Thoughts on Avenue one.

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IrvineRenter,

Thanks for your enlightening insight. It is good news for those who can wait 3 - 5 years but bad for me who is looking to get a place sooner than that. Where are you getting this information from? Multiplying the rent prices by 150 sounds like a good deal for Avenue One or the like but I find it hard to believe owners of those condos will sell for that low. If it does go that low, I think they are better off keeping it for the long term.

Let's say we are for sure that prices will continue to drop for the next couple of years, what would be a better option: To wait for the prices to hit rock bottom? Or to purchase soon with "low ball" offers knowing that the crash is common knowledge (if it even is) to sellers and RE?
 
dayday,

The bottom line is if you buy too early, you will go underwater, and depending how early, you may stay underwater for a very long time. Don't expect a quick return of appreciation. It took 8 years for appreciation to return to the market after the peak in 1990. To "low ball" right now sounds like a good idea, but you won't get any takers at a price that is low enough to protect yourself. This market needs to ripen first. In 2010, the low ball offers will probably get you something near 150 times rent. As you noted, "I find it hard to believe owners of those condos will sell for that low." Right now, they won't. However, "If it does go that low, I think they are better off keeping it for the long term." This won't be an option for most of these upside-down owners because the carrying costs will kill them. When you can only rent a condo for half your payment, you are sinking deeper and deeper in the hole each month. Most of these owners will walk from the property or sell it at a loss to prevent further losses. This is where the supply is going to come from that drives prices lower. If these people didn't have to sell, prices would not decline much, or would do so over a very long period of time. Watch the supply and foreclosure numbers. This is where the action is. When those numbers are high, prices go down and will continue to do so until the numbers change. With all the ARM's in the market, both of those numbers will be high for the next 7 years with the next 3 to 5 being the worst. Go rent a nice place, save your money, and be patient. That's what I am doing.
 
dayday: why would you want to pay even $369K for a 600 sq. ft. hole? It is a tiny space, and to buy now is like catching a falling knife, even with a low ball offer. With over $800 billion of ARMs scheduled to reset this year, you will see more condo units flooding the market. I am guessing HOAs are outrageously expensive (which BTW does not go towards the principal paydown of your mortgage - it fattens the pocketbook of the property managers), property tax delinquencies are rising, interest rate may go up. If nothing else, the "urban living" sales pitch does not appeal to too many buyers, thereby limiting your ability to resale when and if you need to later on. What's more, when this bubble is pricked, the most impacted, I think, will be the condos. The single detached homes will always have the intrinsic value to the buyers, and if all things being equal, will have the distinct advantage over the condos when there is a need to resale.
 
IIIrvine,

Thank you for your response. I don't plan on buying immediately, maybe sometime in the next year or so. Until then I am going to continue renting. It does seem like rental prices are high. The "urban living" does appeal to me I have to admit. I just wonder how prices will look like in the next year until I am ready to buy. I'd be happy if prices dropped 15%. It is hard to predict how low they will go but the bottom line is that I will be purchasing a place to live in, not for investment. So even if prices continue to dropped after I decide to buy, I will be okay in the long term as I don't plan to be a flipper. If I break even or even lost money after I decide to sell, it will beat losing money every month paying high rents waiting for prices to drop. Atleast paying a mortgage will go towards ownership of the condo.

Your friend,

dayday
 
dayday: "If I break even or even lost money after I decide to sell, it will beat losing money every month paying high rents waiting for prices to drop. Atleast paying a mortgage will go towards ownership of the condo."

Let us put some numbers behind those words... Assume $400,000 condo, with three different down payment scenarios, 5%, 10%, and 20%, each with a 30-year fixed loan, a 5 year holding period, and a scenario in which the market drops a meager 15% in five years (to quote from your post, "I'd be happy if prices dropped 15%.")

1) 5% down, loan = $380,000, 6.375% fixed for 30-years no points.

Monthly P&I Payment = $2,371, Principal Balance at the end of year 5 = $355,206

Market Value (MV) at the end of year 5 (assumed 15% decline above) = $340,000

MV net of Selling Costs (assumed 6% + $2,000 misc. fees) = $317,000

Cash needed from seller at closing = $355,206 - 317,000 = $38,206

2) 10% down, loan = $360,000, 6.375% fixed for 30-years no points.

Monthly P&I Payment = $2,246, Principal Balance at the end of year 5 = $336,511

Market Value (MV) at the end of year 5 (assumed 15% decline above) = $340,000

MV net of Selling Costs (assumed 6% + $2,000 misc. fees) = $317,000

Cash needed from seller at closing = $336,511 - 317,000 = $19,511

3) 20% down, loan = $320,000, 6.5% fixed for 30-years no points (eloan.com would not give me a better rate for no points for this down payment).

Monthly P&I Payment = $2,023, Principal Balance at the end of year 5 = $299,555

Market Value (MV) at the end of year 5 (assumed 15% decline above) = $340,000

MV net of Selling Costs (assumed 6% + $2,000 misc. fees) = $317,000

Cash Due to seller at closing = 317,000 - 299,555 = $17,445

So only a very high! down payment will give you enough equity cushion so you don't end up burning a huge gaping hole in your pocket when you sell.

Let me give you the renter side of the picture. Let's say you have the $80k today, but you decide to join the wise bubble sitters like us and bank the cash in a a 5 year CD at 5.16%. (Before you start arguing why a 5 year CD is not such a good idea, I am just trying to keep the calc simple here, so bear with me). At the end of year 5, your cash will be worth roughly $103,000. Let me add to that the following: You will be saving anothe $800 - $1000 per month in renting a similar unit for the next five years. If you are a saver not a spender, you can bank $800/month in a high yield savings account of around 5% and gain $53,000 at the end of 5 years in additional savings, which I will leave out of the picture for the moment.

Assuming you are still looking in the same price range of $400,000 five years from now, a nicer, 2- or even 3- BR condo that goes for say $475,000 today, would have dropped by a similar factor of 15% by then, i.e. around $400,000. Then, you could put a hefty 25% down payment of $100,000 for a much bigger condo, one that leaves you a little bit room to grow into if you have a small family by then. So, I urge you to read the above analysis closely and think about it very hard before you plunge into the abyss of home ownership in a market decline that has only just begun...
 
^^^ Excellent analysis there, this is pretty much what I came up with. Its a rental property for me so I don't mind a mild depreciation (in fact I even welcome it...). But make no mistake if it goes 20% down, its going to sting and sting for a long time. Right now though I'm putting 90% of the rent money into a high yeild accounts so that I at least put some of that money to use as either cash flow, interest earning money or money for another property. Anyways thanks again.

-bix
 
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Pre construction prices were about 400-600 per sqft depending on size. Its fallen quite alot, but I think it will fall alot more. If you can get the price down to something like 350-375 per sqft. Then it might be worth it. Add to that your few dollars down and you might have a decent price. But still all you will be doing is getting under the negtative equity bar. It doesn't mean you won't lose some equity in the process.

If you want to just purchase a place, i think you may find a few better alternatives, like Watermarke (which have already depreciated alot).... anyways good luck and don't work too hard.

-bix
 
What is happening at Ave One these Days? I remember the 600 sq ft ones going for $385K quite a while back, anyone have any insight?
 
From what I can tell based on Redfin, there were a lot of speculators and investors who bought a good amount of the Ave One homes. There's a 2bd/2ba going for $300K (taking a $265K+ loss). My wife and I were considering buying back in 2007. We didn't care for the layout, the asking price $480K 2bd/2ba, the high HOA, but we loved the location. I'm glad we passed on it and decided to rent. The prices still have a good ways to fall and that HOA makes ownership less than desirable. It seems like it would be a good investment to rent out to UCI grad students, but the rent and HOA would be set too high.
 
It's so great to revisit these threads. The first post is about a 1 BEDROOM for $385k and now they have 2/2s going for $300k. Hey, it was a horrible deal in 2007, and it's still horrible.
 
He asked about a 385k condo but mentioned buying a slightly smaller one. So, 325k?

He also mentioned that the home was purchased with 1031 funds, meaning that, if you don't spend it, you get taxed 15%. In essence, he had the choice of throwing the money away by paying to IRS (At 15%, thats $48750), or, buy the property, and hope it doesnt depreciate more than $48750. A similar 1BR in AveOne is asking for $250k right now. So I would speculate, he's down a little bit, but not all that much.

But, he also has a long term, stable tenant, which balanced out the monthly cash flow for the place. As long as rental market doesn't plummet, it will be OK :)

In hindsight, if the gov't doesn't push these funky laws (1031, 250k exemption) that inflated the real estate bubble, the bubble burst probably would be a bit more mild. For me, I'm glad that I was able to deduct income down to a point where my mind doesn't meander towards using tax deduction as an excuse to make a bad business decision :)
 
kwong7 said:
From what I can tell based on Redfin, there were a lot of speculators and investors who bought a good amount of the Ave One homes. There's a 2bd/2ba going for $300K (taking a $265K+ loss). My wife and I were considering buying back in 2007. We didn't care for the layout, the asking price $480K 2bd/2ba, the high HOA, but we loved the location. I'm glad we passed on it and decided to rent. The prices still have a good ways to fall and that HOA makes ownership less than desirable. It seems like it would be a good investment to rent out to UCI grad students, but the rent and HOA would be set too high.
Click to expand...

Hah! grad students? the ones living on $25k/year if they are lucky? the ones getting on campus apartments for $800/month?

maybe you mean medical, law, and MBA students? of course, these folks are racking up $25k/year in tuition, so may not be so into luxury living prices, either
 
Shadax said:
It's so great to revisit these threads. The first post is about a 1 BEDROOM for $385k and now they have 2/2s going for $300k. Hey, it was a horrible deal in 2007, and it's still horrible.
Click to expand...

I know, it's sometimes good to look back...

I use Ave One for a reference as to how prices are dropping, the 600 sg ft @ $385K sticks in my mind for some reason, can't remember which year though..
 
biscuitninja said:
I have the opportunity to buy in Avenue One. The cost for a 1B (- 725sqft -) is 385, down a significant amount from last year. The incentives currently are 5,000 in closing costs and 2 years worth of association fees (~310 month). What is the community recommendiation?

Thank

-bix
Click to expand...

That's AT LEAST $100K overpriced. Do some research, those babies are not selling fast.
 
norcaljeff said:
biscuitninja said:
I have the opportunity to buy in Avenue One. The cost for a 1B (- 725sqft -) is 385, down a significant amount from last year. The incentives currently are 5,000 in closing costs and 2 years worth of association fees (~310 month). What is the community recommendiation?

Thank

-bix
Click to expand...

That's AT LEAST $100K overpriced. Do some research, those babies are not selling fast.
Click to expand...

He posted that January 2007....they will probably pay you to move in now...
 
PeterUK said:
norcaljeff said:
biscuitninja said:
I have the opportunity to buy in Avenue One. The cost for a 1B (- 725sqft -) is 385, down a significant amount from last year. The incentives currently are 5,000 in closing costs and 2 years worth of association fees (~310 month). What is the community recommendiation?

Thank

-bix
Click to expand...

That's AT LEAST $100K overpriced. Do some research, those babies are not selling fast.
Click to expand...

He posted that January 2007....they will probably pay you to move in now...
Click to expand...

Actually I've been keeping a steady look at these and they are indeed coming down... alot. The only part to making these units have a positive cash flow is the VERY expensive association fee. We will see.

Take it easy

-bix
 
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