Foreclosure Alert: Cheap 2/2 Puts on the Pressure: 635 N. Dearborn
Someone posted a comment about this 2-bedroom foreclosure, Unit #2206, in The Caravel, at 635 N. Dearborn, in the heart of River North about 10 days ago.
I didn’t chatter about it because I figured it would sell quickly given the price.
It is one of the medium-sized 2-bedroom units in the building at 1225 square feet (including the balcony, apparently, so the unit is probably about 1150 or so.)
But I was wrong.
It’s still on the market, though Tipsters tell me that many, many people have gone to see it. Perhaps the bank is looking at multiple offers.
This unit brings up several questions:
- It is listed $189,000 less than some comparable units in the same tier in the building and low, on a per square foot price, for River North. Why hasn’t it sold?
- Do foreclosures set the new comp in a building? As several same tier units are listed much, much higher. What are the odds of those selling?
There are no pictures of the interior of the unit, but Tipsters who have been inside say that the kitchen and bathrooms are intact and that the unit only needs minor cosmetic updates (new carpeting, a cleaning, new paint.)
Here’s the listing for Unit #2206:
FUNDS. FAX ALL OFFERS GREAT INVESTMENT/ PROPERTY BEING SOLD IN AS-IS CONDITION/ NO SURVEY NOR DISCLOSURES/ PROOF OF FUNDING MUST ACCOMPANY ALL OFFERS/ PRE-APPROVALS NOT PRE-QUALIFICATIONS/ ERNEST MONEY MUST BE CERTIFIED TO OFFICE, NO EMAILS.
Unit #2206: 2 bedrooms, 2 baths, 1225 square feet
- Sold in June 2003 for $441,000
- Became bank owned in March 2008
- Recently listed for $364,900 (includes the parking)
- Assessments of $478 a month
- Taxes of $5,117
- Area Wide Realty has the listing. See the listing here.
Here are the other 06 units available:
Unit #1606:
- Sold in March 2004 for $360,000
- Currently listed for $499,000 (parking is $35k extra)
- Assessments of $670 a month
- Taxes of $4,701
- Berg Properties has the listing. See more pictures here.
Unit #2006:
- Sold in October 2003 for $345,500
- Sold in February 2005 for $425,000
- Currently listed for $509,900 (plus $45,000 for parking)
- Assessments of $685 a month
- Taxes of $5,106
- ABA National Realty has the listing. See more pictures here.
Unit #2606:
- Sold in March 2004 for $387,000
- Currently listed for $490,000 (plus $45,000 for parking)
- Assessments of $629 a month
- Taxes of $4951
- List It, LLC has the listing. See the listing here – no interior pictures available.
Here is the listing for Unit #2606:
$2,500 buyer bonus at closing for contract by 10/15/08 and closing by 11/14/08. Beautiful upgraded split 2 bedroom in the Caravel. Hardwood floors, granite countertops and stainless steel appliances.
Marble master bath w/soaking tub and separate shower. Fantastic city views from the east and south facing 141 square foot wrap around balcony. Excellent location! Prime deeded parking space (#28) for $45,000.
Hi,
I toured the unit recently. It is dirty and smells but in good shape overall. Kitchen looks like the picture you posted but with white appliances. Unit needs some new carpet in the bedrooms, a deep cleaning, and painting.
I liked it!
Does anyone know why the assessments are lower on this unit compared to the others shown?
The unit has about 6 offers on it. Bank is slow to respond. It is gone and sold!
They all got parking with their unit from the developer and now the vast majority are trying to be savvy sellers and playing games with the parking.
How many of these units where parking is “extra” would be willing to sell their units without the parking? My guess is none.
As someone who buys parking spaces and rents them out, I would certainly sell my unit without the parking…but you’re right, I bet the majority of people don’t want to bother renting or selling it seperately.
How does this building compare with some of the American Invsco buildings in River North that have a lot of foreclosures? This place was built fairly recently by Magellan, right? Any deal breaker issues like no in unit W/D or exceptionally low ceilings? Does everyone think buying in this building is a safer bet than The Sterling or that building on Wabash with the indoor pool?
A single foreclosure probably would not set a new comp – just think of a parallel situation with any other item. A single underpriced unit sold to a lucky buyer in the right place at the right time doesn’t change the broader market’s valuation of that product. That said, a foreclosure/short sale could reveal the true market price – if none of the other units are getting any offers near the ask after a reasonable amount of time, then the ask is probably higher than the “true market value.”
SR’s mention of the unit being dirty and smelling bad probably explains why this isn’t selling. In theory a thorough cleaning and carpet replacement should fix that… unless it doesn’t. Weird smells and molds can be very persistent. I wouldn’t take on such a risk without an immense mark down in the price.
The property is sold. It was a steal at $365k and the unit had multiple offers in the first couple of days it was listed. Another unit from the same tier (unit 706) closed on 9/18/2006 for $495K (including parking). The buyer of unit 2006 just purchase a unit 15 floors higher for $130k less thn the most recent comp. I think $130k can buy you a little paint and something to cover up the smell…
Correction – unit 706 closed 9/18/2008 and not 9/18/2006.
These recent sales from another 2/2 tier with approx the same size as the 06 tier will also help set new comps. Note that the developer prices were higher than most of the 06 units above.
#1402 sold 6/03 for $420,500 w/pkg
#1402 sold 9/08 for $395,000 w/pkg
#1702 sold 7/03 for $427,500 w/pkg
#1702 sold 7/08 for $395,000 w/pkg
#706 sold 4/04 $440,000 w/pkg
#706 sold 4/06 $415,500 w/pkg
#706 listed 4/14/08 for $499,000 (pkg?)
#706 subsequently reduced to $479,000 plus $40,000 pkg
#706 contract 9/11/08
#706 closed 9/19/08 $495,000
Per listing: “KIT HAS BEEN RECONFIGURED & HAS A SLIGHTLY DIFFERENT LAYOUT THAN OTHER 06 TIERS” “INCLUDES NEW EXPANDED GRANITE COUNTERS CABS, APPLS & LIGHTING!” “”6 MONTHS OF ASSESSMENTS PAID””
The details of the quick closing could be interesting. They also may reveal that this sale is actually not representaative of the market.
The ’02 tier faces west. The ’06 tier has much more attractive views.
One foreclosure may not set the comp- but there are several more coming down the pike (as evidenced by foreclosure auctions, at least.)
He is smarter than you…
“Investors should play it as cautious as possible. That’s Cramer’s advice. Raise cash, buy gold. Even if Paulson’s plan goes through, there’s still earnings risk to worry about. It doesn’t make sense to get in ahead of a potential earnings miss.
Oddly enough, Cramer noted, the best investment you have right now could be your home. Both sides of the aisle are trying to solve the problem, which means a solution will come. Money will be available, tax credits created, fewer houses built and there will be fewer foreclosures. Finally, it appears this sector’s going to see some stability.
Cramer’s bottom line for this market: “If you’re already on the sidelines, stay there. If you’re not, keep on selling until you get that cash up to a respectable level and then go buy some gold.”
Is this the say Cramer who said Bear was “fine” just before the collapse?
The argument “he’s smarter than you” NEVER works when it comes to games of uncertainty, like stock market investing.
Unit #2006 is for rent. Only $2,800 a month.
http://chicago.craigslist.org/chc/apa/842900627.html
and so is #1606. Only $2,400 a month.
http://chicago.craigslist.org/chc/apa/844666516.html
A $400k mortgage @ 5.75% P+I is $2,300 a month. Assessments are $670 and taxes are $400. Maybe these will be the next units into foreclosure.
Investor,
Cramer is shifty. The person who wrote into the show asked if their money was safe in Bear brokerage accounts. Cramer said it was. I think money in brokerage accounts is insured by the SIPC to some degree.
Still Cramer could’ve been more straightforward regarding Bear but he said he didn’t want to cause a run on Bear (which happened anyway).
Homedelete – Again, you do not include the “P” when doing your calculation on rent vs own. The unit we are talking about is $365k.
Interest – $1,748
Asessments – $ $400
Taxes – $316
Total $ 2,464
Rent (w/park) $2,800
Cash flows – $336
Free money is apprecited by many but apprently not by Homedelte.
Steve H – i asked a mortgage broker the terms for a mortgage for an investment condo. She quoted 7.5% interset w/minimum 25% down. Can you direct me to a lender who will provide 5.75% loans for investment property? that higher rate really is screwing up my plans. I’m planning on putting 25% down anyway.
Oh Steven you’re so funny. My mortgages include the ‘P’. Only in your crazy toxic IO world do mortgages not include the ‘P’.
The units I’m talking about are:
Unit #2606:
Sold in March 2004 for $387,000
Currently listed for $490,000 (plus $45,000 for parking)
AND
Unit #1606:
Sold in March 2004 for $360,000
Currently listed for $499,000 (parking is $35k extra)
20% down on either one of these units would give a typical buyer a $400k mortgage. On a monthly basis it’s cheaper to rent than to own these units. Sure there are tax benefits but my calculations show that it’s still cheaper for me to rent this unit instead of buying it.
And the ‘P’ you pay disappears into thin air anyways as the value of the home drops.
you can’t seriously be quoting cramer! that guy flip flops on a daily basis.
HD:
Think about what you posted.
Unless the current owner of 2606 or 1606 re-fi’d to over their purchase price (possible, but assumes facts not in evidence), they don’t have a $400k mortgage. Given when they purchased, they could have IO mortgages, and, given that they are investors (based on renting + wishing listing prices), it’s not-unreasonable to consider only the interest cost even if they don’t have IO mortgages. SH is (regrettably) correct about his analysis for the current owners.
Your point is actually that their asking prices are unreasonable. That’s definitely true. But why pillory someone for asking too much in the current market? The only person hurt by that now is the owner–even if they are asking too much to pay off crazy MEW, the banks aren’t really worse off, b/c they have too much REO right now anyway–who won’t be able to sell at these crazy asking prices.
Anyway, the free cashflow SH shows, w/ a 5% cap rate (yeah, too low, but not crazy low) is worth $80k. So they ask for an $80k profit to take tehm out of their cashflow position. Short sighted? Probably. But if they think they can weather the downturn and fund and future shortfalls to see some (inflation-produced, a/k/a not-real) appreciation on the capital 7-10 years from now, why would they sell it at a discount? Just b/c it doesn’t make financial sense for a buyer? Not the seller’s problem.
Both of you are over-analyzing this way too much. I said that it would be cheaper to rent than own in this particular situation. I wasn’t talking about the current owners. I wasn’t talking about the asking price nor was I explicitly trying to say the asking price was unreasonable. I haven’t reseached whether the current owners are making money or what their mortgage terms are. They could have neg am option arms for all I know. They could have teaser interest rates of 1% which means SH’s cash flow analysis is all wrong!
I said that if I put down 20% of the asking price and took out a $400k mortgage I would be spending way more money than if I just rented for $2,400 or $2,800. Your cap rates, IO, $80k profit, inflation-produced returns is too much for my brain to handle this early in the morning. I stand by my numbers and my statement.
Steve Heitman,
The monthly assessment is not $400. It’s $670.
HD:
There’s a reason they aren’t selling. You’re doing an analysis of their absurd asking prices and are implicitly saying they are unreasonable (which they are). I could put a pack of post-its on ebay and ask $5k for them–it would be similarly unreasonable, but if some fool paid it, good on me, bad on them.
K:
#206 (which SH is using) states assessments of $478/month in the post. Why so much lower? Dunno.
I am implicitly saying the price is unreasonably high compared to the rental price. If these units rented for $3500 or $4000k a month then we wouldn’t be having this conversation.
Homedelete – I simply would like you to realize that you don’t include “principal” when comparing rent vs own. Doing so confirms that you have no authority to analyze the value of a property or an investment.
Can you just please admit this FACT about principal? Consider it a free lesson in investing.
Steven you are such an idiot. You might not include principal with the rent vs. own but the bank includes principal for a 30 year fixed. It’s money out of pocket and anyone buying should include it the rent vs. own calc. Especially now. Because that prinicipal portion of the payment IS LONGER GOING TO EQUITY, it’s disappearing into thin air as the value of the property decreases. It’s like flushing money down the toilet. Specuvestors like you and your ilk took out countrywide interest only arms and look where its gotten our real estate market. anyone who listens to you and your other used home salesman should be tarred and feathered.
“Steve Heitman on November 7th, 2008 at 10:39 pm
Homedelete – I simply would like you to realize that you don’t include “principal” when comparing rent vs own. Doing so confirms that you have no authority to analyze the value of a property or an investment.
Can you just please admit this FACT about principal? Consider it a free lesson in investing.”
OK- I don’t think this is being looked at in an apples to apples manner. There is NO question that owning has its advantages, as long as one is thinking LONG TERM. I personally think it’s idiotic to RENT if you plan on being in a place for more than 5-7 years. On the other hand, if you are looking at a short term solution, then rent your heart out.
With regard to ownership, not only does a portion of the owners’ payment go towards paying down the mortgage balance, but there are tax advantages that, at a certain income level, many people need to offset the tax burden due to dear old Uncle Sam. Finally, LONG TERM, you will enjoy property appreciation!
And before you all jump down my throat about “bubble this” and “bubble that” please remember I’m talking about the long haul here. The flippers can burn, for all I care, because flipping is as risky as foreign equities and arbitrage.
My dear old grandma got wealthy the old fashioned way- SLOWLY! She did it by spreading her money around- equities, real estate, bonds, cash, etc. A house she bought for 14k forty years ago is now worth $1.2m, POST BUBBLE. Not a bad investment and I hope to learn from her slow, frugal ways.
I will never rent- you are financing someone else’s mortgage and future wealth!
Cheers 🙂
Reese,
Diversification- Yes
Buying property at any level – No
having patience to buy cheap and sell high – Difficult but Priceless
What granny really won on was getting an 11.5% compounded return tax-free. I’s the tax-free compounding that makes it an wesome investment in good times.
Hard and fast rules don’t often exist. Ask anyone who bought that 30mil 2 bedroom in Hong Kong 10 years ago.
Ze Caricoa: That’s correct. It all depends on what level you purchase an asset at- right?
Purchase Cisco at $80 a share and eventually (40 or 50 years) it may be worth more than you paid. Purchase it at $11 a share (which it was at in 2003) and your odds improve.
There was a property purchased at the height of the last bubble in Chicago in the 1920s right on lake shore drive (with lake views.) Bought it in 1928 for $1 million.
By 1970, it sold for $225,000. Slowly- in the last 30 years- it appreciated.
It again sold for $1 million in 2001.
Some made money. But the original purchaser would have had to hold on for over 70 years. It all depended on when you bought that asset.
I think buyers are in for a rude awakening. None of us have lived through a bursting of a housing bubble where prices can stay depressed for decades.
Isn’t Homedelete the one who didn’t know what compound interest was a few months ago? Why would anyone listen to an irrational lawyer trying to do financial analysis?
T2,
Geometric compounding can be explained to a college freshman in a few minutes. It doesn’t mean he is stupid it just means he has never been taught that.
Of course I realize that, but if someone doesn’t know what compounding interest is, then why would anyone take their financial analysis skills seriously?
Here’s what I think the difference is between those that see the proverbial glass half-full vs. half-empty.
The half-fullers-don’t think that’s technically english, but I like the sound of it:) maybe were a bit more prepared going into this financial crisis. I bet that they were less leveraged and had plenty saved away for a rainy day.
The half-emptiers, on the other hand, had 10% or god forbid, less in their homes and are living paycheck to paycheck.
I, too, would think the sky is falling if I were one layoff away from personal financial crisis.
The difference between buying Cisco and buying a house (not a 30m one) is simple: you can’t live in Cisco stock. Moreover, the need for shelter will GUARANTEE some level of demand, once the current inventory levels off.
So we all agree that there is a potion of an amortizing monthly mortage payment that is an expense and a potion that is not an expense. The principal portion pays down the loan and increases your equity position. It is a negative cash flow postition but as far as investing goes, it simply a transer from a cash position to an equity position on the asset side.
There is no other way to look at this and any argument is ridicules. You can adjust the fmv of the property to increase or decrease your asset as well, but until you sell this is only a paper adjustment and should not actually be considered.
Hopefully you guys catch on soon…
And let’s not forget the tax deduction from the mortgage interest & taxes. Every time a rent check is written all you get in return is a roof over your head for 30 days 🙂
No tax deduction, no equity in house, no house appreciation (remember, longggggg term), no land ownership, nada.
Reese,
Interesting points. However as Cisco is a publicly and heavily traded stock you are guaranteed some level of demand for that stock: its a lot more liquid than real estate.
Its also a lot more volatile, which I will grant you. The Sharpe ratio (return per unit of risk) IS higher in real estate vs. the stock market longer term. However as with any asset class timing the entry and exit are paramount.
Yes the utility of owning real estate can be beneficial, however a good analysis breaks down the cash flows.
Reese… Some people are simply bearish and some bullish. How much I have does not determine my position. To me long and short are no different than pass or dont pass at a casino. They are both just bets.
Reese… but yes.. people that often do not have quite often want to see losses for those that have. But that should not make those that have always think things are bullish.
T2, I don’t think it was me who didn’t know the difference between compound interet and simple interest. Of course I know what the difference between the two. Maybe you should go back and reread some of the posts. You should work on developing your reading comprehension skills.
My issue a few months ago was whether a return on a real estate investment was compounded or simple. I said it was simple and others said it was compounded and I admitted I was wrong although no one provided a source showing that compounded, rather than simple, should be used.
“T2 on November 8th, 2008 at 12:10 pm
Isn’t Homedelete the one who didn’t know what compound interest was a few months ago? Why would anyone listen to an irrational lawyer trying to do financial analysis”
Homedelete is the one who thinks a principal payment on a loan is an expense. Still in that boat HD?
Ah. now I got you SH you freaking ass. Yes for a simpleton such as yourself you should not count monthly principal pmt, well to be exact you should count as a cuff (mnthly principal pmt * 6 *risk free rate)
As for not marking your asset to market thats idiotic. If prices were going UP, YOU of all people would be the first to add it to your net equity. Lehman – citi- etc are trying to pull that not mark to market crap and that is why no one wants to play with them because they refuse to be transparent with their book.
Unless you think that house in Sacramento bought for 700k when the neighbor just sold an identical one for 400k next door. tell me you think the person still holding has a house worth 700k. You are a dangerous person. I used to think you were playing with people but you are just very manipulative by nature.
cuff was for 1 yr
“Steve Heitman on November 8th, 2008 at 2:22 pm
Homedelete is the one who thinks a principal payment on a loan is an expense. Still in that boat HD?”
Look Steven, this is not a fair fight. I’m not an accountant so it’s tough for me to formulate an argument using the correct accounting terms and labels.
But I don’t really fucking care whether or not your label the principal portion of a mortgage payment an “expense” or whatever, if the bank requires a principal payment, you pay it, and you count it against your cash flow. Your prinicipal payment used to go to the equity in your home but today it’s vanishing into thin air because of losers like you pumping IO ARMs to the masses to finance their dreams of being a land baron. “real estate only goes up!!!” The average person when looking at rent vs. buy looks at the payments, figures some tax deductions and makes a decision. Right now many people agree its better to rent than buy.
HD.
Principal is capital distinguishable from interest or profit. It is capital. Steve seems to only see it as the piece amortized into a loan. I see it as any capital you put into a property at any time that is construed as equity.
Adding to that… at the time of transaction it is never fair to predict up or down so that needs to be removed from technical argument. You could be wrong or right. Either way and because of that you remove that theory.
With that said it is technically an asset for asset transfer and has no net equity effect and thus it is not something that should be counted as a non offset expense on a balance sheet but rather a cash flow issue, which is where your argument probably best lies.
Yes, the SHill is a dangerous manipulator. Why do you think he ended up a realtwhore?
But you can’t blame the SHill entirely for the ready and willing marks like T2 and Reese.
There’s a reason I’m a lawyer and not an accountant. I’m backing out of this argument, because quite frankly, I don’t really care and I’m not really proficient enough in accounting to argue. I do know that Steven H sells used homes for a living because he couldn’t cut it as a CPA.
“Ze Carioca on November 8th, 2008 at 2:45 pm
HD.
Principal is capital distinguishable from interest or profit. It is capital. Steve seems to only see it as the piece amortized into a loan. I see it as any capital you put into a property at any time that is construed as equity.
Adding to that… at the time of transaction it is never fair to predict up or down so that needs to be removed from technical argument. You could be wrong or right. Either way and because of that you remove that theory.
With that said it is technically an asset for asset transfer and has no net equity effect and thus it is not something that should be counted as a non offset expense on a balance sheet but rather a cash flow issue, which is where your argument probably best lies.”
Now Steve.. here is a mark-to-market example.
Reeses’ Granny wants to start the Granny Undies Co. and wants 100k financing to do it. She goes into the bank to collateralize a loan. You are the loan officer. You look at her assets and tell her you can’t give her the loan because her house is only worth by your methodology 14k.
Just making sure I understand you correctly when you say “but until you sell this is only a paper adjustment and should not actually be considered.”
G – you are forgetting I’m the idiot that just ordered a granite floor for my kitchen yesterday.. 🙂
HD.. I’ve never been a douchebag to you nor ever will since you have never treated me as such. I am just trying to help. Unfortunately it is in the context of an argument with a used car salesman so it’s bad timing.
HD.. and you are right and have been all along on the most important issue. Which Steve has been consistently wrong on. Market bad and going to get worse!!
“G – you are forgetting I’m the idiot that just ordered a granite floor for my kitchen yesterday..”
Ze, only if you try to pass it off as a good investment. I’m sure that’s not happening.
G- I’m still trying to figure out if the cup is 5% full or 95% empty. I am really getting frightened.
G- by frightened I mean 6 months ago I stopped arguing with people over whether we would have a recession. Never in my most bearish moments did I use the D word. Now I would give it a 70% chance of Depression. Watch what the Fed and Treasury are doing. It is terrifying.
What, the recent flight to the dollar isn’t reassuring? What could go wrong?
“Ze Carioca on November 8th, 2008 at 3:08 pm
HD.. and you are right and have been all along on the most important issue. Which Steve has been consistently wrong on. Market bad and going to get worse!!
”
ZC
I’m sorry, my anger was directed at Steve, not you at all. sorry if it came accross that way. I’m actually in the fricken office trying to put together jury instructions for monday morning and I’m taking two minutes breaks to check this site. I haven’t eaten a thing all day and SH is such a douche! no ill will directed towards you at all.
G- Fed has replaced 800 bil of Treasuries with 1.5 trillion of god knows what. Bloomberg is suing them for transparency and they refuse to give it. Why? They are in effect know outright stealing from the populace and writing checks that can’t be cashed. They are rightly assuming that 99% of the people out there are incapable of understanding. I have never seen anything like this. I assure you a few trillion more will be added and shortly our rotating fixed interest will exceed any ability to pay. Mind you also GDP will contract and taxable receipts will too. Arguing over cap gains tax rates. Whats the multiplicative inverse of zero. Then what?
Anyway after 8 here. I need food.
They don’t want transparency because they are taking S&H Greenstamps, expired grocery store coupons, and Vanna White Barbie Doll collections as collateral.
The most tragic part about it is, they really have no choice: it’s the right thing to do.
And after (if?) the economy rights itself, it’s time to claw back bonuses and re-regulate their asses off.
“I said it was simple and others said it was compounded and I admitted I was wrong although no one provided a source showing that compounded, rather than simple, should be used.”
The very fact that you still require a “source” proving this renders you completely uncredible. That’s like going onto a medical website and saying “I don’t understand how blood carries oxygen to the body, so I’m not going to believe it until someone shows me a source proving it.”
“They are rightly assuming that 99% of the people out there are incapable of understanding.”
This is in part why I believe America deserves another GD.
Sorry Kenworthey I don’t believe its the ‘right thing to do’. I think it will just make our economy turn out like Japan’s. Dow 8,500 in 2020 sounds about right to me. They should’ve never been in the mortgage and home loanership market to begin with.
I don’t know how owning a big loan ever got so inextricably intertwined with the American “dream” but perhaps its high time to wake up from this nightmare.
I can’t help but watch with detached fascination when people feel they are entitled to almost everything lose quite a bit. The entitlement culture in America is coming to an end.
I don’t think uncredible means what you think it means.
For all practial purposes the difference between the compounding and simple rate of return for 99.9% of the propeties listed on this site is negligible. I’m a fricken lawyer not an accountant and trying to nit pick with me over the nuances of higher finance is a task bordering on tedium. I don’t really care that I didn’t know the difference and the same does nothing to destroy my credibility.
“The very fact that you still require a “source” proving this renders you completely uncredible. That’s like going onto a medical website and saying “I don’t understand how blood carries oxygen to the body, so I’m not going to believe it until someone shows me a source proving it.”
Bob- http://www.english.uiuc.edu/maps/depression/photoessay.htm
No you don’t, and people in America are not made of the same stuff they were back then. The entitlement culture is over.
And throwing good money after bad is never a good thing. GM is a black hole burining 20 bil a year with a negative 70 bil book value. What the hell will 50 bil do? Same with the banks, you keep the risk and reward together and you let them burn and force the pain into the system where it belongs and let it cleanse itself then capitalize what is left. You do not burn 5 trillion trying to save 1 trillion. And you definitely do not put the credit of the USA at stake for private sector losses. Once you do htat there is no safe haven, it’s now all intertwined CRAP!!!
Japan got the way that it is BECAUSE the government refused to step in (do to political infighting) in the face of a bursting housing market and a sharp tightening of credit. By the time they finally stepped in to start doing what our government is doing right now, they were years too late.
I don’t like it, but I’m not willing to cut off my nose to spite my face.
“due to.” Ugh.
Ken,
Japan is where it is (and truthfully its not that bad of a place to be) because they refused to let the bad fall and they created a bunch of zombies. It is exactly the path we are now following. Difference also being Japan has been a nation of savers and could weather a storm that we will not be able to.
I’ve read this entire exchange and want to thank all the parties involved for the education. I’m a saver and investor, looking to learn more about purchasing real estate in Chicago. Crib Chatter
was a revelation to me. I was using a real estate agent to help
look for a ‘killer deal’, but other than the occasional short sale or foreclosure, not too many were forthcoming…Crib Chatter sort of changed all that, as ‘killer deals’ seem to be the rule rather than the exception here. THANKS CribChatter!
Am I the only one who really appreciates this site? Are there other sites with similar information and attitude? Do those of you reading this think today’s ‘killer deals’ will be tomorrow’s norm? What say ye? Thanks for taking the time to respond.
Dino
Dino…i think bearishness is pervasive here and what you should pick up from this removing the biasness is to make sure that killer deal is going to get you in at a positive cash flow to renting. Otherwise I think todays transactions will be tomorrows offers. But then again I think the gov’t is about to refinaince every loan in the U.S. Hell giving money to banks and they wont budge so why not cut out the middle man
You guys can call your “recession” vs. “Depression” arguments all day. The point I was making is very clear. Your “Housing Expense” does not include principal. This IS A FACT! Anything other is supplied by the uneducated.
That was the only point I made and it is valid without argument. Again, if you disagree you should go back to your most basic finance class. This point is very important as the formula you use to consider fmv depends on it.
Actually now that we, without you, defined it as solely monthly pmt against principal remaining, and not including paid down principal. WE ALL AGREE YOU ARE RIGHT, although you are TECHNICALLY WRONG!!! You have to add in as a cuff (Principal pmt * # of payments in term of rental / 2 * risk free interest) 🙂 If you want to see what I mean you linear thinking moron, go stress test it on a 15 year loan on a 3 mil property and tell me you should ignore the 100k of principal paid throughout the year. Oh shit Steve the finance dumbass here has a point now don’t I?? SO BLOW ME!!!!!
And as for Marking to Fantasy as you suggested I am fairly sure I handed you your ass on that one with my example of Reeses G’ma which you so conveniently seem to be ignoring.
You want to play accounting with a lawyer go ahead but you want to walk into my world with your simplistic linear thinking shit. Welcome to it.
Now it’s 1 am here.. I’m going to crash. Thank you.. come again!!
And if I may speak for HD.. I think what he’s trying to say is even as much as you are right it is moving equity from liquid to illiquid WHICH DOES HAVE A COST and is not an asset class that he feels you should be transferring money into at this time.
Oh and on 3 mil its more like 120k.. just ignore it!!
And in basic finance class they wouldn’t teach you what i just did.. So you owe me!
HA HA THE FINANCE DUMBASS SCHOOLED YOU!!! Even right you are wrong. I love myself sometimes!!!
Yes paying principal has an opportunity cost but you are reducing your contractual obligation by the amount of the principal so its not technically an expense.
Holy shit is this guy dumb!
Seriously, is this guy an idiot or what?
ze, I think its more than moving from liquid to illiquid; it’s like moving moving money from your wallet to the kitty litter box. The principal portion payments on many mortgages is disappearing, gone, goodbye. not so much in IL but in CA, NV and FL. For example, in 2005 a guy in the inland empire pays $500,000 for a four bedroom new construction home. His payment is $3,500 a month of which for argument’s sake principal is $500. In 2008 the same exact house across the street sells for $275,000.
It’s going to be a cold day in the high desert of the IE before the guy who paid $500,000 can resell for $500,000. Every month he makes a $500 principal payment. Where does it go? I beginning to understand the concept that the P payment is just a transferring money from cash into home equity….but what if the home equity is no longer there? What if it will take 40 years to return? I’m not an accountant but I don’t see how in theory it’s not an expense, but in reality its the same as flushing money down the toilet. It counts against your cash flow, it’s not recoverable in home equity, you cannot borrow against it, it’s gone, lost and probably not recoverable until 2050 AD.
“#Ze Carioca on November 8th, 2008 at 9:10 pm
Now it’s 1 am here.. I’m going to crash. Thank you.. come again!!
And if I may speak for HD.. I think what he’s trying to say is even as much as you are right it is moving equity from liquid to illiquid WHICH DOES HAVE A COST and is not an asset class that he feels you should be transferring money into at this time.”
HD,
For those underwater on their mortgage this is true. However, fortunately, most people don’t think of it like that and most people don’t plan to keep their default option as beneficial as possible to them.
Remember it was people’s lack of financial savvy that got us into this mess, don’t expect these same people will make the optimal financial choice for them and default. At least this is what policy makers are praying for.
If people realized that that 500k mortgage is for a 275k house then we would be in a hell of a lot more trouble. But as this site highlights people are in a state of denial by and large. They love seeing their inflated house price on zillow and love their property tax assessment’s estimate of their house value.
HD…”I beginning to understand the concept that the P payment is just a transferring money from cash into home equity….but what if the home equity is no longer there?”
You just explained why you don’t give 50 bil to GM with a book value of minus 70 bil.
SH. when you address the Reeses G’ma example and why she can only count the value of her property at 14k (see you only expected to defend the argument as using a high value in a dropping mkt) we can talk.
Steve… I am going to do myself a favor and tell you, your argument should have been (you must make that calculation for both sides renting or buying as you are draining cash with both)
You are just manipulating once again. cash flow when it suits you balance sheet when it doesn’t. They are not exclusive of one another. If your only source of income is Treasuries and every month you deplete those treasuries to cover your mortgage payment. You are equally offsetting assets as I agreed with you and told HD I agreed with you. But you are now lowering the amount of income you will have the following month. Your cashflow is dropping. That is the expense/cost! The payment every month to the bank remains the same and was a known constant the month you took the loan. Every month you make the payment you will have less income the following month because of the asset transfer amount (as well as by the int paid amt, but that is not the issue). FACT!!
Turning it around, isn’t it better for the bank to receive int+pmt than just int? They can put that payment to work making money. If so the opposite MUST hold true. I can explain this with one great example but I am not going to give you ammo to sound smarter to some poor guy on the street that will think your knowledge that I may be enhancing makes you credible and lets you help talk them into something.
See Steve unlike you I don’t start my analysis with my answer and work only towards it… I don’t care, up- down, right-left, this-that, bull-bear, all the same to me. I am long RE and I know it’s bad. Wish it wasn’t but not sticking my head in the sand and pretending things are great.
Good.. now since I know you will not address Reeses g’mas 14k property value. I have nothing more to say to you.
To everyone else.. sorry you will have to play Rex…. Go Jets!!
To simplify for your biased lizard brain… this is all you need to read…
Turning it around, isn’t it better for the bank to receive int+pmt than just int? They can put that payment to work making money. If so the opposite MUST hold true.
There should be an education requirement to post on this site. My 8 year old knows more 🙂
I throw math.. you throw stones.
Why do I think no one here is surprised.
It is obvious that you have don’t know how to put together a rent vs own analysis. You are and continue to be 100% wrong.
Good luck though!
Ok.. despite not answering one of my questions, you win!!! I’ll even throw in that my life also sucks so badly because I am an idiot.
Now go away!
Our of curiousity, what is your question?