14 Months Later 3816 N. Fremont Finally Sells…But Under 2007 Price
We chattered about this renovated 3-bedroom greystone duplex at 3816 N. Fremont in Lakeview several times since it first came on the market in February 2008.
It was listed for re-sale only 7 months after being purchased in 2007.
See our prior January 2009 chatter here where we debated why someone would sell only months after purchasing.
See the pictures here.
It finally sold in April 2009 for $17,500 under the June 2007 purchase price.
Unit #1: 3 bedrooms, 3 baths, duplex down
- Sold in June 2007 for $717,500
- Originally listed in February 2008 for $775,000
- Reduced several times
- Was listed in July 2008 for $738,900 (parking included)
- Reduced
- Was listed in January 2009 at $729,000 (parking included)
- Sold in April 2009 for $700,000 (parking included)
- Assessments of $154 a month
- Taxes are “new”
- Joe Green at Coldwell Banker had the listing.
Oh my god! Prices have come down less than 1% in the past 2 years? Way to go Sabrina!
You really should run any of your “calculations” past your 5th-grader before posting, SHill.
Steve, will you just propose to Sabrina already?
Purchased 6/14/07 for $717,500 with $143,500 down payment.
Sold 4/3/09 for $700,000.
Estimated transaction costs $45,000.
Net loss of ($62,500) or 44% of investment.
Loss equates to additional housing cost of $2,840/month for 22 months ownership.
G,
That is a great way to explain it!
Well you’re still doing better off than people who had a portfolio of bank stocks with a 44% loss!
Oh, G, he’s going to say that he meant per annum. Still wrong–about 1.32/annum–but closer.
If you bought this for $717,500 in 2007 it sure isn’t farfetched to believe that bank stocks were the next best investment alternative under consideration by your flock.
lol good point G
“Steve, will you just propose to Sabrina already?”
I would but I refuse to make home ownership so easy for her. She should earn it like the rest of us 🙂
good one bob. classy as ever.
“Purchased 6/14/07 for $717,500 with $143,500 down payment.
Sold 4/3/09 for $700,000.
Estimated transaction costs $45,000.
Net loss of ($62,500) or 44% of investment.
Loss equates to additional housing cost of $2,840/month for 22 months ownership.”
I love you guys think realtors are useless and then reduse to calculate trans costs without realtor fees. Which is it already?
Now I see whay you guys are all renters… you are all 12 years old!
Editor’s Note:
Yes, I’ve deleted all the childish comments on this thread.
Why the personal attacks?
Please try and keep the talk about the property only.
Thanks.
Steve:
Why would we calculate this seller’s losses without the fees that they clearly had to pay? That would make no sense.
C’mon Steve… Be fair, I spent a night once (online of course) teaching you to correctly calculate op costs and how to reverse engineer I/O rates vs non I/O rate loans… and you still never got it.
Who cares what a seller makes or loses? Shouldn’t we be more concerned about the value of real estate and not one’s particular financial situation?
They tried to sell after 7 months. An idiot who can fog a mirror knows they were going to lose money. No need to gloat.
“C’mon Steve… Be fair, I spent a night once (online of course) teaching you to correctly calculate op costs and how to reverse engineer I/O rates vs non I/O rate loans… and you still never got it.”
Teach me Ze, teach me.
Are you no the one who swore deflation was on the way? Just curious?
Sabrina:
Time to start banning posters here who have no interest in talking about the post or the property. Since January the comment section has been like a frat party (minus the beer or drunk girls) with everyone feeding their egos trying to one up each other with the comments and insults.
Steve,
I am not teaching anyone anything right now.
Hmmm. housing cheaper, milk cheaper, cars cheaper, girls cheaper, food cheaper, flights cheaper, clothes cheaper, etc…. Oh oil prices are higher must be inflation. ROFLMAO!!!!!!
As I said if you think there is inflation right now, go ask for a raise and see how that goes for everyone. If you own a business try raising prices of your goods and tell me how that works out.
Devaluation maybe, inflation no chance.
look at commodity charts also… all cheaper.. metals, ags,,wages, oh hotel room prices lately??? and on and on and on.. But wait.. OIL PRICES!!!
[sorry for non-real estate commentary]
Have to agree with Ze. in the short-term at least, the CPI numbers are down. We are not currently in an inflationary environment.
Now expectations for inflation are high because Y = PQ = MV
We know M (money supply) is up. If velocity of money shows recovery assuming a relatively (in the short-run) fixed quantity of output, then price level will have to rise.
Ok, tying it back to real estate, which is why it isn’t necessarily bad to acquire real estate if inflation is your expectations and you have a long enough duration. When inflation comes is subject to debate and I don’t think it’s in the next 18 months. Too much supply. Housing still being priced to “affordability” (how much leverage was available) vs. intrinsic value. I still see deflation in housing prices.
“Housing still being priced to “affordability” (how much leverage was available) vs. intrinsic value.”
How ’bout the nickel tour of your “intrinsic value” calculation where rent comps aren’t reliable. If you have one.
TIA.
I’ve seen people discuss a ‘rule of thumb’ to compare the price of a multi-unit rental building to its rental income (possible minus operatig expenses). If anyone has that I would appreciate it.
Tom
I have seen 110x of rent and another formula (with 2 versions) that is a bit longer
hope this helps
“Priced to affordability”
That is a comment often repeated here. The trouble is “affordability” is mostly a matter of personal perspective. IOW, most people incorrectly believe affordability = what I want at the price I want.
There is affordable housing all over Chicago, just don’t want to live there.
“110x of rent and another formula”
Do you mean sale price should = 110x monthly rent price? Wow, find me a building like that and I’ll buy it.
In my opinion, I say 180-200x monthly rent (at current depressed values) is nearer to fair value.
GLS… you are closer to current market, but do just a quick back of the envelope and you will see that you can easily bleed to death at that multiplier.
i agree. i did say using depressed rents. since the multipler is so big it’s sensitive to small changes so you have to be careful. but it’s something you can use as a measuring stick.
You should be able to cover a 15 year mortgage with the rental income. After 15 years its paid off and then you get to keep the gravy. Real estate is a long term investment … Appreciation from 1999 forward obscured this perspective.
HD,
If I believe your statement, then housing prices have about 60-80% more downside! There is no way housing is being priced based on 15 yr mortgages.
“Do you mean sale price should = 110x monthly rent price? Wow, find me a building like that and I’ll buy it.”
They have been posted on here before. Unfortunately it means slumming it and possibly dealing with section 8 tenants.
Tom,
The appraiser for our recent multi-unit purchase used a Gross Rent Multiplier of 155. So I’d hazard a guess that this is a somewhat standard GRM.
This is called the income approach to valuation as opposed to sales valuation approach. Even with the below market rents our property had been getting (in ‘fair’ condition), that valuation came out to more than what we paid.
dahliachi,
Sounds like you got a good deal.
Looking at rent vs. buy using this metric, I find most Chicago listings are still overvalued. It’s extremely easy to do the comps for the new towers like Heritage and Museum Park where there is active rent and re-sale market. I just did the math for my place (I’m renting in S Loop) and the value is way below what the owner is trying to sell for.
“look at commodity charts also… all cheaper.. metals, ags,,wages, oh hotel room prices lately??? and on and on and on.. But wait.. OIL PRICES!!!”
I wouldn’t bet on non-precious metals staying that way for long.
YMMV
Johnny U.. I’m not.. follow the posts. I Just bought 1,000 acre dairy farm and still looking for more land 🙂
Metals don’t interest me.
We got a great deal, but we have to spend a lot to fix our building up-of course our rents will be higher too. Our situation is totally different than rent vs buy in newer condo towers.
180x rent is a 15 year mortgage. Add a lil for maintenance and incidentials reserves etc to get yourself into the 150 multiplier range. Chicago has been out of whack for years. There’s been too many counting on too lil appreciation so multipliers are out of whack. The reason so many rentals are crap is because the cost basis was so low. There no way you can cash flow at todays prices in most neighborhoods. Again, many investors disregarded cash flow issues and favored appreciation instead which drove the multipliers to crazy heights.
“Johnny U.. I’m not.. follow the posts. I Just bought 1,000 acre dairy farm and still looking for more land 🙂
Metals don’t interest me.”
I assume that you’re leasing the land, otherwise no social life
“Bob on June 13th, 2009 at 5:59 pm
“Do you mean sale price should = 110x monthly rent price? Wow, find me a building like that and I’ll buy it.”
They have been posted on here before. Unfortunately it means slumming it and possibly dealing with section 8 tenants.”
They definitely are out there, and they definitely are in ‘slumming’ neighborhoods. Going to see a 10-unit tomorrow which is at 70x. Its been listed for a while, so I have a strong feeling there are some major repairs needed.
Also found a newer 2 unit, foreclosed but according to the agent is ‘actual in decent shape’. That one is at 50x, based on expected section 8 rents.
Thanks all for the imput. Anyone know of any blogs/chats that focus more on multifamily properties?
the other formula is (i have asked what the hell it means, but regardless is one of many indicators)
12*(rent-fees)-tax/.055/.8
another was similar but had different constants (can’t locate it)
Revassal…
Never saw that before but without us waiting for Shills 8 yr old to help us out (she is with Shill looking for something that has gone up in price, probably).
My guess is formula first has to be altered/corrected to
((12*(rent-fees))-tax)/.055/.8
The first part I am almost sure of as it makes sense to calculate your full year revenue, and fixing some parenthesis does that.
The .055 I want to assume is expected rate of return on investment (although could be interest on loan to figure your expenses) In my mind not bad to plug in both.
The .8 I assume is using the use of an 80% loan.
Johnny U… I’ll be doing nothing but hanging by the pool and marking off the area for my tennis court. Labor is dirt cheap here, as unskilled labor is going to be very shortly in the U.S.. There are two reasons I would never ever make this investment in the U.S. and one is labor costs destroy it. I can literally pay WAAAYYY over market here and get people with lifelong experience at a ratio of 5 or 8 to 1 vs a summer apprentice wage in the U.S., but yet I have the same global market to sell to.
Equilibrium for the unskilled/uneducated is on the way! Going to be damn ugly.
Revassal.. no matter what the formula is trying to say it’s kinda simplistic and crappy. Easier to just back in all expenses and revenue sources and see if the final number gives you a positive return exceeding alternative investments.
I personally couldn’t give a rats ass what I pay for something that I get quality of life benefits from (as I would view a home) But if I’m not living in it, I care very damn much about every freakin decimal because all it is then is an investment. Thats where the 120 times makes more sense. Why invest in something that doesn’t give positive (after tax) cash flow?
“((12*(rent-fees))-tax)/.055/.8”
That’s Stevo’s back of the envelope calc for fair value on a primary residence purchase. The 5.5% assumes availability of a mortgage at that rate or lower, and the .8 is the DP. It generally shows that **all** for sale properties are underpriced–some substantially so. Shocker.
Anyone who used that for an investment property would be killing themselves financially. Drop the .8, and it could work, but you’d have to have substantial risk tolerance, esp. b/c I don’t think you can find 5.5% fixed-rate loans for investment properties. Use your actual mtg rate +25-50 bips as the diviser and you could be in business.
‘Ze Carioca on June 15th, 2009 at 5:12 am
Revassal.. no matter what the formula is trying to say it’s kinda simplistic and crappy. Easier to just back in all expenses and revenue sources and see if the final number gives you a positive return exceeding alternative investments. ‘
Here my question on ‘backing out expenses’: mortgage payment- would you deduct the potential cost of 100% financing even if
you did put substantial funds down? I would expect to account for the missed opportunity costs of the down payment somewhere, right?
Management costs- I plan to oversee/operate myself- however, would 1 months rent/year be a fair assumption for management?; long-term repair/reserves- any suggestion on estimates for this purpose- I was ball-parking 10-15% for repairs & upgrades? suggestion or experiences are appriciated
“I would expect to account for the missed opportunity costs of the down payment somewhere, right?”
For downpayment opportunity cost the best measure would be the after tax highest yielding CD or money market/installment savings available on the market. So around 3%/year.
Tom “I would expect to account for the missed opportunity costs of the down payment somewhere, right?”
Yes!!! Unless you ask Shill who argued this wrongly for 3 days. The correct thing to do (at a minimum) is apply the equity invested times risk free rate to expenses so you always have apples to apples. I generally do it as its own sub column but definitely keep it in the expense side to figure true cost (Since you are losing that money that you would have had).
Management costs are totally different, everyone is entitled to how they wish to do it but I always choose to leave them out and that allows me to see the investment on a stand alone. Then i “feel” the value in my head of the work to return.
% for repairs/upgrades depends on the condition of the place.
thanks everybody, i was mainly wondering about the .055 and .8 parts
All,
thanks for the imput on multi-unit valuation.