonder if this is just my inexperience.

Two years ago when I first looked at this complex, this was a hot market and the salesperson said the harbor was going through a major revival, yet two years later the area remains largely unchanged. The business units on the first floor are still unleased, given the nearly non-existant foot traffic. I think these things reflect the value of the property and general appeal of the area, along with the fact that the complex is situated in an area largely surrounded by low-income neighborhoods, with exception to a few other developments in the area, all of which are experiencing extremely low sales in today's market.

Jon Holdman · Answer

You're also talking about this being your primary residence, while most of our formulas are intended for investments.

I too am leery of condos in general. Too little control over the finances with an HOA that can jack up the fees at any time.

As an investor, this would probably work only as a flip. The price is just too high to work as a rental. My very simple am I in the right ball park rental forumula would be price = PV (rate, term, (rent/2)). PV is the "present value" function in Excel or a financial calculator. That calculation give you break even as a rental, so you would want to be below that.

As a flip, I'd need to know the ARV and the repairs. ARV is the value of the place fixed up, ready to sell to a retail buyer. This one looks like it needs work to me. The formula then is max price = (70%*ARV) - repairs.

So, in terms of asking for a price, you've given a bunch of details you're interested in as the potential resident, but none of the information that affects our calculations. As an investor, I could care less about the neighborhood or the columns, except as they affect these numbers and the ability to sell it or rent it.

In a sense, you're asking us, what's the ARV? We can't tell you that. But, here's how you figure it out. Find all the recent sales in the same project. Similar sizes, beds, and baths and less than 90 days ago. If there are none, its a big red flag. I would only care about listing prices if I was trying to flip (they're the competition) and as the fact they're above the market value (or else they would have sold.) If no sales in this project, look at nearby, similar projects for sales.

How many units are sold? Are they rentals or owner occupied? If this is the only unsold unit, and all the others are owner occupied, you'll have a easier time getting a loan. If only half are sold, and many of those are rentals, it will be difficult to get a loan.

How badly do you want it? If you just have to have this place, you can afford it, and you're happy with the asking price, pay it and enjoy. If you're just considering it, and could live with it only at the right price, go through this exercise and make a lowball offer. Especially if they have lots of unsold units.

Dory Peters · Answer

If I were you, then I'd forget condos for now. Many lenders nationwide are treating condos--especially newly built ones--like Superman treats kryptonite: as something to avoid. Fannie Mae and Freddie Mac recently increased the restrictions on their underwriting guidelines for lending on condos. (Check out the link below for more info.)

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/24/AR2009042403747.html?wpisrc=newsletter

The only way I'd consider purchasing a condo right now is if I could get the builder to finance the purchase 100% with a wrap between 5% and 5.75% APR as a 30-year fixed. Also, I'd have to get an independent appraisal, and they'd have to agree to pay for at least 25%-50% of the appraisal fee.

Scotty Scott · Answer

It appears my url didn't show up as a link therefore I get no responses.

Anyway, here are the photos.

Above pic: Front door entrance, with washer/dryer and closet next to the door.

Above pic: ceilings are about 10' exposed concrete. Small hallway at the right leads into restroom.

Above pic: The open door leads to a small walk-in closet.

Above pic: Kitchen is very roomy, with Whirlpool microwave, oven, and dishwasher.

Above pic: The unit is an open plan, with two ugly columns. This is the left side of the unit, with the large column. The column is 2x2'. There is only enough space for a small bed and maybe a dresser and a small table between the column and window.

Above pic: the view across the street is another residential loft complex. The area is mostly industrial though.

Above pic: This is the view from the left corner of the unit. Just barely enough space for a bed and maybe a small table or dresser.

Above pic: The entire unit is 1200 sq/ft. This is a view from the left wall towards the other end.

Above pic: This is the right side of the unit. I assume this is where the master bed would go. Walk-in closet, and bathroom on the right.

Above pic: Another wall-to-wall view, this time from the right side of the unit.

Above pic: This is a snapshot of one of the restrooms. Shower is just to the right out of view.

Above pic: This is a view of the exterior of the complex. The unit is situated on the 2nd floor just above the parking garage entrance.

What would you recommend for an initial offer? How much do you think the columns would detract appeal, in terms of price? I don't think there are many people who would be willing to buy this property. I think this is an opportunity to buy cheap, assuming I will be able to put up with the columns. This is the only unit in the building with this "feature".

Summary:
New Unit: 1250 sq.ft 2+2
Original listed (since '07): $420,000
Asking: $347,000
HOA: $370/mo
5% Buyers Co-op

Builder's agent suggested I could offer: $310,000. They could give roughly 15k concessions (incl. 1st year HOA, sliding door, and concrete sealant), with final sale price of $310,000 and net purchase price of $295,000

While this is listed for $357k, some quick research showed that they had only 1 sale in the past 60 days. Other available 2+2 units on the same floor (same floorplan, except without the columns) have asking prices of $353,000 and $357,000.

Suggestions are appreciated. Thanks!

Ralph S. · Answer

Hi Scotty.

Not giving us the city and state probably has more to do with the lack of responses than the pictures.

You further lost me when you quoted the builders agent's suggested offer, and that it's been on the market since '07.

Suggested starting price? Who can say? Sounds to me there is a reason they are not selling, and you don't know what it is.

Ralph

What would you pay for this condo?

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