Still Available and Now Selling for Under the 2004 Price: 506 W. Armitage
The strains on the market are becoming apparent even in prestige neighborhoods like Lincoln Park.
Take this vintage 2-bedroom unit we’ve chattered about twice before. It has now been reduced $16,000 and is listed below its 2004 selling price.
Is the older kitchen and bath hurting it in this competitive market? Or is it still the lack of parking?
See the pictures and our last chatter here.
Here’s its history again:
Unit #1: 2 bedrooms, 1 bath, no square footage given
- Sold in September 2004 for $312,000
- Was listed in August 2008 for $325,000
- Under contract in August 2008 but fell out
- Reduced
- Was listed in November 2008 for $319,000
- Reduced
- Currently listed for $309,000
- Assessments of $216 a month
- Taxes of $3,706
- W/D in the unit
- Woodburning fireplace
- Central air
- No parking
- Carol Nevada Duran at Rubloff still has the listing. See the pictures and virtual tour here.
- See the property website here.
That seems cheap to me.
Uh, the “master” bedroom is a joke.
http://506warmitage1.rubloff.com/pics/property/2782705/5/Master%20Bedroom/?maxwidth=586&maxheight=382
The kitchen needs to be redone as well. Another 2br that really shouldn’t be a 2br.
Yeah, a, the master bed looks likes a prison cell ! $309k is delusional.
the pictures are a bit deceptive. the rooms are all good sizes, although the second bedroom’s a little narrow. this building is one of the unfortunate ones where the management company owner ran off with all their funds last year. potential buyers are a little freaked out when they hear the association has no reserves. it’s a great building in a great location, but does need work…
“$309k is delusional.”
But it’ll rent for between $2000 and $2200 (sez everyone previously). Steve’s formula sez:
12*(2000-216)-3706/.055/.8 = $402k
12*(2200-216)-3706/.055/.8 = $456k
So, it’s **at least** $100k underpriced. Get out your checkbooks, kids, this one’s a sure fire winner.
“this building is one of the unfortunate ones where the management company owner ran off with all their funds last year. … does need work…”
But at least it isn’t 630 Franklin, right art? $300/ft and no reserves and needs work makes sense here, right art?
They’d be lucky to rent it for $1600.
anon(tfo) in all seriousness, steveo’s formula is obviously wrong, but what makes it so wrong? Does it assume rents are too high, or 20% down, or what? Thanks!
I have not critically examined them but its my guess his formula leave little wiggle room on their ROI’s. Increase vacancy time by a little more and boom, that 0% ROI goes negative. Decrease expected rent appreciation by a few %, that ROI goes negative. Increase RE taxes by a few extra %, that ROI goes negative. Its a risky business.
Lets also not forget how he fudges on his taxes. He knows the bottom line needs to be zero for uncle sam to get nothing. Doesn’t make him any worse of a person than 95% of financial managers in corporate america though trying to hit numbers.
I retract my last statement- I didn’t see that there was no parking.
No parking no association reserves needs work. clearly a great buy since its in LP right?
Anon (tfo): no, it doesn’t necessarily make sense. didn’t say it did, just relating what i know about the building.
I stick to my previous prediction: $319K if the kitchen and bath were updated. so about $260-275 sale price.
I’d say it’d rent at no more than $1500/month
HD:
There are a couple of things to think about re the equation–1) it’s an admittedly (by Stevo) super simple calculation–it’s just a starting point in price analysis; 2) I think it builds in an “owner’s premium” to some extent; 3) it’s sensitive to rent prices–you need to have a legitimate, actual rental value for it to work–so it has limited application outside of larger buildings; and 4) it’s sensitive to available mortgage rates, so if there is rate volatility, you get value volatility, too, which isn’t really right–stick 8% in instead of 5.5% and that $456k (w/ 2200 rent) becomes $314k–a 31% drop b/c rates went up a plausible amount.
If you use $1600/month for rent (which I was laughed at for suggesting the first time this place came up), then you get $293k, which makes sense, except for the condo association situation. So, I’d say the two biggest problems with Stevo’s formula are (1) finding real rental values, and (2) the way “values” can jump around based on interest rates.
art:
just giving you a hard time b/c it ain’t cool to try to (implicitly) guess where a poster lives.
Fair enough. I had my reasons.
Yeah I was an ass to art, so its only fitting he be one right back. We cool now?
Sounds good to me mate. Seriously, good luck with your purchase. (And if it is that unit, it looks like you’re paying $65k less than your downstairs neighbor did in ’06 so kudos to you.)
Here’s some anecdotal data for you: my condo has been on the market since July. It’s now marked at roughly a 2.5% YOY appreciation from when I bought it. I haven’t had any offers yet but, over the past two weeks, I’m getting a lot more traffic – three this w/e (which has never happened. I’m curious to see if I get an offer…which I expect to be ridiculous).
“roughly a 2.5% YOY appreciation from when I bought it.”
Whether or not your unit sells in spring I think will be entirely a function of when you bought it then at your current ask price.
If you bought it in 2002 or earlier, you should be okay. If you bought it during late 2003 or later, I don’t see you getting 2.5% Y/Y appreciation since then. Who knows though its always a crapshoot when talking about individual properties.
Guys, take it easy on my formula. It is 1 piece in a large puzzle for valuation analysis. See, I always look at this formula as my “worst case scenerio”. “worst case” meaning I just lost my job and can’t pay my mortgage formula. The time to move and get a renter to pay my mortgage formula. The I will never go bankrupt formula. It works well on high rise units because the rental market is very transparent and liquid. On this unit I would pay
Guys, take it easy on my formula. It is 1 piece in a large puzzle for valuation analysis. See, I always look at this formula as my “worst case scenerio”. “worst case” meaning I just lost my job and can’t pay my mortgage formula. The time to move and get a renter to pay my mortgage formula. The I will never go bankrupt formula. It works well on high rise units because the rental market is very transparent and liquid. On this unit I would pay
no more than $280k. It has potential and will always have strong rental demand regardless of parking. The kids at DePaul pay $1000 per month for a dorm room. They will certainly pay $2,000 to live here instead. The kitchen and bath can be updated for $15k total. They are small…
You guys have to remember something. We are in a teriible economic situation where everything we read, watch, and hear relates to how bad housing and the economy are. Let’s say there was a real liquid market for real estate and the value of this property was $330k. The negativity of everything we are experiencing decreases the value of this property regardless of the fundamentals that support this valuation. Someone selling into this negativity can only expect a lowered preceived value in this environment. In fact, anyone brave enough to enter this market as a buyer should expect a real value for the risk of going against the grain. So if the intrinsic value of this unit is $330k, the preceived value may only be around $290k to today’s buyer. This is purley due to the negativity surrounding the general markets. If in 2010 we see unemployment tick back down, and consumer confidence gain ground, today’s $290k value will quickly return to the intrinsic value of $330k.
Again, there is no reason this unit is not a great investment at $275k – $285k (unless the building is in trouble). The rents will support the monthy housing expense and longer term the demand will return and the valuation will go up.
Let’s remember that with rental condos there is very little maintenance on the unit (keep part of the security depsit and paint the place after each tenant) and there will be 0% vacancy in this highly demanded area. You also will never pay taxes until the unit is fully depreciated 27.5 years down the line.
When I say that prices will rebound when fundamentals recover, I am not talking about that junk in River North, South Loop, and other transitional areas where people paid above average prices for their units. New construction becomes old the day after you move in. Not to mention the crap new construction owners have to deal with when the developer’s defects show up and he is in the Bahamas not answering his cell phone. People were stupid. They spent $400k on a condo they never came closer to then watching a video in the sales center and reading a brochure. They should have read the fine print as follows… “Well folks your condo will look just like the model you are in except it will be smaller, have very standard finishes, and the view will be of a brick wall and not of Lake Michigan as you can see here. Don’t worry about paying $100 more per sq ft than the comps will support, values will appreciate at 10% per year and by the time it is done in 2008 (5 years later), your unit should have doubled in value. “I’ll take 5 yelled the Donald Trump look a like.” and here we are today…
My favorites were these new construction 4 flats (3 in a row) on Irving Park / Racine. @ Properties was marketing these places (across from the Burger King) and they had nice finishes, roof decks, and were priced about 7% lower than what you found a couple blocks south in Lakeview. I remember looking at these places and asking myself who in the world would pay $530,000 for a $1,300 sq ft 4th floor walk up on loud and unattrative Irving Park? I remember seeing the 1st one sell for the asking price plus $7,500 back in May of 2007. I have not looked but I would bet my right arm that these units would not sell for $430k today. 4th floor walk up with busses, 4 lane traffic, and no retail? Oh the mistakes people made. Remember, location is everything. Don’t ever sacrafice location for extra views or extra finishes.
It was 1426 – 1430 w Irving Park. I just looked them up and laughed. Sabrina, please run a headline on this stuff because it fits your profile perfectly. The 3 floor units originally sold for $467,000 in October of 2007. The listing agent now has the last of the 3rd floor units on for $399k. this thing is going to sell for $350k before it is gone and the guy next door is going to be out $100k in less than 15 months. Who could have rationalized living in such a teriible location and still paying “best location” pricing?
Sabrina – Please take a look because it is a perfect example of what I’ve been saying.
It’s good that Steve clarified his formula as a pay the mortgage scenario because a lot of people look at real estate investments this way and it’s wrong. They think positive cash flow is they get some extra cash each month but it’s more complicated than that. You also need a return on your equity and it better be pretty high given that you have an investment which is:
1) Leveraged 5:1
2) Non-diversified
3) An asset that deteriorates over time
4) Full of headaches and tenant risks
5) Totally illiquid
6) Subject to significant transaction costs
So you should target either an appropriate return on equity or you can look at it as a full cash purchase (regardless of how you are really going to finance it) and ask yourself what kind of return on assets is appropriate.
I compare equity in real estate to stocks where at current levels you should easily be able to get a 10% return in the long run and has none of the issues noted above.
“But at least it isn’t 630 Franklin, right art? $300/ft and no reserves and needs work makes sense here, right art?”
I own in this building. What are you referring to? I am not aware.
Gary,
Our financial system is teetering. I’m not sure 10% returns on stocks will be available over the long-term (next 20 years). Especially if all this fiscal stimulus finally results in serious inflation, the real rate of return for stocks will likely be a lot lower.
The joke is these days ROI means return _of_ investment.
We now see that the SHill meant his “formula” to apply for accidental landlords. No vacancy or repairs (except “keep part of the security depsit and paint the place after each tenant”) are necessary?
It is obvious that the SHill has absolutely no experience with a declining market.
Nor does he appear to be a very experienced landlord.
This condo is a great starter place for a person in their mid-20s and is in an awesome area. I think the main problem is the price. The sellers need to look at Countrywide’s and Wells Fargo’s REO list so they can see what they are up against. Larger units, needing the same cosmetic facelift that are selling for 25-30% less and have parking available for purchase. They need to either rent this unit out for a few years or buckle down and give it a facelift.
Bob,
Right now we’re battling deflation. All we need is enough inflation to offset that. It doesn’t have to be excessive. They should be able to get it just right. If they overshoot they can pull in the reins pretty fast. The fed just sells all the bonds they’ve been buying and sops up the excess liquidity.
The fed views it’s actions through the rear view mirror. There’s always at least a 6 month lag between their actions and its measurable (if any) effect on the economy.
Gary,
I disagree that they can pull in the reins quickly if rapid inflation pops up. The Fed is paralyzed from raising interest rates right now. Any increase would have adverse effects on housing demand and prices. If the Fed had to raise the federal funds rate back up to 5% it would be a disaster for housing and the financial system.
Its my bet they want rapid inflation as a way to stealthily re-distribute wealth and dig our way out of this housing bubble as well as devalue our government’s massive debt.
Steve Heitman said: “Let’s remember that with rental condos there is very little maintenance on the unit (keep part of the security depsit and paint the place after each tenant) and there will be 0% vacancy in this highly demanded area.”
Very little maintenance on the unit? Ha! ha!
Steve- you have no idea what those “nice” renters can do to a condo unit. Just a few months ago, I saw one put a hot frying pan on the lovely marble counterto and fried it. They’ll have to replace the whole thing.
Not to mention, flooding kitchens because the washer/dryer was packed too full, fires on the stove, and ruined bathrooms. Let’s not even discuss the “parties” and pets (if you allow them- or even if you don’t.)
It’s much more work than you think.
Unless of course he’s a slumlord; that would explain keeping the security deposit for no real reason. And the little to no maintenance. I hope he’s familiar with the Chicago Residential Landlord Tenant Ordinance (RLTO).
http://www.depositlaw.com/chicago%20RLTO.htm
I’ve never brought a case, I’ve only defended them and they are a pain in the butt.
Bob,
I agree partly with what you are saying but I don’t believe we need to choose between deflation and high inflation. There has to be a happy medium. The only way we would be in a highly inflationary environment is if we were already digging our way out of this housing debacle. Get inflation to 3 or 4% and we’d be better off than we are now.
“There has to be a happy medium.”
In a functioning economy, yes. In a manipulated economy, no.
Gary – I think we all understand that purchasing a leverage asset only works in times of inflation. If you have staeady inflation over a 10 year period your asset will increase in value and you will have a nice return on your equity. If you tell me we will be Japan for the next 10 years real estate is not the correct investment.
“Right now we’re battling deflation. All we need is enough inflation to offset that. It doesn’t have to be excessive. They should be able to get it just right. If they overshoot they can pull in the reins pretty fast. The fed just sells all the bonds they’ve been buying and sops up the excess liquidity.”
Gary – I don’t think the fed will share you optimism on controlling inflation / deflation. If they are successful on controlling deflation you can trust me that we will see high inflation return for a couple years.
Sabrina – Again you can control who rents your unit. Do a better job vetting your potential tenants and you will not have this problem. Require a larger security deposit and you want have this propblem either. You always look tot he mistakes people make and the worst cas scenerio.
Not all people over pay for their units and then rent it to people that destroy it. Some of us own high rise units and have the same renters there for 5 or 6 years without a single phone call. This is more realistic that your frying pan example.
Good luck finding those great tenants who are willing to put down a bigger security deposit. This article in today’s Tribune makes it look like a renters market, with landlords having to make concessions. Hope all your units have long term leases.
http://www.chicagotribune.com/business/chi-sun-posh-pads0118jan18,0,162222.story
Heck yea. I wish Sabrina would do more features where the flipper is trying to rent the unit as well, often for a great price. I remember there was as 2/2 in One Museum Park for 2,700 (with parking). With more entries like that it might tempt me to be like the Bob in the article.
I might not be able to afford a 500k place, but these days I can still live in one 😀
I like how flippers are trying to break even renting out these high end units.
“Now the rent has been dropped to $1,800. At either price ($2,000), the owner wouldn’t be covering the expense of the mortgage, taxes and the assessment.”
Anyway you look at it (rent or own), his unit isn’t worth $1,800 a month.
Actually he’s not even breaking even, he’s losing money! hahahaha
“I wish Sabrina would do more features where the flipper is trying to rent the unit as well, often for a great price. I remember there was as 2/2 in One Museum Park for 2,700 (with parking). With more entries like that it might tempt me to be like the Bob in the article.”
I actually do this all the time (million dollar houses with rental prices of $5,000 a month or less.)
I haven’t done it too much with the high rises- but there are plenty of examples of this. I’ll post some more this week.
Sold for $304k on March 9.
homedelete on January 16th, 2009 at 3:04 pm
Yeah, a, the master bed looks likes a prison cell ! $309k is delusional.
Lauren on January 17th, 2009 at 1:28 pm
I think the main problem is the price. The sellers need to look at Countrywide’s and Wells Fargo’s REO list so they can see what they are up against. Larger units, needing the same cosmetic facelift that are selling for 25-30% less and have parking available for purchase. They need to either rent this unit out for a few years or buckle down and give it a facelift.
“Sold for $304k on March 9.”
So in addition to losing 8k the owner was also out the ownership premium over five years of ownership as well as potentially the full carrying costs of the unit being vacant from August 2008 through early March 2009, as it looked vacant from the pics.
So how much did they lose overall? At least 30k?