Get Your Own Fire Pit in the Middle of Southport: 1453 W. Henderson
This 6-bedroom luxury single family home built in 2004 at 1453 W. Henderson in Southport has two outdoor spaces including one with its own fire pit.
It also hosts 4 fireplaces including one that looks rather cozy in the master bedroom.
For those colder nights, the lower level family room also has radiant heated floors.
Jeff Lowe at Prudential Preferred has the listing. See more pictures here.
1453 W. Henderson: 6 bedrooms, 4.5 baths, 2 car garage, 5200 square feet
- Sold in March 2005 for $1.54 million
- Currently listed for $1.799 million
- Taxes are “new”
- Hardwood/Marble/Slate floors throughout
- Central Air
Somebody please look up the financing for this in ccrd! I’d do it myself if I had access to the internet through a real computer. The 1.54 million house purchased in 2005 just SCREAMS exotic financing. Super-jumbo probably guaranteed, IO is more than likely, so is a balloon, this may even be an option arm the toxic of all known forms of financing.
Other than the financing it looks like a nice place. The fire pit is a nice touch.
A fire pit on a wood deck is just not a good thing.
Radiant heated floors are p-i-m-p.
I’m lookin at the thumbnails on a mobile but that deck is level with the utility wires. Fire pit on wood deck is bad idea.
The notes don’t look that bad, and the dude can afford it.
“Somebody please look up the financing for this in ccrd!”
Not pulling the actual docs, but:
1st Lien = $600k (and apparently also secured by another property, altho neither grantor appears to have had an interest in that property–so that’s probably a mis-file)
2d Lien = $400k, which appears to be a re-fi of an original 2d for $750k (release was recorded before recording of new 2d mortgage).
So, it appears you are wrong, HD. BTW, the owner has made over $1mm in total comp every year since at least 2001 (exec officer of a public company, so available from proxies).
And Redfin has the PIN wrong. It’s -003, not -002.
PS–Taxes are most certinaly NOT “new”, as they have been paid in the amount of $24,277 for 2007 (with no homeowner exemption). Redfin has this data and it’s easy enough to find online, why doesn’t the listing agent have it?
The listing has the PIN as 14-20-321-002.
“BTW, the owner has made over $1mm in total comp every year since at least 2001 (exec officer of a public company, so available from proxies).”
Well I guess he’s going to learn the hard way what a small demographic that is now that its resale time. Still at least far less contemptible than the someones we see on here playing around with luxury property over their heads.
“Taxes are most certinaly NOT “new”, as they have been paid in the amount of $24,277 for 2007 (with no homeowner exemption). Redfin has this data and it’s easy enough to find online, why doesn’t the listing agent have it?”
Because their job is NOT to portray the property and associated upkeep expenses as accurately as possible but to present the property in the best light possible. Hey I don’t like the practice either, hence the Realtor(r) namecalling. Doesn’t “new” have less of a sting to it than a $30,000/year additional expense? It just seems so innocent. lol
“The listing has the PIN as 14-20-321-002.”
Which is easily found to be incorrect. Presuming that they got the address right, and it isn’t actually 1455 W Henderson.
“present the property in the best light possible”
May as well say that it can be financed thru FHA with 3.5% down and the buyer can get the tax credit. Those statements also demonstrably false, but present the property in a better light. Why not lie, right?
“Why not lie, right?”
Because the potential buyer might be peeved if they were told they could FHA financing on this at closing time when they can’t get their loan. Also its provable as a completely made up lie whereas leaving in “new” can be excused away as forgetting to update a field from the potential buyers standpoint. Yes believe it or not theres different degrees of deception, both in reality and in the eyes of the law.
“leaving in “new” can be excused away as forgetting to update a field”
I missed where this property has been listed since 2007. The last three installments were paid timely and are relatively equal amounts. So the last time that “new” *might* have been valid was before the 2007 first half bill came out in Jan/Feb 2008–15+ months ago.
As to the other, “oh my assistant copied the text from another listing* and forgot to update it”. Just a typical realot oversight, right?
Besides, it’s all a question of whether the reliance on the deception was reasonable. Taking tax advice from a realtor is not reasonable, imo, but relying on accurate reporting of facts is reasonable.
*assuming another listing using the language
I guess HD thinks that everyone that owns a 1.5 million dollar home in the city has to have done some exotic financing of some sort.
Of course, Sonies…because it’s so rare/hard to make $100k. How on earth could someone possibly legitimately afford a $1.5M home?
As a newbie and potential buyer, can somebody give me an idiot’s guide to ccrd? using the info my realtor sent me through connectMLS, how can I look up the details of the property I’m interested in?
More often then not, Sonies, they do.
“Sonies on May 20th, 2009 at 12:01 pm
I guess HD thinks that everyone that owns a 1.5 million dollar home in the city has to have done some exotic financing of some sort.
“
“can somebody give me an idiot’s guide to ccrd? using the info my realtor sent me through connectMLS, how can I look up the details of the property I’m interested in?”
If the info includes the PIN, go to ccrd, select search by PIN, type in the number, voila.
If not, go to cookcountyassessor, type in the address and find the PIN, go back to option 1.
Not everyone who owns a 1.5 million dollar home has exotic financing, but a sizable number do, and as this alt-a and option arm fiasco unfolds, it’s going to affect the high-end and luxury market; and many homes that once sold for a million dollars are going to be worth far far less.
“More often then not, Sonies, they do.”
And more often than not, those who did paid $1.5mm for a $800k house. At least based on what we see here on the CC.
Sizeable number? California sure, but not as much here in Chicago. Lets see some numerical facts to back your claims.
“And more often than not, those who did paid $1.5mm for a $800k house. At least based on what we see here on the CC.”
You think this is an 800k house? LOL ok!
Sonies you’re lucky some other blaggoer made this easy for me today:
http://www.doctorhousingbubble.com/wp-content/uploads/2009/05/wamu-option-arm-by-area.png
1.2B in option-ARMs for Chicagoland. Thats a lot of loans that are essentially all going to default within the next 4.5 years.
Apparently that 1.2B was just WaMu. If WaMu is representative of the Option-ARM market overall, Chicagoland is only around 2% of the problem volumewise.
http://www.doctorhousingbubble.com/the-truth-about-option-arms-pick-a-pay-mortgages-and-alt-a-loans-looking-at-wells-fargo-bank-of-america-and-jp-morgan-we-are-in-the-eye-of-the-469-billion-toxic-mortgage-hurricane-and-silence/
So we might avoid option-ARMs by and large, but what about Alt-A loans and (increasingly) jumbo defaults?
Jumbo’s default at a much lower rate than option arms and I/O loans, remember the run up in pricing here was nothing compared to the coasts.
Thanks Bob. I’m sure 1.2 billion in option arm loans means nothing to these pollyannas here.
And anon(tfo) I have friends who paid 1.2 million for what was essentially an $800k home in 2002.
It ain’t an $800k house nor is is an $1,800,000 house either. Probably isn’t a $1,500,000 house either.
“You think this is an 800k house? LOL ok!”
Read the chain again, dude. I’m saying that most of the time that someone who “paid” $1.5mm for a house used exotic financing, they were getting a house worth much less. Like those places on Medill from last year (you can find them). I’m basically agreeing with you, man.
Altho Bob is also correct–but $1.2B is small potatoes, and a meaningful piece of that has already wokred thru the system (see, again, one or both of the Medill houses–can’t remember for sure). Given that WFB shows ~15% of OARMs in 45 states, with notable individual states as low as ~3%, (plus accumulated information), 2% of total OARMs in Illinois seems about right, maybe a little higher for Alt-A’s overall–so ~$10B in likely-trouble mortgages in Illinois.
from today’s WSJ: http://www.newser.com/story/49203/jumbo-mortgage-defaults-soar.html
“Nearly 7% of prime jumbo loans—which average $750,000—were at least 90 days delinquent at the end of 2008, up from 2.6% a year earlier. That’s three times the default rate of non-jumbo prime loans.”
Uh-oh.
“And anon(tfo) I have friends who paid 1.2 million for what was essentially an $800k home in 2002.”
Yeah. My point exactly. And the overpayers are much more likely to have used funny money, based on my anecdotal observation.
Sorry, that was from January. I got it from a compiler since I won’t register.
G, how do those numbers compare to delinquency on option arms and interest only loans like I had stated?
Thats the thing: Illinois need not be hit by the king of all toxic financial products in order to produce a surge in foreclosures. If jumbos continue their meltdown pace we could see properties at the middle/high end get affected here too.
Still just given how much lower our median price is vs FL, NV or CA and how its well below the conforming limit I don’t think our foreclosure numbers will ever come near any of the more troubled states. Its gotta be financial armageddon out there.
I never said most, I said more often than not.
Why is IL number 5 in foreclosure behind CA, FL, AZ and NV?
Lots of supid people and criminals in IL? Beats me…
Looking at Bob’s links, if the Chicago % of total option-ARMs matches those from WAMU ($1.2/$52.9 = 2.27%), then we have approx $10.65B of them (2.27% x $469B.)
That equates to over 20,000 individual $500,000 mortgages. Or, 25,000 individual $400,000 mortgages.
How many could afford more than the teaser? How many were paying the minimum option? I doubt it varies much from elsewhere.
It appears from these numbers that the option-arm fallout will not miss us, regardless of the screams of “it’s different here.”
“G, how do those numbers compare to delinquency on option arms and interest only loans like I had stated?”
That’s the point, it has really not begun to hit those loan categories anywhere, yet. See my previous post for some numbers that foretell future problems.
“I never said most, I said more often than not.”
How is it possible to be more often than not w/o being most? 1000 to 1, 2 to 1, 10000000001 to 10000000000, doesn’t matter–“more often than not” = “most”.
“Why is IL number 5 in foreclosure behind CA, FL, AZ and NV?”
Specuvesters and aggressive foreclosure attorneys is my supposition. Combined with an alarming amount of never-pay borrowers who defaulted w/o making the first payment (ie apparent fraud).
“Looking at Bob’s links, if the Chicago % of total option-ARMs matches those from WAMU ($1.2/$52.9 = 2.27%), then we have approx $10.65B of them (2.27% x $469B.)”
G:
Dr. HB was being hella unclear in that post–there ain’t $469B of OARMs; it appears that there are $469B of Sub-Prime + Alt-A, which includes OARMs (seems low to me–~5% of outstanding mtgs–but whatever). Looks like about 1/3 to 1/2 of that $469B is OARMs–look at the re-cast chart, there is *no way* those bars total more than ~$250B.
I was just working off of those numbers. Here’s another source which seems to state it more clearly, and much higher:
“Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance”
http://www.calculatedriskblog.com/2009/01/wsj-option-arm-defaults-rising.html
G,
I read somewhere that 86% of all option-ARM loans are on the teaser rate/minimum payment/pick-a-pay/negative amortization option. These make IO ARMs look innocent in comparison.
Yes, every reference I have seen is over 80%.
C’mon, though. They were just negative-amming away because of the superior returns in their numerous additional “assets.”
I mean, we know that the ‘howmuchamonth’ crowd could afford more. Right?
““Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance”
That comports with what I had thought.
But Dr. HB’s re-cast chart pulled from BW shows well less than $300B outstanding.
And it’s certainly possible that 60+% of the issued OARMs were either re-fi’d, re-fi’d into new OARMs, already re-cast or already defaulted. If so, for every 100 issued, I’d think ~3 refi’d to non-OARM, ~10 refi’d to new, larger OARM, ~15 re-cast and ~35 defaulted (the defaults consistent w/ your CR link). Leaving 37 outstanding.
Indeed, I’d be shocked (*shocked!*) if over 10% of those issued OARMs were *not* re-fi’d into NEW OARMs issued later in the 04-07 period. With higher borrowed amounts, of course–like $75B replaced by $125B. ‘cuz my 1500 ft 4 BR in Riverside Cty is doubled in “value” b/t 04 and 07 to $600k.
That’s an excellent point about the refi’s during the 04-07 period. I’d love to see default rates in those instances. They will probably approach 100%.
“That equates to over 20,000 individual $500,000 mortgages. Or, 25,000 individual $400,000 mortgages.
How many could afford more than the teaser? How many were paying the minimum option? I doubt it varies much from elsewhere.”
I would guess than “more often than not”, borrowers did NOT only pay the minimum on a monthly basis. We are talking about expensive homes, purchased with some downpayment and decent credit. In other words, borrowers who were not complete idiots, who would have some confidence they could pay down their loans long term.
Despite all the negativity surrounding Option ARMs, they do have a place in this world and can be used logically. The minimum payment should only be used in times of financial distress (such as now?). If there were a vacancy in a rental, pay the minimum until you find a renter. If you got laid off, pay the minimum until you find another job. Option ARMS give you flexibility – which is a good hting.
Disclaimer: I have no Option ARM loans.
“They will probably approach 100%.”
I am sure they would approach 125% (110% in NY), if they could.
“I read somewhere that 86% of all option-ARM loans are on the teaser rate/minimum payment/pick-a-pay/negative amortization option.”
Any info on jumbo loans?
Lets not forget according to Dr. HB Wachovia even continued the practice of originating option-ARM loans well into 2008. So we’re looking at 2013 before we’re totally out of the woods of these toxic loans. Realistically 2014 as it takes a year to foreclose in Illinois.
“Any info on jumbo loans?”
On jumbo loans I just have the same basic data G has from the WSJ. It doesn’t break anything out by loan type just jumbos. I thought jumbos were just plain vanilla mortgages over 417k but according to others on here they also include option-ARMs and the like. No idea if the option ARM default rates (likely close to 100%) are included in the jumbo default statistics.
“Despite all the negativity surrounding Option ARMs, they do have a place in this world and can be used logically.”
Yes, and they should return whence they came–as a wealth managment tool for those with substantial illiquid assets and/or lumpy, but dependable, income. They’re a perfect vehicle for someone who gets most of their compensation quarterly or annually and/or thru non-cash consideration, and for small business owners.
They are ridiculous when used for flipping or by someone whose annual income would never support the annual debt service on their house w/o an OARM.
“according to Dr. HB Wachovia even continued the practice of originating option-ARM loans well into 2008”
Dude, *I* pointed it out *here*. No idea what post (and not going to look), but I clearly remember it. They discontinued it either June 30 or July 31, 2008, announcing that they were doing so **IN ADVANCE** of shutting down, which I thought was absurd–anyone applying after the announcement was almost certainly an extremely unreasoanble risk.
MADFLY,
The problem is twofold: option-ARMs allow people to speculate on RE appreciation and leverage up hugely and also in some instances the option-ARM allowed people to live in a nice residence for a lengthy time (five or ten years) cheaper than renting.
Do you see the moral hazard these two things introduce? Why should our financial system be set up to allow people to gamble for free with sums of money exceeding half a million dollars if they don’t have the income to possibly support the debt burden?
Heres a chilling quote from the past to get your blood boiling:
“Wachovia and some other lenders still see option ARMs as a growth area. Wachovia offers extra incentives for its sales people to promote such loans. ” -4/19/2007
http://www.realestatejournal.com/buysell/mortgages/20070419-hagerty.html
In this environment, lots of people are defaulting on all kinds of loans, whether they be 30 year fixed, ARMs or option ARMs. Option ARMs (as a form of debt) are not the problem, it’s that they (and other loans) were too easy to get.
Some of Bear Stern’s subprime loans from 06 and 07 have default rates of upwards of 40% or more.
I imagine few people refi’ed out of the option arm. Why refinance into a loan with a higher monthly payment? If they foresaw the dangers of the option arm why did they take the loan in the first place. Iirc countrywide also had the option arm and they were big in the chicago area.
“I imagine few people refi’ed out of the option arm.”
That was my hypothesis, too. I suspect many more re-fi’d into larger OARMs.
“Why refinance into a loan with a higher monthly payment?”
Why realize you made a mistake? That’s seriously your argument?
“If they foresaw the dangers of the option arm why did they take the loan in the first place.”
Seriously? They wanted the house, got it pulled together thru Countrywide (after all–“Countrywide is your side”! Who would doubt that?), then figured out the OARM was a bad idea (and they could get a different loan! They’ve made 6 consecutive payemnts–their FICO went up 100 points!) either on their own, or thru friends/family/another mortgage broker trying to make a buck.
Not everyone is as stubborn as you, HD.
MADFLY,
I think Option-ARMs really were a big part of the problem. In fact I think they should be made illegal. The supposed circumstances anon(tfo) postulated for their legitimate use I see as a very niche market and not generally valid given it would be hard to clearly differentiate between the useful niche and the speculators. Given the financial implications these loans have and what damage they have wrought on the overall economy I hope they are made illegal.
Same with ARMs, which is just speculating on interest rates which should have nothing to do with home ownership. As Dr. Housing Bubble called it today and I completely agree with: these loans are the meth labs of financial wizardry.
Want to speculate on interest rates? Get a fixed rate mortgage loan then play the yield curve in your Fidelity account. You have uneven but predictable income stream? Learn to save and budget.
why don’t you guys get a room? I thought you were here to comment on properties? Like this house on Henderson…
“The supposed circumstances anon(tfo) postulated for their legitimate use I see as a very niche market and not generally valid given it would be hard to clearly differentiate between the useful niche and the speculators.”
Morgan Stanley didn’t have any problem with them in the 90s. But then, it was (usually) a perq of a private client relationship–a lender needn’t worry much about default on a $2mm mortgage if you’re holding $10mm in assets and have setoff rights, in addition to foreclosure rights.
Yes anon but somehow with the whole democritization of society the lower classes/non-rich tend to think they are entitled to the same things or financial products at least, as the truly rich. And it would be a minor inconvenience to someone with $10MM in assets to have 20% of their net worth tied up in their home. Just ban them outright is the easiest solution to prevent this calamity from rearing its ugly head again.
umm, chill back everyone, focus on the overprices house that is the subject of this chatter….this house will never sell for anything close (25%) of the asking price. it is also insanely ugly and has 0 curb appeal- awful.
“Why don’t you guys get a room? I thought you were here to comment on properties? Like this house on Henderson…”
babs,
The reason the bears on this blog post is to reinforce their view of the world, which is that RE prices will collapse and yet somehow leave them unscathed so properties way beyond their reach will become affordable for them. This blog primarily highlights ridiculous listings so these guys can tell each other how insightful they are to see that RE is crazy and doom is upon us.
Prediction: Five years from now the same group will still be bitching about how the place they want to live in is overpriced.
RR,
Exactly. And I have the popcorn ready. I don’t need to escape unscathed, only able to walk away relatively intact from this giant train wreck we call the RE bubble. The end of ponzi economics is indeed fun to watch–its fascinating like a slow moving train wreck.
RR,
Prices collapsed in FL, NV, AZ, areas of CA, MI, OH yet the world keeps turning……of course, it’s different in Chicago. Are you calling the bottom?
“The reason the bears on this blog post is to reinforce their view of the world, which is that RE prices will collapse and yet somehow leave them unscathed so properties way beyond their reach will become affordable for them. This blog primarily highlights ridiculous listings so these guys can tell each other how insightful they are to see that RE is crazy and doom is upon us.
Prediction: Five years from now the same group will still be bitching about how the place they want to live in is overpriced.”
“The reason the bears on this blog post is to reinforce their view of the world, which is that RE prices will collapse and yet somehow leave them unscathed so properties way beyond their reach will become affordable for them. This blog primarily highlights ridiculous listings so these guys can tell each other how insightful they are to see that RE is crazy and doom is upon us.
Prediction: Five years from now the same group will still be bitching about how the place they want to live in is overpriced.”
I do see some truth to this, but you have to admit that when a lot of people were still blissfully carrying on that real estate in Chicago was going to never go anywhere but up-up-up those of us who saw prices getting increasingly divorced from reality (ie, wages) were lone voices in the wilderness.
now that we’ve been proved right, it’s hard not to gloat a little bit.
that said, a crappy real estate market like this one (resulting in abandomimiums, etc) isn’t good for ANYONE. I’d just like to see some stability, and real estate moving along at a more standard rate of inflation (ie, 3 – 5%)
5% is not normal appreciation for real estate. In fact in theory RE appreciation should match the overall inflation rate barring any real gentrification of the neighborhood.
Remember people who signed up for a mortgage didn’t cure cancer, they didn’t invent some crazy patent to better the world, they didn’t start a small business that employs people and is profitable.
Quite simply all they did was put their dumb chicken scratch John Hancock on a legal document. The mere fact that so many people were rewarded for so long for simply doing this is truly astounding.
And the removal of former financial safeguards (documented loans with job history, higher FICOs, 20% down) was removed over time to allow more and more dumb money to purchase at the peak in the great real estate ponzi bubble.
yes, that’s why I said “I’d just like to see some stability, and real estate moving along at a more standard rate of inflation (ie, 3 – 5%)”
Thanks skeptic and RR: I’m a life long Chicagoan but pretty new to this site and I’ve enjoyed (up to a point)reading the posts of many of the bloggers here who are, obviously, renters; some rather bitter and snarky. Some clearly balanced and well educated with some common sense. Sometimes the posts are clearly RE owner/investor envy for anyone who’s doing well. Now is the time for the hate; that’s fine. But my biggest observation is that the renters here never discuss how they feel about someone making money off of them and, in bad years, their landlords being given shelter by the IRS in all manner of ways. LONG term REI are thrifty, patient, do homework, and enjoy the hunt like many people here enjoy bitching. Those of us who do that have done and will do well over the 30-40 years we will be doing this as a hobby or to supplement other employment..patience..hopefully by 2010, all the moron speculator/bubblehead agents/truly stupid bankers will be blown out of the business and we can get back to nice steady appreciation. I’m a boomer. No doubt I’ll be ridiculed here for my memory or for some other reason.
The bottom is coming; no one knows the moment its happening but its pretty clear when it’s passed. Investors are sending us all signals buy slowly getting back in at deep discounts and with cash from their tenants :).. Thanks for that by the way! My unscientific prediction is next year middle of the year at latest. And for the high end forclosures, they’re coming too..just not at the same level as the coasts. I agree with Bob.. it’s just got to happen sometime.. Though when it does I probably won’t be snapping up thier mansions..I want to keep my earnings.
And, to the renters who will say I’m a fool and that the markets will deliver higher returns.. play the unregulated markets, and do so with DISCIPLINE socking away your rent payment in your 401(k) plan or bond fund or some combo thereof, each and EVERY month for the next 30 years (and not in hedge funds either b/c you’re not THAT rich and not invited) and we’ll see how that compares to RE returns overall. But why am I worring about our renters, here? They’re safely renting! Not a care in the world! If all you’ve got is 800K in your 401(K), hope you’ve got stock to sell too to make that rent payment. No SS (not at this rate,) no rent control, probably no universal health care! Hedge.. hedge.. hedge.. RE is part of that overall portfolio.
Thanks for all the arm disussion, btw, on that topic I agree with Bob. that was interesting.
Now.. back to this property? anyone? This is southport. I’d be expecting to pay somewhere around high 600s to 700 for this in this market and that’s what I would have offered in 2004-5 but only if I’d planned to live there, at which point, had I had not been thrown from the property by the agent…. Seriously, I wouldn’t have been looking at this property as an investment or any like it at this asking price in 2004-2007…..no conservative RE investor bought much, if anything, during 2003-2007..just like Berkshire Hathaway didn’t over buy into REITs. Buy a property like this and live in it, if you want but its not an “investment” its speculation to think of it that way.
skeptic said:
“now that we’ve been proved right, it’s hard not to gloat a little bit.”
Fair enough. I’m just getting a bit tired of those who consistently link fair market value to what they can afford or who think CA, NV, FL type problems are applicable to Chicago.
If you look at the CS stats from the inception to about 2001 you see RE appreciation at a little under 3%. Looking at the graph, (put it in excel to see what I mean) we are very close to the expected CS level right now. There will likely be an overshoot to the downside which will be bad for sellers and good for buyers. That is pretty much where we are now but IMO that window is closing.
The house on Henderson is great. The problem is that it is way to much for house almost anyone. A buyer here might be someone who runs a business out of the home, uses a couple of rooms as office space and deducts a portion of the mortgage on schedule C.
Wow, Bob and I agree on something.
HD,
You seem to be a CS believer. Download the CS data off the web and plot several of the major bubble cities on the same graph. Condos and SFH. Chicago has a small bump in comparison.
If calling a bottom means everything goes up from here, of course not. Each market has its own dynamics. New construction will probably be forced lower. But in general, it is getting harder to make the case that, across the board in Chicago, substantial price declines are ahead.
Pray tell, RR, what will the catalyst be that moves volume off its near record lows in the Chicago area? From your post above it seems you believe that it will be buyer capitulation….
and jc, I’m glad you make a few extra bucks as a landlord; if you didn’t make any money I wouldn’t have a place to live while I keep my powder dry. Being a landlord is a dirty job but somebody’s got to do it for maybe a thousand bucks a year above what you pay for taxes and maintenance. Someday I might call you at 2:00 a.m. tonight when if my ceiling starts leaking or if I need a new screen on my window and I expect you to work for my money.
Assuming the bottom in Chicago is a resumption of the CS Index trend line is a fatal mistake. Architect nailed it on the head when he said that there are plenty more sellers than buyers and interest in real estate will be depressed for years to come. Sales volume of mid-to-higher priced properties will not rapidly increase, absent a return of the Option ARM, and even when volume returns, new listing will temper any price appreciation. What you knew, or thought you knew about real estate investing, has changed for the time being.
“somebody’s got to do it for maybe a thousand bucks a year above what you pay for taxes and maintenance.”
I assume you are refering to positive cash flow when you say a thousand bucks a year profit. The real profit is from appreciation. Hypothetical – say you put $100K into $500K worth of real estate that appreciated 5% per year for 5 years. Not a stellar return at all, right? It’s just a bit over historical inflation. But even those modest increases would yield an equity gain of $138K.
In constrast, how long would it take and what kind of market conditions would you need to generate $138K from a $100K investment in bonds? in stocks? in mutual funds? in business (very possible, but most risky)? How long would it take to save $138K from a job?
This is why I believe RE is the easiest/quickest vehicle for wealth building. It doesn’t take a genius to implement. The game is set up in your favor (laws). And it doesn’t take a phenomenal up market to achieve.
Unfortunately, in most case, the market will not return to a modest 5% appreciation a year for many years to come.
Dear Homedelete: Madfly said it best. It’s not the 1K per year I get (and it is more than that,but not much, that’s true;) its the mortgage interest, RE tax credits etc., other IRS deductions, all of whcih produce REFUNDS, and the RE appreciation over 25-30 years. Slow and steady. Of course appreciation will not be at the pace I enjoyed over the last 10, but I’m still nicely ahead. Time passes quickly, as, if you’re under 40 you’ll soon find, and the mortages will be paid off when I sell. With the principal nicely and SECURELY invested, I’ll live fine off the interest and probably not have to touch pricipal. VERY LIKELY as a renter of one property (not my principal residence) without any worries. Madfly is right. How long will it take you or anyone to save 150K with post-tax dollars? People who do that have diversified portfolios and are EXTREMELY disciplined and they DO, DO own real estate. Its still a good investment if you’re scrupulously careful. Do your homework and get in the game.
Forgot to mention, Homedelete: please call my property manager if the boiler goes out at 2:30. That’s what i pay him for. His salary is just one other nice expense I deduct which helps increase my IRS refund.
There are plenty of ways to make money investing in real estate; nobody disputes that. It’s just that since 2001+ it has been extraordinarily difficult to purchase properties with a positive cash flow. Too many speculators bought cash flow negative rental properties with subprime and option arm mortgage expecting 5% appreciation per year which drove up the price for every other piece of real estate. Look where we are now.
I recently came across a SFH in Harvey purchased by a guy for something like $10,000 and put another $20,000 in it to make it habitable. $30,000 and now he’s trying to rent it for $900 a month. I think that might be a bit high for Harvey; but still, even at $600 a month that would cover they mortgage (if there was one). The problem is that he has to drive to Harvey to try and collect the rent….ergh…
When I owned a Wrigleyville 3-flat in the 1980s, it was a nice tax write off against income, especially in the early years with accelerated depreciation. When Congress enacted the Tax Reform Act of 1986, all these losses became passive and now can only be used to offset passive income. There is a loophole for some real estate professionals or owners who actively participate in managing the property, up to $25,000 in loss per year against regular income, which is mostly phased out as income rises over $100,000. Pretty complicated stuff that any investor should look at carefully before deciding to become a landlord because of the great tax benefits.
Buying the 3-flat made sense for us back then. We bought if for $175,000 and had gross rents of $2000 a month. Of course interest rates were something like 12% when bought it, but property taxes were low then, so it still had positive cash flow. We were able to refinance it when rates came down and by then rents were higher and we lived for free in our unit. Maybe foreclosures will make it possible to find deals like that again, but I wouldn’t want to buy a building that didn’t have a positive cash flow. I would never assume appreciation in real estate.
jc “Madfly said it best. It’s not the 1K per year I get (and it is more than that,but not much, that’s true;) its the mortgage interest, RE tax credits etc., other IRS deductions, all of whcih produce REFUNDS, and the RE appreciation over 25-30 years. Slow and steady.”