About UTC condo conversions…

[jabrwoki]

sorry !! I dont know what the heck is wrong with the server. I didnt mean to post 4 times.

[PerryChase]

I just got an email about Villa Vicenza. Seems like a one-bedroom starts in the mind 200s. I’ll tell my auntie to sign a one year lease then hope the prices goes down to $170,000. Do you think that would be a good time to buy then? Rent is about $1100+. Even at $170,000, the payments including tax and HOA would be more than buying. Since she’s elderly, I’m wondering if she should just rent and never buy. She’s old and has no interest in personalizing her home exactly to her liking.

[SD Realtor]

PerryChase I would tell your auntie to continue to rent and take it year by year.

“I am wondering if she should just rent and never buy”

If you run the numbers right now, the bottom line is that she should rent. However when her lease comes up, take a new sample of prices around town, then rerun the numbers. At some point it “may” make sense to buy. However also take into account her age. I don’t want to sound morbid but if she may need assisted living in several years then yeah maybe buying is not the greatest idea. Consider all the factors with regards to her life, health, and time horizon.

For sure though now is DEFINTELY not the time for her to buy.

Jabr – You mentioned is 250k the correct, or fair, price for Lucera. I don’t really know. Pricing is determined by the market. We all here, or alot of us don’t think pricing is “fair” on all SD properties because we are using

a – our common sense and good judgement
b – a multiplier of 7 as a median price vs income multiple
c – analysis of inventory, market times, etc.
d – the fact that prices NEVER have been this high in the history of man!

I would say that at least one way to determine “fairness” is to do a simple cash flow analysis. Thus if I put 20% down and finance the rest, then rent it out, back out all expenses include financing interest, hoa, taxes etc… Am I earning a decent return on that 20% down because I have a positive cash flow.

I wonder if you do that, and use the average rent for a 2/2 in the area if 250k is what you arrive at… You may need to get even lower!

[mephisto]

I currently live/own in Lucera right now; purchased a 1 bedroom over 2 years ago – for the high 200’s. Last few that were sold were in the mid to high 300’s. A 2 bedroom here sold just a few weeks ago for 410 I believe it was.

The advantage to Lucera is, it’s not a condo conversion. It was originally built to be condo’s and then rented out. It was then overhauled, and re-sold as a condo unit.

The main advantage? The walls. You don’t hear your neighbors.

The other places mentioned, that are around UTC – total junk. As soon as I saw those going on the market and took a visit, I was laughing at their asking prices. I fully expect them to be full rentals anytime now.

The prices on these units are definitely goign to drop. How much? Who knows. I’d expect probably 20-30% and then a few years of relatively stagnant prices (so slight additional loss due to inflation). Anyone who bought in the last year or two expecting to flip – going to have a big problem.

But, if you purchased a while back as a place to live in for a few years and then turn into a rental or something – I still think this (and some of the other Condos) in the area are a good investment – just let the prices drop first.

Rents are high around here, a 1 bedroom will run $1300/mo and a 2 bedroom starts around $1600.

It’s not the low end of the market that gits hit the hardest, it’s the higher ends. People trying to sell 1.5 million dollar homes, or $800,000 downtown codoes are going to get creamed. Condos in the general UTC area? Yeah, they are goign to take a hit. But I don’t think it’s going to be that big of a deal for the non-flipper in the long run.

[PerryChase]

What is the profit margin on a condo conversion. I’m wondering how much leeway condo converters have to lower prices. I understand that each development is different. However, in general, if units don’t sell, the converters/builders have to lower prices in order to service their loans. We may come to a point where there’s a cascading downward effect if units don’t sell.

SD Realtor, thanks for your advice. I think that your cashflow analysis example is the best way to approach things right now.

I like the UTC area because it’s centrally a located area. Many don’t like it there because it’s full of transcient students who don’t really take care of their homes. Many of the rentals are trashed by students moving in and out.

Does anyone have suggestions on where to look for a 1-bedroom condo in a descent neighborhood?

Eventually, for my retirement, I want to get a 1-bedroom condo downtown (when prices are low) then rent out my 4 bedroom house in the suburb. Now that I’m older, I hate sprawl and the drive that goes with it.

[qcomer]

I don’t understand the “long run” rational. Housing goes in cycles and the average bottom to top difference is 30% of the home price. So if you entered (bought first home) at a cyclical top as opposed to a cyclical bottom, then you lost equivalent to 30% of that home’s price. No matter how long you live in it you have missed on that much money. If you buy now and your friend buys 3-5 years later at bottom, then it doesn’t mean tht in 30 years both will have same bottom line. Just for being prudent and patient, your friend will have that +30% more than you for now and after 30 years too.

Also, the current rent equivalent (cash flow) value of a UTC condo to give decent return (6%) on your downpayment is around 180K (using average 1BR rent of 1250 in UTC and average HOA of 250, 6.5% interest rate and ofcourse zero appreciation in future 3-5 years).

[PerryChase]

You have some good points qcomer. So it’s rent for now and buy when it makes sense from a cash-flow basis.

When do you think that UTC 1-bedroom condos will be down to 180k?

[jabrwoki]

SD Realtor,
When I estimated $250k for these condos it was mainly based on a generous 12x multiple based on yearly costs of renting at recent rental rates (~$1700). Of course there are other personal reasons why people may want to pay more or less than this but as you point out in your choice ‘d’ the current prices are a historic high like the the dotcom bubble peak and sane people everywhere have to pause before plunging into this mess !!

[mephisto]

Again, it all depends on your situation.

If you bought 3+ years ago, and don’t plan on selling – a 10-30% price drop probably puts you back at your original purchase price if not still above.

If you bought in the last year, and plan on selling right away – bad.

“Long term” means just that, whatever it is to you – but lets just say 20 years. Of course its best to buy at the down turn of the cycle there is no argument there.

When will UTC condos go town to 180k? I wouldn’t count on it for the good ones. Sure if the whole market takes a 65%+ hit that might happen, but I doubt it seriously. Even downtown San Diego, which I think will get hit the hardest – I don’t think you’ll find anywhere near that type of drop.

My mortgage + HOA is cheaper then renting. My place could drop in “value” ~$1300 a month and it doesn’t really matter much because that’s what rent would cost me anyhow.

Odds are, in the next 20-40 years the market will go up and down a bunch more times. One of those, most likely will be for more then purchase price. In the meantime, I get a place to live. 🙂

[PerryChase]

I think that housing is such an emotionally charged issue. In America, people look down upon renters. For example it’s not a problem in Germany. What’s wrong with renting a home in an area you like?

I bought a 4-bedroom house years ago and my mortgage + HOA is $900. I did not sell because I need a place to live. But I could’ve sold and rented a home plus have money invested making more money for me. The house is now down in value. I don’t like living there anymore so I guess I’ll try to buy a downtown condo at a good price then wait for the next up cycle to sell my current house.

If your house goes down in value that’s opportunity lost. I wonder how people will feel when they’re under water.

[DaCounselor]

The best source of finding out how people feel when they are underwater or upside down on their homes is to talk to those of us who purchased property in San Diego in the late 80’s and then watched the local economy tank and real estate values follow. It was not a pretty time. Even the first of the newfangled downtown luxury condo towers (Harbor Club) came out of the gate right into bankruptcy. Most people who bailed on SD did so because of lost jobs – mostly defense budget cut related. I can tell you, though, even being upside down on real estate and a shaky job market, there was a sense that SD was special place. Many of us in the construction/real estate/lending world believed that we would ultimately find ourselves in a situation akin to LA, NYC and SF as to real estate prices in the future.

Many of us bought property at the apex of rising prices, held on, refinanced multiple times to get lower rates, and now have seen even more remarkable increases over time. The long term story of places like those mentioned above, and SD, is that values are going up. So for those of you who have recently purchased that $650K condo and are freaking because your neighbor can’t sell his for $595K – take a deep breath and think about the guy who was freaking in the early 90’s because he bought the same condo in ’89 for $155k and there were no buyers to be found. If you’re in it for the long haul, you will make money, period. If you’re out to make a quick buck, you will likely suffer the fate of most quick buck artists. And anyone waiting for a 50% value implosion should sit down and get real comfortable because it is not going to happen in SD.

[PerryChase]

Verano, Vicenza are junk. I went and looked that these places this afternoon. The remodel job is so badly done. Paint job on the old doors are smudgy! The pool fences are rusting through the paint that was quickly applied on! The workmanship is real shoddy.

I also looked at Regents (a much nicer project). They want $380,000-$400,000 for a 1-bedroom condo. They are also renting out the same units for $1500 per month. I would rather rent and save the difference.

Vicenza are leasing and selling at the same time. There are so many for rent signs on the project. I called some of the numbers and those investors want $1,300 for their 1 bedroom units. I had a feel that those rents are somewhat negotiable.

The saleswoman at a Verano even told me that prices will only go up so I need to jump in now! Give me a break!

The more I think about it, the more I feel that $150,000 to $180,000 for a 1-bedroom condo in UTC is more like it.

I for one hope for a big real estate crash to get the greed out of the market.

PS: I swear I hate the Hollywood regency style with the crown moulding.

[powayseller]

DaCounselor, downturns and bubble busts are always worse than anybody expects. That’s why I’m betting on a 50% price drop. We’ve already lost 10-15% on North County homes. According to Jim Klinge at bubbleinfo.com, North County homes are back at 2004 pricing. In the last cycle, the highest drops came in years 3-5, so the highest drops are yet to come. This time, the intensity will be greater due to exotic loans and our economy’s reliance on construction and real estate.

50% might be too optimistic. Maybe a 55% nominal drop will do it.

[Anonymous]

Test

[Anonymous]

So I have a question of what is the best thing to do? I purchased a single bed room unit at Verano because I have been living there for several years now and do like it. But it just makes me sick to my stomach to think the value is going to drop by 40-50% in the next few years.

What is the best strategy for someone who bought a UTC condo within the last year besides crying themselves to sleep each night?

P.S. One thing I can say about Verano is that there are units and there are units. Some have a view of a brick wall and are almost on top of the freeway. Others are very nice. The complex is 70% sold and most of the good ones went right away. The ones that are left I don’t know who would buy even if the price was cut by 40% so if you see some deals being advertised don’t consider all the units equal.

[Author]

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