San Diego Housing Bubble News and Analysis

Do you homework! I have come across some NODs in the complex.

5402 Balboa Arms 323 is listed at 269k, Beds/Baths: 2 / 2
Square Feet: 880 sf

#439 4 / 2 1,101sf listed for $295,000 $268 psf

#341 3 / 2 971sf listed for $300,000 to $330,000 $340 psf

5252 Balboa Arms 233L listed at 280k.

Check Balboa Ridge activity and click on all the units. Do comparisons on location, square footage and price. Then check recent sales. Check to see if anyone posted any NODs or foreclosures on them. Short sales may end up selling for less, potentially and most likely bringing down the comps.

Eventually the developer may end up reducing. I personally think 315k is too high and wouldn't do it. There are units in UTC selling for less and better hood.

Agree with jp. Unless someone can convince you that these units would rent for more than $1500/month, anything above $225K seems too high.

Here's the developer's site: http://www.mpcondos.com/property_list.ph...

Note the property at the top listed for $139,900 that rents for "$1495-$1595 per month." I see the following exchange between you and Maisel Presley:

You: Why are you selling this other property for 8x annual rent but you're trying to sell me this property for over 17x rent?
MP: Well, this property here is nicer than the other property.
You: Well doesn't the rent for this property here reflect the fact that it's "nicer"? And, if so, then why should I pay a higher multiple?
MP: Well... ummmm...

Condos are just apartments that are owned. Back into the (approximate) value based on the rent. That is, use the rent as the starting point to determine value, not the asking price.

The thing I would add to Davelj's post is that you really need to add the hoa fees into that rent equation.

This area is going to be good for rental (essentially forever) due to its proximity to rte 41/27 bus line and UCSD (yes I used to live there) but the rents are what they are. While parents may be duped by gated complexes and nice neighborhoods, most students are poor and will not pay above market.

Specifically, the unit is going to take in rent minus hoa fees. The real annual rent is this times 12. I would knock off 20% to account for repair and vacancy costs (as well as other costs like tax and insurance). This can get you a sort of rough cap rate.

I would find these compelling if I could get at least 8% of sale price back annually (based on the above numbers) I would find that compelling enough to consider. Part of my reasoning is that rent increases every year and vanilla loan payments do not (emphasis on vanilla).

I would add that projected rents aren't real, hence the word projected. I would also say that the idea of rents going up every year depends part and parcel on the same inflationary belief that got us to where we are. It could be true in the future, but I wouldn't be willing to bet on that In the next 5 years.

I do agree that if the total cost of ownership returns 8% after all is said and done it could be worth the risk. That is if you are considering a future as a land lord.
Josh

Yeah, my response was incomplete. You have to take into account the HOA and property taxes. So, specifically, compare imputed rent (assume no growth) with [mortgage interest + HOA + property taxes]. Tax effect the interest and property taxes if you like. This is getting a little technical but the basic idea is to compare your all-in cost of ownership with your all-in cost of renting. If they're about the same then you probably won't get hurt too bad in the long term in buying. But in the short term all bets are off.

Since it sounds like you're planning on owning this place (as opposed to being a landlord and renting it out), I'd disregard the vacancy and repair friction above in your calculations. You want to make an apples-to-apples comparison, after all.

I have to agree about the idea of rents going up as not necessarily being the case. I just took the plunge and signed up for a rental for another year, since it doesn't look like I'll be buying yet, as much as I'm trying.

The place I'm at now in UTC is a 2/2 for 1700, nothing special about it. I saw one closer to PB w/a distant view of the ocean for 1900, 2/2. Much nicer place. They agreed to 1800.

I would not buy any condo conv. for more then 50% off peak prices. If these are, the MP condos that started selling in 2005 there will be more dramatic price drops. I would not consider these new condos in anyway. They may have new plumbing/electrical in the walls, new kitchen, new baths, paint, interior drywall. They still have the inconvenient parking, dated exterior, and apartment feel. Anything in the 300's should have an attached garage and more updated floor plan. There are 2 bed/2 bath condos within a few blocks going for under $200K. Condo prices are starting to tank everywhere and soon enough these condos will be affected by these price drops. The Allure condos in Serra Mesa were selling about the same time and are starting to see price drops of %50+ already. Condo converts sold between 2003-2007 will have large numbers of foreclosures bringing down the prices. Once the price drops to about
%30 off peak, it just accelerating the rate of decline. People will just start walking away. Watch out for HOA issues once this starts happening. As soon as the builder sells off remaining inventory, the HOA usually goes to hell and the place starts to deteriorate. Take advantage of the price drops; do not get taken before the price drops.

The problem with using this as a strategy is that it uses the peak housing boom prices as a reference point. Waiting till things fall (x)% from peak is not a well thought out plan. I have seen projects where the magic number was 30% (because of location or some desirable aspect) and I am just about to close escrow on one for 60% off of peak (and I still think its high).

However with regard to the HOA, recordsclerk makes a really good point. The fiscal health of the HOA needs to be reviewed by the buyer. This is a good situation for employing a competent buyer agent or an attorney or someone who can really help make sense of this for you. When you look at the package the seller gives you it is really important to know what governing documents you are agreeing to and whether they have a functioning budget built in.

MP was teh biggest condo converter in SD county. If they survive, I'd be astonished.

Maisel is still a part of it (I think the other dude left) and usually its now stratus as the listing agent and MP as the developer.

That was last I checked.....like a year ago.

Can't emphasize enough HOA health. If people default and stop paying HOA fees, other owners will get special assessments and have to pick up the bill.

As far as condos, I would think UTC would hold value a little better than Clairemont. Yet here is a bank owned 7244 Shoreline 140 2/2 997sf w/a garage for $328,884, which in 2004 sold for 485k.

This other bank owned 7204 Shoreline 160 listed for 348k went pending which in 2004 also sold for 485k.

These are nice places in a nice area. I'd be very hesitant to buy Balboa Ridge for 315k, especially when just about everyone agrees we are not at bottom and surely there will be more depreciation.

I haven't done the math on what the difference in price is monthly on Balboa vs. Capri.

MP the company survives although a number of their projects have gone into bankruptcy. Given how silly the lending environment got post-2004 I doubt the principals had to give personal guarantees on their BK projects, so they probably got to keep all the earlier gains and pass most of the BK losses onto their banks. File Under: More Evidence of Sound Lending Practices from the Bubble.

Regarding MP:
The most extreme liquidation seemed to be in their mapped but non-rehabbed places a few years ago.

Basically just people buying beat up apartments.

I still occasionally see one of their full conversion projects where they have 2 units at 70% of market and the rest at 120%.

They seem like they are still kicking.

Regarding Balboa Ridge and Capri:

I really think that the units selling for less than 250K would undermine any developer assertion of over 300k.

I would offer at (or 10% below) the lowest current listed price or lowest closed price in the last 6 months.

If you look and negotiate, you may be able to get a house in the area with a yard and no HOA for $400K.

It'll be 50 years old but I value space more than the age of the property.

You are absolutely right.

You could even get it for less. (like maybe 350).

I think you will be sorry if you pay $315K in Balboa Ridge. Condos in Clairemont are continuing to lose value. Townhomes in much better locations, like Balboa Terrace with ocean views for instance, are getting ready have closures sub $400K with more reductions to continue. Most of the sub $400K sfr's are pretty beat but there should be a much better selection over the next few years. Clairemont is a pretty spotty area with alot of junkers but there are some better streets that are going to suffer along with everyone else. I would hold off for now and look at what happens this year. By the fall you should see some additional devaluation.

True that some of the SFH homes in Clairemont under 400k aren't the best. However, this one listed today on a canyon:

2770 Wyandotte for 450k.

I think it will sell quickly and maybe for more. It is outdated, but very doable. Depending on what this ends up selling for will be a new comp for the neighborhood. If you can pick up a canyon view home for 450k, everyone better adjust downward accordingly.

Also, even the fixers are taking a dive.

2786 Luna listed at 175k, went pending immediately, granted, major fixer and probably cash only or construction loan, but for 100k to fix, it would be under 300k for a pretty nice place in a neighborhood that's not too bad and best of all, a SFH, not a condo w/HOAs.

Could not agree more on passing on Balboa Ridge. For what you are looking for, if you could wait a little longer that 300k you have will buy more for you in Clairemont or you can get a 2/2 in a nicer area.

5402 Balboa Ridge #314 just went on the market for 224,995!

Just in the last 60 days prices have dropped from the high 200's to low 200's. There are 2 shorts and 1 forclosure all below 245K. When these units close, you will see more people walk. I would say that by summer you will see a listing for 199K.

There's a lot of downward pressure in this complex. My girlfriend is interested. I told her about the BLS and the unemployment actually being 19%. I told her to wait til year-end for a better picture. I started a thread for her on Balboa Ridge to track it better.

Lingerie clad pillow fight girlfriend, or friend who is a girl?
Josh

Now, now. Let's just keep this about real estate, finance, economics, and data ;)