Flipper Alert: Another Major Price Reduction in 600 N. Fairbanks
It seems the 01 tier, which is a three bedroom, two bath southeast facing unit, isn’t re-selling as quickly as sellers had hoped in 600 N. Fairbanks in Streeterville.
Currently, there are eight of the 01 tier units on the market. Two have now had substantial price reductions: #1301 and now #1901.
- #3201: $1,199,900
- #2901: $1,199,000
- #1501: $1,100,000
- #3301: $1,050,000
- #3001: $1,050,000
- #2001: $989,000
- #1301: $839,000
Unit #1901 was recently reduced $165,000.
Unit #1901: 3 bedrooms, 2.5 baths, 1746 square feet
- Sold in November 2007 for $838,000
- Originally listed for $1,140,000
- Reduced
- Currently listed for $975,000
- Listing says parking on the 2nd floor so probably $70,000
- Assessments of $605 a month
- Prudential Preferred has the listing
Did the original sales price include parking?
I’d be curious to see if anyone is willing to buy at precon prices, which is where some of these units are headed.
Jeremy,
Usually the closing price does include parking; however, I am NOT familiar with this particular listing/closing.
how many units are for sale in this building, does anyone know which one bedrooms are for sale?
I don’t get why any condo investor, save for the few actually hot buildings (like in 340 On The Park with a south-facing view), is looking to flip for a profit at this point. By setting a high asking price and lengthening your market time, you’re destroying any potential capital gains through your multi-thousand dollar monthly carrying cost (unless you put 50-100% down, in which case why are you trying to sell anyway, just rent it out for cash flow to cover assessments and wait until the next condo boom to sell).
Better to just sell quick and walk away; best case you can about break even, maybe a little cash lost but a lesson learned.
Hi Wren,
If you are interested, send me your email address and I can send you all 1 bedrooms for sale/rent. If you don’t want to post it, email Sabrina at cribchatter@yahoo.com
Looks like some owners are already seeing negative equity. #2001 bought for 14k more than 1901 is “asking.” Seems to me they are under quite a bit. This is getting kind of sad.
Sorry, I didn’t have my coffee today and am reading wrong numbers.
David, that’s a good point. It also made me think of something…
If a flipper were to buy a condo for $500,000, sell it 8 months later for $550,000 and spend $50,000 in carrying costs during that time, he is essentially even. Didn’t make money, didn’t lose money.
But is that the way the IRS sees it? How much of that $50,000 in carrying costs is deductible? Because it looks to me like the flipper is going to pay taxes on $50,000 in capital gains.
I’ve never tried “flipping” in the sense of buying a condo and just selling it without first doing something to it. I was amazed that people would try to make money that way (what’s the value added?). But i guess for a while some of them did make some good money.
but for properties that i’ve rehabbed without living in them, i’ve deducted carrying costs, closing costs, commissions, etc. from my profit. it’s a cost of doing business and my accountant treated it as tax deductible.
Tipster, you measure capital gains after deducting things like broker’s fees,closing costs, etc.
“How much of that $50,000 in carrying costs is deductible? Because it looks to me like the flipper is going to pay taxes on $50,000 in capital gains.”
[not tax advice]If the property is held as an investment–no intent to live in it–then all of the costs, including interest, should be dedcutible from the gain. You would not get any portion of the $250k cap gains exclusion, tho–dollar one (after costs) would be taxable–and no mtg interest deduction. You’d want to have good record keeping in the event of an audit.[/not tax advice]
The IRS deals in cash for this type of transaction (there’s an exception, but it’s complex. Ignore it.)
If a flipper buys the condo for $500,000 and shells out $50,000 in property taxes, loan interest, legal fees, etc. and sells for $550,000 then
a) their tax liability is $0
b) their carrying costs have eaten all their profits. Bankers / Realtors thank the flipper for their support.
You would have a mortgage interest deduction, but it’s slightly different from the kind that goes on schedule A. Since the property is an investment, interest you pay is investment interest expense, and it can be used to offset investment income and gains/losses.
One small thing to point out — say I decide to flip this property. I have a $70,000 cushion in the bank when I start. After 6 months, I’ve depleted my bank account to $20,000 when I sell the place. I get a check for $50,000 for my “efforts” to bring my bank account back up to $70k. Of course, I’d have 6 months of interest if I had left well enough alone…
6 months of interest (right now) on $50k is what, about $600? And all OI, so taxable at 30+%. Not much of a loss.
I think breaking even is a great outcome considering the amount of value flippers add. I guess my point is that the flipper isn’t being compensated for taking on the risk.
You could break even in a savings account. Why take a fairly big risk (down payment, credit rating, carrying costs, etc.) if you’re happy breaking even?
I am actively looking for a unit in the building — which I love –but the unit owners have no interest in negotiating. I am making offers that include the original purchase price, compensation for a broker, and a 10k premium — but no one will budge!
If we’re judging based on the value added to the completed unit, anything better than a 6% loss is a great outcome for a new construction flipper. However, the reality is that a number of these buildings would have had difficulty getting built at all without the presence of people hoping to make money flipping.
Flippers are adding value by providing capital to finance the construction of these buildings. They are essentially taking some of the risk of development off the shoulders of the main developer and are tying up significant capital for many years, so there is real value in what they are doing. Unfortunately for them, many of them have a lousy sense of timing and are going to pay dearly for it. You can’t have the opportunity to make leveraged gains without the chance of leveraged losses and some of them are learning that the hard way.
D
P.S. There are 46 units on the market at 600 NF
Deaconblue: Interesting way to look at flippers. I agree with you that the investors financed many of these buildings.
But isn’t that “demand” then merely an illusion? Since no one was really going to live in the unit anyway?
You can see the problem all over the city in the new construction buildings (now that the music has stopped.)
Burnham Pointe was only 55% sold- with at least half of that probably to investors. Same with The Vetro (only 50% sold.)
One Museum Park is 70% sold- with probably at least 20-30% to investors.
The Columbian was only 70% sold- and had significant flippers.
ParkView- only 70% sold- and same scenario.
Many of these buildings wouldn’t have been built without the flipper component- but maybe they shouldn’t have been? (as someone else pointed out.)
CondoShopper- interesting information.
Don’t these sellers know that the first offer is usually the best offer 80% of the time? (according to real estate statistics)
Hmmm…interesting to see them NOT want to make a sale.
Have patience. There are far too many units for sale in the building.
Sabrina,
There would be many fewer buildings built if there were not people willing to invest in them. The current bust is unusually bad, but doesn’t mean that flippers are bad. They get a discount for the chance to make a profit when the unit is resold later at market prices. They take the risk and live or die by it. It’s no different then selling a stock, you are loaning your capital to a company that can use it more efficiently than you and you demand a return from them. Unfortunately, a lot of unsophisticated flippers who didn’t know what they were getting themselves into make bad investments. It’s a lot like the tech bubble in the 90’s- naive people lost big but that doesn’t mean that the stock market is a bad thing. Same with flippers- some people will lose big but it’s still a valuable service in the long run.
Right. That’s my point. There is NO DEMAND for most of these condos. The demand was artifically fueled by flippers who bought at least 30% of the units (maybe more- in some cases.)
Now we’re in a situation where the flippers cannot flip because there are no buyers to flip to (too much inventory now- and no demand since it was artifical to begin with.)
Without the flippers, fewer buildings would have been built. Now, the market is left with buildings half occupied, developers in financial trouble, foreclosures etc.
Many of these buildings will eventually follow the lead of Burnham Pointe.
Streeterville Realtor,
What is your email address? I may be interested in a 1BR for rent in this building, while at the same time looking around either this building, or other buildings in the area, when the price is right.
Sabrina,
I agree, flippers definately created an artificially high demand over the short term. The market will eventually clear but many of these people are going to lose their shirts cash-flowing the mortgage in the meantime. I will say, though, that there are a lot of potential buyers coming through 600 NF. Obviously not much has sold though. I wonder if they don’t like what they see or if they are just being patient? There is certainly no sense of urgency if you are a buyer right now.
D
Wow and I still have to think that anyone not committed to having to say this building is nice, because they own there, have just realized it is an office building with no privacy. Who wants to live in completely see-thru floor to ceiling glass facing someone else. Let me pay 1 mil to keep my blinds down 24/7. Not a chance!!
I see a lot of traffic coming through the building to look. It is a unique product and has generated some buzz. Sellers are refusing to take “break even” offers from buyers thus far. It will be an interesting to see it all unfold. I love the windows and almost never put down my blinds.
If flippers inflated demand causing housing to be built that not otherwise would’ve been us renters can thank them in the longer-run. The condo supply coming online here the next two years is going to keep rents from rising and might even cause some to fall.
Until the flippers are tapped out they’re going to rent out these units at a loss, which is great for renters.
I wouldn’t mind living in this building, of course this doesn’t take price into consideration. I don’t think its worth any more than any other highrise (200-250k for 1/1). I prefer natural light and not everyone is as concerned with privacy. If someone wants to observe the mundane tasks of my everyday living I rather pity them.
Little Boi,
you can go on craigslist and see most of the rentals in one shoot.
I bought in the building BECAUSE of the windows! It’s definitely unique and not for everyone, but I think the 10′ windows are awesome. If you are on a high floor there is no sense of a loss of privacy either.
D
DeaconBlue, that is not what “value-added” means in the context of real estate. It means that some alteration was done – such as gutting and renovating, building from scratch, or so forth.
But I agree that flippers do provide some “value” in the non-technical sense, which is taking some risk off the developer’s hands. It also helps developers secure financing in later stages (since often developers need to put 50% in contract to get more funding).
As an investor, it always baffles me why people despise RE investors (aka “flippers”) yet have no truck with stock traders. Most traders don’t hold their position that long, and have no real interest in the company, just the money.
Bob, my wife likes to walk around in the nude. So her doing her “mundane tasks” can be quite interesting to outside observers.
Say what you want, privacy is going to be a concern for many, especially if they’re coming from the burbs.
On a positive note, the ceiling height was a great idea, and likely one of the reasons this building sold well in the first place.
totally agree…..love the windows. it feels so nyc
Hi. I was looking to buy a condo, I need a realtor. If some on this site are available, my email is desert7@gmail.com. Thanks!
One thing that is great too is the fact that you can draw the blinds and have privacy, but you can still see outside through them and enjoy the views.
D
Investor:
If your wife likes to walk around in the nude but has an aversion to shutting the blinds, why would you even consider this building — or living in the city?
This is one of the most beautiful buildings I have seen in years but it is obviously not for everyone — especially if you are used to suburban life.
CS
There are lots of places you can buy without the view of the neighbors. And walking in the nude somewhere on 25th floor is safer than doing it in a suburban house. 🙂
Condo Shopper,
I never said I’m considering buying in this building. At these prices, certainly not. As an investor I can tell you that pain is on the way for anyone who buys close to asking prices. I’m sure I will incur the wrath of the owners who post here, but that is just simple fact.
Those of you who say the higher-end market is holding up, you are correct in that it WAS holding up. But this year it has weakened significantly in many urban areas. Chicago will follow suit.
What’s that you say, foreclosures up 100%+ from this time a year ago. Gotcha
Unit 1301 just had another price reduction, from $839,000 to $799,000
I also noticed that 1502 is now priced at 559,900. I believe it was 605k at one point.
Both of these are now selling at a slight discount to the original sale.
1301 sold on 11/6/07 for 805k.
1502 sold on 2/5/08 for 575k.
Unless these flippers are playing games with the parking it looks like they just want to get out without losing their shirts.
Looks like 1502 is asking $45K for parking. 1301 is still listed as $839K on KSGMAC, with “parking additional”.
I see 1301 as now listed at 799k.
I’m guessing they are in fact playing games with parking.
But, nevertheless, looks like things are reverting back to original sales prices.
Question is, will they start dipping below?
Either the stuck flippers will eat losses now or their lenders will later. The only thing a potential buyer needs is patience. Almost forgot, they will also need a big verifiable down payment, verifiable income and good credit.
The potential buyer can even rent in the building to see if they like it first, all the while saving money to put toward the ever-decreasing asking prices.
These price points will deteriorate the rest of building, sorry to say. Once these sell – or better if they sell – they will set the new mark for appraisals. People in the 02 line hoping to get above 600k will have to face reality: Unless their buyer is all cash, they will not even be able to get their units appraised above 600k.
Similar comments for the 3bd’s.