As we wrote this past February:
Asking “in the $900’s” for the five three-bedrooms at Heritage on Fillmore (1310 Fillmore) in December 2006, number 802 sold in November 2007 and sports a tax assessed value of $993,953 (which would suggest a sale price “in the $950’s”).
First listed as a proposed short sale at $765,000 seven days ago, 1310 Fillmore #802’s proposed short sale price was reduced to $665,000 three days later. No mention, however, of the sale price being pre-approved.
In March the list price was reduced to $599,000. And two days ago the sale of 1310 Fillmore #802 closed escrow with a reported contract price of $600,000 ($426 per square).
Industry stats and newsletters will report another “over asking sale!” Plugged-in people should know that it closed around 36 percent under its 2007 price, and that the 54 square foot smaller 1310 Fillmore #801 which was also listed as a short sale at $599,000 was withdrawn from the MLS after a week on the market without a sale.
∙ Going Short Heritage On Fillmore (1310 Fillmore) Having Bought Long [SocketSite]
∙ Heritage On Fillmore: The VIP Scoop [SocketSite]
∙ Unfortunately It’s A Zero-Sum Game [SocketSite]
The owner of 801 decided to rent the unit out instead of sell it. (We did get an offer on it when it was for sale.)
LOL, at 859K original purchase price (mid-2007, also called top of the bubble), assuming 80/20 fixed, for this #801 rental to break even, the tenant would have to pay what? 6K? That’s another landlord subsidizing a tenant, and at market price!
See you in 2 years when the probable 2.5K+/month of red ink will have worn out the underwater owner.
Better sell now at any price. This area had never deserved close to 500/sf even on a new construction. Urban renewal fell flat. Good salesmanship on the part of whoever sold it to Mr bubbletopper.
So the “owner” will take negative cash flow in a gamble that prices will rise soon. This just proves the actual fair market for RE is the forclosure market and you should not bother with this realtor(TM) monopoly racket.
My advice to the “owner” is get out now or be trapped in forever!
LOL
Assuming that “khkjkjh2khkjhkj” is referring to the 801 unit which was withdrawn from the MLS, we don’t know enough to draw the conclusion that the owner is just gambling that “prices will rise soon.”
I’m not a tax expert, but if the owner is attempting to rent it out on a negative cash flow basis, then it becomes investment property, and depending upon the circumstances (which we don’t know) he or she could be reducing their taxable regular W2 income by an amount proportional to the negative cash flow amount. So it could be smarter than just settling for a short sale, especially since banks often require the seller to agree to onerous terms in order to approve a short sale. I’m sure someone who knows the current tax code will correct me here on Monday if I’m wrong.
All that said, I think there’s a lot to your contention that the fair market for RE is what is in foreclosure, up for short sale, etc. (“distressed properties”). Of course that doesn’t mean that what’s available in that market is something you’ll like.
If I am following the “smart tax move” well, someone should accept a net loss on the rent just to collect some tax breaks?
This is as ludicrous as advising someone to load on debt to get more “government pork” in the form of mortgage interest tax deduction. You waste 5K in interest to the bank, but be reassured, you stick the US of A with a 1.5K bill. All is well, do not worry about your over-bloated liability.
These excuses are incredibly self-serving. Only very few will ever profit from high debt levels. Bankers have a guaranteed stream of revenue, salesmen and mortgage brokers have a windfall directly proportional to your debt. As for the lifetimer debt-slave, even if the Govt is somehow subsidizing the interest payment, the principal is all yours to pay. Hey, maybe your house will appreciate! Wait, that ship has sailed already.
Don’t count on amortization to help you out neither. 10 years from now you’ll still owe 90% of a 30Y fixed. 10 years is a very long time and during these 10 years your mortgage payments could have paid more than 60% of your house! 50% gone and nothing to show for it. These 50% didn’t even help build the house or maintain it!
Couldn’t you wait and save like previous generations used to do?
Always borrow less than you can. Pay as much cash as you are comfortable with. Don’t buy if a job loss would send your family to the wolves.
Time to tell it like it is:
Debt is a pound of your flesh taken spoon by spoon.
There’s $10T of outstanding residential real estate debt in the country. If you assume 5% interest rate that’s $500B a year that we hand over to the banksters. $500B a year for the use of something that the gov could create out of thin air for zero cost.
Why not have the gov create and lend out the money directly? Why not have the gov collect that $500B a year to directly fund it’s activities instead of handing that franchise off to the banksters for free?
Wouldn’t that be better than an income or sales tax as a way to fund the gov?
Brahma, you can’t offset rental loses against income unless you are a real estate professional, i.e. a salesperson who makes at least some money doing this.
A better analysis of the situation would be as follows:
1. Identify the profit that Mr. Bubbletopper would receive if he sells tomorrow for $100K more than he paid. That’s right, he sells for $959K. A pretty good outcome, even though it’s twice what the place is currently worth. Identify the real estate commission and transfer tax.
2. Now, identify the profit if Mr. Bubbletopper does the following: collects $3K/month in rent but pays 0 in mortgage or property taxes for the next two years before the bank forecloses and he pays no transfer tax or realtor commission. The bank or new owner returns the tenant’s $4500 security deposit. Mr. Bubbletopper pockets that too.
I think you’re about to realize Mr. Bubbletopper isn’t as stupid as you all think he is.
lol, the owner is already in the net loss situation, he or she is just being forced to decide on what kind of net loss he or she wants to realize. Apparently, after having the unit on the market for a week, the owner decided that they didn’t want to realize a large capital loss all at one time. All the rest of the points you make in your comment are well taken.
Tipster, I think you’re right, I didn’t go look it up because I know two people who offsetting their rental losses against other income, however after reading your comment above I realized that both of them went out and got real estate licenses in the early oughts.
tipster,
That’s in the case Mr Bubbletopper has decided to default. No proof of that so far.
“Why not have the gov create and lend out the money directly?”
Are you serious? Umm..that’s what we have now, diemos, a nationalized mortgage system via the Fannie and Freddie zombies. Your implicit assumption is that the government could be more efficient at structuring and pricing credit risk than the private sector. I don’t believe that would be the case. Like all things government, it’d create an extremely slow and costly mechanism where it takes 6 months to get a loan because some bureaucrat is waiting for Form TPS-789a from the Department of Redundancy, where his counterpart is currently on indefinite medical leave for tennis elbow.
More importantly, a government lending operation would need to be completely inclusive by nature, which means higher credit losses, increasing the cost of the system to all participants (i.e. strong borrowers would continually subsidize those who otherwise would not be able to buy). It would essentially be tantamount to real estate price fixing. No thanks – we have enough of that already.
Completely.
Our system now is to indemnify the private sector against all losses while letting them keep any profits. Maximally bad for the taxpayer.
Mortgages for all! As long as they put 20% down and borrow no more than 3x income as verified by 5 years of tax returns. Loan underwriting ain’t rocket science. You want other terms for your loan? Go get a hard money loan elsewhere.
Brahma,
Mr Bubbletopper’s strategy is probably to wait until prices get back to what he paid. That’s a very long shot, but after all he is Mr Bubbletopper, right?
I am looking at a place where the seller (another Mr Bubbletopper, a late 2006 purchase) is in “house arrest” just like this guy. Pays twice in mortgage and other costs what the place is worth as a rental. He now lives out of town, the place cannot sell: and the specifics of the financing do not go in favor of a short sale. He says he’ll go rental if he cannot sell. I also know his income would easily allow him to take the monthly loss. That’s death by a thousand cuts if it lasts for more than a few years. At this point this is more pride than anything else. I will try a low-ball offer because you never know. Maybe he woke up from his get-rich-easily daydream.
First, I agree with you that our current mortgage system is an unholy amalgamation of government and capitalism and needs to be modified – hopefully some of the Fannie/Freddie reform talk on the hill actually happens in 2011, as scheduled, although right now it’s just the perfunctory rattling of the sabres. But no argument that the current system is broken; at least some of our politicians realize it.
But think about what you’re proposing. A government mortgage monopoly could not practically function as you’ve outlined above: 50% of the population would be unable to get a mortgage. What then? They pay those usurious 8% “market” rates at private lenders because they don’t qualify for a 2% government loan? Or they’re forced to live with the awful stigma of being renters? No American Dream for you!
Yeah, right. Every consumer rights group that can come up with an acronymic name would be lobbying Congress instantly, and they’d win. They you’d get the zombie system we have now – on steroids. The end result would be a huge slush fund where everyone gets a loan, creating a perma-bubble, aka price fixing, at taxpayer cost. We already have food stamps, your proposal would turn into house stamps.
I’d much prefer to have the system completely privatized, with all government/taxpayer support explicity removed altogether, over a set period of time to minimize the shock. Put the onus of responsible underwriting back on the banks, and make them hold the loans, or at least trade them among themselves. No safety net.
8% is not usury. Many buyers in the mid 90s probably had a rate close to that and they were doing fine. A 25% rate and higher is what I call usury (Credit Cards, Payday loans, Loan Sharks).
Of course, if we had 8% mortgages today, this would be a national disaster.
The reason we NEED low rates is because our debt levels are too high. A house that was worth 200K in 1995 probably went to 600K in 2006, when inflation was only 35% between those years. Someone in 2006 could buy at triple 1995 price thanks to the lower rates (and more than lax underwriting and “creative” products).
Lower rates led to higher prices because hared-brained buyers only look at how much they pay per month. You could make an idiot pay $10M for a 1BR dump if the rate was at 0.1%. Now we are stuck with the debt. Maybe it IS time to try something different like go back to sound lending practices.
8% private lender rates would be a very sane way to prevent another crisis.
@lol – totally agreed. I was attempting sarcasm, which doesn’t go over well on blogs. Should have put the quotes around usurious instead of market in my comment above. I don’t have the data handy, but I think the average rate on a 30-year fixed mortgage was around 8% for nearly 20 years until the current bubble. Average down payments were also around 15-20% for many years.
These days, of course, people think they’re being taken advantage of if they can’t get a sub-5% gubmint loan, or if they have to put more than 10% down.
Then again, 20-30 years ago, real estate was shelter, and people actually paid mortgages off. Today real estate is a trading asset or lifestyle accoutrement.
There’s no blaming them.
20-30 years ago, people still trusted more traditional ways of saving for retirement. They trusted Social Security would be enough to cover their retirement. SS is underfunded and slowly moving towards its reality check. Newer retirement planning options like 401(k) and IRAs have mostly gone nowhere for 10 years. I feel RE looks like the solution of last resort for many. That was true for a few wise before 2002, but once a good idea is shared by too many it is not a good idea any more. Wiser guys will attract the flock into the slaughterhouse…
lol wrote:
Thirty years ago people were still retiring with defined benefit plans in addition to social security. 401(k) plans in practice have turned out to be a federally-approved mechanism to pump more money into the Wall Street casino that Lloyd Blankfein and his merry bank of banksters gamble in: depending on if you factor in dividend proceeds, the S&P 500 has been flat or negative for the last ten years and if you take into account fees and inflation, has been negative in real terms over that time period, period.
That said, I don’t think that the owners of 1310 Fillmore #802 or #801 were planning on paying off these places and then turning around and retiring on the profits or what a reverse mortgage would pay. Someone who can pay $950,000 for a place is doing quite well financially, and those are the people that taxpayers like me need to encourage to keep on paying their mortgages so as to not add to the already heavy burden of the deadbeats that have already defaulted and shifted their private losses to the public at large.
tipster – are you ever right about anything? “Real Estate professionals” can deduct unlimited losses on their rental properties whereas non-professionals can deduct up to $25,000 a year (with caveats). btw being a real estate agent is NOT the kind of “professional” the IRS lets deduct RE losses, so Brahma’s buddies probably got a nasty tax time surprise or audit if they thought getting a license would save the day. You’ve got to spend more than 1/2 your hours on something related to your own properties to get unlimited loss deductions.
i’m not a tax expert so check the above. and other than comic relief just flat out ignore anything tipster says because it’s almost always not true like in the above tax “tip” tipster style
lol,
are you serious?
“This is as ludicrous as advising someone to load on debt to get more “government pork” in the form of mortgage interest tax deduction. You waste 5K in interest to the bank, but be reassured, you stick the US of A with a 1.5K bill. All is well, do not worry about your over-bloated liability.”
when interest rates are very low its a good time to borrow if you find a risk worth taking. its an especially good idea if you can get a long term loan (say 30 years) to buy shelter that you would otherwise be renting and also have the govt. subsidize your leveraged bet.
why do you guys think everyone who bought real estate was overpaying and taking on too much debt?
even if the foreclosure rate was 10% (which its not even close to) that would still mean 90% of the buyers are doing just fine.
^Yes, tax rules are more complicated than the short summary I provided.
The income phaseouts on your $25K limit will kill just about anyone in the Bay Area who bought an $860K condo.
“50% of the population would be unable to get a mortgage. What then?”
They can rent. I’m sure if they reach deep they will somehow find the strength to endure the horror. 😉
“No American Dream for you!”
Oh they are more than welcome to go right on dreaming.
They are even welcome to stop dreaming, put their finances in order, save up a down-payment and thus demonstrate that they have the self discipline and fiscal smarts to deserve to be allowed to have a mortgage.
We’ve just seen what happens when mortgages are handed out like hugs and medals at a Special Olympics. It’s not a good idea.
Ah, the “ownership society”. Someone noticed that homeowners were in general more successful than renters and had themselves a bright idea. “Hey!”, they said, “Let’s take these renters and give them a house and a piece of paper that says, You are now a homeowner, and then they’ll be successful too!”
Not pausing to consider that the reason why homeowners are in general more successful than renters is that there used to be hurdles to attaining home ownership that only the successful could overcome.
Alas, Babylon.
when interest rates are very low its a good time to borrow if you find a risk worth taking.
More debt will open you more opportunities? First that’ll help people on commission, that’s for sure. With debt you can borrow more house than your cash can afford. To everyone his own as they say.
Problems start when everyone does the same thing at the time, encouraged by lax standards and an out-of-a-better-option government.
Risk has always been part of the game. In 2006 it BECAME the game.
As far as the number of foreclosures, it has brought our economy to its knees. Less than 10%? I doubt that. When this crisis is over we’ll see the real numbers. How many are stuck in the pipeline by “extend and pretend” banks? Plus count the 20-30% under “house arrest” and you’ll see this crisis is affecting an enormous chunk of the homeowners. The biggest of our lifetime, at least mine (Maybe you’re 85 years old, who knows, maybe this is no biggie for you).
In any case, only people living on commissions would encourage more debt. Bankers love it. Salesmen love it. Mortgage brokers love it. Too bad for you our society as a whole is choking on it.
lol, oh the drama…
“Too bad for you our society as a whole is choking on it.”
not really too bad for me actually. i keep on collecting rents. i keep on updating my properties. i keep on enjoying life in a city full of beautiful old houses and thanking my stars that i live here.
“More debt will open you more opportunities? ” yes, it will. but i think in business like terms.
i guess you fellows are referencing some “ss strawman” tm.