MILLION dollar loss in Riverside

[quote author="irvine_home_owner" date=1247609033][quote author="graphrix" date=1247590740]That guy is going to be a brazillionaire when this all pans out. He will have enough cash to <strong>buy his home in Crystal Cove</strong>, because of his inside relations with the banks, in the next few years. Then he will sell his business right at the peak to some schmoe, because of his inside info with the banks, and retire at an early age in style.

</blockquote>
Yeah... but will he spend $1mil+ to live in the IE?



People on the main blog complain that homes in Irvine shouldn't cost what they do, especially over $1mil... so isn't that even more pronounced when you are spending close to $2mil in Riverside?



Other than your own personal preferences, what are the benefits in living out somewhere so remote for that much money? Are the schools good for your kids? Is it safe? Is it close to amenities. Is there a beach? I know there is a lake and I guess you can do parachuting.



I'm just trying to put things in perspective here. I know that during the bubble, people bought out there because it was affordable, but $2mil is hardly affordable... unless you are no_vas and it's like 20 acres of land and you plan on making a living off of farming it (and even that seems high to me).</blockquote>


I tried to buy a piece of property at auction about six months ago at a tax lien sale. 37 acres, but fairly marginal producer because of drainage issues. Has Westland Water District Class 1 allotment, but no physical water delivery. Directly adjacent to a major highway and across the highway from Lemoore Naval Air Station, but is not commercially developable because of zoning restrictions with the county. Has some value to me because it is adjacent to a property my mom and dad farm. Economic value is somewhere around $2000 an acre, using discounted cash flows, IMO. I started bidding at $1000 an acre, and quit at $3100. Two other guys bid it to a final settle of $4800. In the past 40 years, this is the third time this has happened (goes to auction, we lose to some insane price) and always with the same result. In another decade, it'll come back as a tax lien sale because it has no economic value to anyone else but me, and sooner or later somebody will stop paying the property tax bill. Again.



Remember, somebody who makes $300K a year is in the top 1% of all wage earners in the US. This is rare air. In Riverside, we're talking about 1%ers of 1%ers - uber rare air. It is my opinion there is a ton of properties built for a class of buyers who don?t exist. Sooner or later, the banks will sell these, and somebody will be getting a free upgrade for their trouble. You can?t have a glut of homes built for somebody making $100K in a town where the median income is $50K before prices adjust accordingly, although it might take a while to get there.
 
[quote author="no_vaseline" date=1247611159] It is my opinion there is a ton of properties built for a class of buyers who don?t exist. Sooner or later, the banks will sell these, and somebody will be getting a free upgrade for their trouble. You can?t have a glut of homes built for somebody making $100K in a town where the median income is $50K before prices adjust accordingly, although it might take a while to get there.</blockquote>




so this would be $400k houses in the IE (4x $100k), they should drop back down to $200k.





of course, the analysis could be applied to Irvine, then too, right? $800k houses should drop back down to $400k (since the mhi in Irvine is $90k and dropping)
 
[quote author="freedomCM" date=1247617474][quote author="no_vaseline" date=1247611159] It is my opinion there is a ton of properties built for a class of buyers who don?t exist. Sooner or later, the banks will sell these, and somebody will be getting a free upgrade for their trouble. You can?t have a glut of homes built for somebody making $100K in a town where the median income is $50K before prices adjust accordingly, although it might take a while to get there.</blockquote>




so this would be $400k houses in the IE (4x $100k), they should drop back down to $200k.





of course, the analysis could be applied to Irvine, then too, right? $800k houses should drop back down to $400k (since the mhi in Irvine is $90k and dropping)</blockquote>


Does the law of gravity still apply in Irvine (<em>false analogy, I know. I'm trying to be funny</em>)? Absolutely. In fact, <a href="http://www.irvinehousingblog.com/blog/comments/the-lakes-orangetree-irvine/">IR was making that exact point yesterday.</a>



<blockquote>Think about that: in 1997, a family making the median household income could buy a median home with a payment that was less than 25% of their income.



One of the erroneous contentions real estate bulls have made over and over again is that the median household income could never buy a median home. That is simply nonsense.</blockquote>


IHB user Awgee said about the same thing on his blog this morning:



<a href="http://www.cotohousingblog.com/?p=2000#comments">http://www.cotohousingblog.com/?p=2000#comments</a>



<blockquote>If you think back to the spring of 2005, what were folks saying about real estate? Prices will keep going up? Buy now or be priced out forever? If you do not start building equity now, you will miss out? Do you know anybody personally who said, ?Residential real estate prices in Southern California are overinflated due to easy financing and when the easy financing ends, as it always does, housing prices will collapse?? </blockquote>


Keep in mind the recent words of Robert Shiller, who said:



<blockquote>One thing is true about housing, it is a very inefficient market - and it shows momentum.</blockquote>


Or, the words of Malibu Renter in the comments of yesterdays blog posts:



<blockquote>I?ve commented on this extensively. It?s not that all markets are inefficient. It?s that the single family housing market is inefficient. Even worse, it is overwhelmingly a market of amateurs. </blockquote>


Lot of wisdom there that seemed obsolete in 2005.
 
[quote author="IrvineRenter" date=1247174545]These are beautiful homes on huge lots in a quiet part of town. It still feels like an area of rural estates</blockquote>5500 SF is one heck of a large house. Are the local public schools any good ?



"School District: Riverside Unified" does not sound promising, but maybe Ok until high school ?
 
These million dollar properties are very rare. Well, rare now-not so rare in 2006 or so. However, there are tens of thousands of fully detached houses that have 3 beds or less, 2 baths or less, 1,200 sq ft or less, most on lots of ~7,000 sq ft or larger (.16 acres), most built in the 1950's (with those not built then mostly built before), with values of less than $125k, in the city of Riverside. Now, many of these $100-125k houses sold for two and a half or three times (sometimes more) than that in 2006 or so, which was absolutely ridiculous. But at $100k, a married couple, both working a minimum wage job for 35 hours a week ($29k a year total), can afford a house in Riverside. The only difficulties would be the 3.5% FHA down payment, and finding a house that doesn't get into a huge bidding war which is won by an all-cash bidder.
 
$124 per SF for basically a brand new house on 0.86 acres of basically desert. How much is labor to build a new home in Riverside ?
 
[quote author="xoneinax" date=1247656600]$124 per SF for basically a brand new house on 0.86 acres of basically desert. How much is labor to build a new home in Riverside ?</blockquote>


I think the typical figure (nationwide) is $150/sq ft if you do a one off; as little as half that if you are builder mass producing them. Of course, it depends a lot on the quality of the materials and design of the interior (huge great rooms are cheaper than a bunch of seperate rooms, especially if they need plumbing, for example). Prices may have dropped recently as contractors have had their work dry up.
 
Hmm, it should cost more per SF to build a 1500 SF home than a 5500 SF one.

If at 500k instead of 675k, is this 5500 SF Toll Bros home in a decent area of Riverside a bargain ?
 
[quote author="Geotpf" date=1247657002][quote author="xoneinax" date=1247656600]$124 per SF for basically a brand new house on 0.86 acres of basically desert. How much is labor to build a new home in Riverside ?</blockquote>


I think the typical figure (nationwide) is $150/sq ft if you do a one off; as little as half that if you are builder mass producing them. Of course, it depends a lot on the quality of the materials and design of the interior (huge great rooms are cheaper than a bunch of seperate rooms, especially if they need plumbing, for example). Prices may have dropped recently as contractors have had their work dry up.</blockquote>


I understand you can do tract homes in the Bako-Fresno area for $50-65 a foot. No pergranteel but still.
 
[quote author="no_vaseline" date=1247661285]I understand you can do tract homes in the Bako-Fresno area for $50-65 a foot. No pergranteel but still.</blockquote>


That is what the builders are doing in the IE. Granted, all the materials are K-Mart quality vs. the Wal-Mart quality they used to be, but that is what you have to do when you hold land at a negative value.
 
[quote author="xoneinax" date=1247657773]Hmm, it should cost more per SF to build a 1500 SF home than a 5500 SF one.

If at 500k instead of 675k, is this 5500 SF Toll Bros home in a decent area of Riverside a bargain ?</blockquote>


If the quality of the materials was the same, probably. But a buyer of a 5,500 sq ft house will probably expect higher quality everything than a buyer of a 1,500 sq ft one.
 
[quote author="Geotpf" date=1247733567][quote author="xoneinax" date=1247657773]Hmm, it should cost more per SF to build a 1500 SF home than a 5500 SF one.

If at 500k instead of 675k, is this 5500 SF Toll Bros home in a decent area of Riverside a bargain ?</blockquote>


If the quality of the materials was the same, probably. But a buyer of a 5,500 sq ft house will probably expect higher quality everything than a buyer of a 1,500 sq ft one.</blockquote>


For one, you have to put in fire sprinklers somewhere around 3799 feet.......
 
[quote author="Geotpf" date=1247733567][quote author="xoneinax" date=1247657773]Hmm, it should cost more per SF to build a 1500 SF home than a 5500 SF one.

If at 500k instead of 675k, is this 5500 SF Toll Bros home in a decent area of Riverside a bargain ?</blockquote>


If the quality of the materials was the same, probably. But a buyer of a 5,500 sq ft house will probably expect higher quality everything than a buyer of a 1,500 sq ft one.</blockquote>


Not true at all. 5,500 sf is still crappy drywall and not venetian plaster interior. This is how builders made their money by building a larger house on the assigned lot. The trades are out there already. When one started a pot of boiling water it is minimal work to boil a few more eggs. This is the basis of BagOChip theory to fool the consumers by thinking they are paying less $/sf.
 
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