Empty McMansion #1

177 W. Norman Ave.

177wnorman.jpg

Asking Price $3,080,000 ::: Sq-ft 6800
Purchased Price $1,150,000 ::: Lot Size 0.44 acres
Purchased Date 04/19/2006 ::: Beds 6
Days on Redfin 4 ::: Baths 7
$/Sq-ft $453 ::: Year Built 2008
20% Downpayment $616,000 ::: Area Baldwin Stocker
Income Required $770,000/yr ::: Type SFR
Est. Payment* $15,573/month ::: MLS# A08027264

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

Yesterday’s post suggested the possibility that the SGV market will experience an increase in inventory of brand new McMansions over the coming months. I will proceed to document them as they appear on the market. Today we have a new listing for a mansion with an asking price of $3.08MM. Assuming they really did use good materials, it would’ve cost them approx $225/sqft x 6800 sqft = $1.53MM to build the house.

$3.08MM (asking price) – 6% commission – $1.15MM (purchase price) – $1.53MM (construction cost) – $88k (carrying costs at $4k/month for 22 months) = approx $127,000 profit.

Purchase Price $1,150,000
Downpayment $517,500
Mortgage $632,500

This is an example of specuvestors who came in too late in the game. The property was purchased at the peak of the bubble in Q2 of 2006 and torn down to rebuild this mansion. Since the property wasn’t completed until 2008, construction didn’t probably didn’t begin until 2007 which means it took a long time to obtain building permits.

The seller (who’s mailing address is just a few blocks away) put a hefty half a million downpayment so that’s good news for the bank, but not so good news for the flipper. Unless he got a substantially lower $/sqft construction price from the contractor, he doesn’t have a lot of wiggle room before the $4000/month carrying cost, negotiations and/or price reductions start to eat away at the earnings. Just 4 or 5% off that $3.08MM asking price and it will cut into their downpayment. Do you think these flippers are sweating bullets yet?

Who will pay $3.08MM for a house next to the storm drain in this dying RE market? Who has the cash funds for that extremely large downpayment? Who has the documented income to qualify for a loan of this magnitude? How long will this property sit on the market before a transaction is made? How long will the sellers hold out before reducing the asking price? How many reductions will it take? Only time will tell.

5 thoughts on “Empty McMansion #1”

  1. I would think the only hope for this seller is to find a foreign (asian) buyer to scoop this baby up. Risking $500k of your own money to profit $130k in this market environment is not very good calculations.

  2. Asian have been buying up property since the late 90s because of several reasons. The schools and proximity to other Asian families are some reasons. However, these very same buyers are also investors. They may not think of it that way, but if they bought on the promise that the value of their house will go up, then they are investors too.

    No investor, Asian or not, will put large sums of money down on what they know will be a depreciating asset for years to come.

  3. I believe this is currently listed for foreclosure sale.

    Foreclosure Status: Notice of Foreclosure Sale
    Beds: 6 | Bath: 7 | Square Feet: 5,948
    Listed: April 23, 2008

  4. Thanks for the heads up. It looks like Redfin is still showing the old listing. I seriously need to revisit the profiles I’ve done in the past to see where everything is now.

  5. You are asking all the right questions here, AHB. Where do these “specuvestors” as you call them (great term!) think all these $3mm buyers for Arcadia are coming from? If you had that kind of cash and income is this what you would buy? It has been my experience that most people who have a lot of money have it because they are smart about it and will not overpay, whether times are good or bad.

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