Empty McMansion #3

415 W. Palm Dr.

415wpalm.jpg

Asking Price $1,999,000 ::: Sq-ft 4,475
Purchased Price $765,000 ::: Lot Size 9,480
Purchased Date 08/01/2006 ::: Beds 5
Days on Redfin 7 ::: Baths 4.5
$/Sq-ft $447 ::: Year Built 2008
20% Downpayment $399,800 ::: Area Baldwin Stocker
Income Required $499,750/yr ::: Type SFR
Est. Payment* $10,107/month ::: MLS# A08026688

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

Today marks the 3rd day of our Empty McMansion series and this one just came on the market last week. Compared to the last two properties that needed over $500k for 20% downpayment, this one only requires $400k. Whoopie, I’m sure a lot of people out there have $400k cash just lying around in case overvalued property comes on sale.

$1,999,000 (asking price) – 6% commission – $765,000 (purchase price) -$1,006,875 (construction costs @ $225.sqft) – $61,200 (carrying cost @ $3400/month x 18 months) = approx. $46k profit

Purchase Price $765,000
Purchase Date 08/01/2006
1st Loan $535,000
Downpayment $230,000

All that work and all that stress for $46,000? Doesn’t sound logical to me, but then again I didn’t drink any of that toxic kool-aid either. This seller bought the property at the peak of the bubble in summer of 2006. It probably took them months to get permits and funding to build the property for sale today and nearly as long to construct it. For almost $2MM asking price, $46k is not a lot of negotiating room. It would take a year of carrying costs to wipe out $46k, but only a 3% price reduction to start put their books in the red.

How much do you think they spent on that “unique venetian plastered fireplace” or the “expensive Italian porcelain tile?” I don’t know how much, but I do know they’ll be regretting it soon enough.

Unlike other new homes, you will notice that the interior was professional designed…” It looks the same to me. It has that track-home look and doesn’t look a bit custom to me. Heck it doesn’t even have undermounted sinks in what looks like the master bath. For $2MM you’d think it’ll at least come with some nice fixtures.

Its neighboring house is also on sale. Apparently, they’ve drank the kool-aid too because I can’t imagine why anyone would pay $1MM for a 58 year old dump. Yes, if you purchase this $2MM new construction, don’t expect your neighbor’s house to look that great. This listing is currently at $447/sqft. In this slowing economy and dying RE market, I can’t help but wonder how many months and price reductions will it take to see this property.

7 thoughts on “Empty McMansion #3”

  1. SBG,

    I think you might have missed some math here. You stated the monthly carrying cost is $3400/month. That’s only for the first loan. There should be a separate carrying cost for the construction loan they took out as well.

    This should put them in the negative territory already

  2. llking – You don’t miss a thing do you? haha :)

    I didn’t account for the construction loan because unlike the mortgage loan which is public information, I have no idea how the construction loan was financed. They could have had investors shell out cash for it, taken out another loan or some other option. Point being, I don’t have solid information on that part of the financials so I didn’t include it in the math above.

    You make a good point and these guys are probably in the red if they took out a second loan from the bank, but I can’t say for sure. Either way, it doesn’t look good for them.

  3. SBG,

    The construction loan normally converts to a conventional loan upon completion. However, as you stated, they could have cash infusion from investors. If that’s the case, there’s an opportunity cost which amounts to at least 5% (CD rate).

    This could be a group of investors pouring to a fund.

    If they truly have the cash for the construction, then why would they even bother taken out the 1st loan? just food for thought.

    Another big piece of cost that wasn’t accounted for was the teardown and hauling and dumping the debris. What I was told this could easily amount to $50K.

    Then again, they can make up for the difference by having a lower construction cost ($225/sf) by using illegal labor or cash under the table.

  4. I agree. All calculations posted have inherent assumptions and there’s only so much available information. I probably should have included at least the 5% CD opportunity cost for the construction loan.

    Thanks for your input. Your point is well taken.

  5. Let me start by saying I have never built in Arcadia, do not build McMansions, and would not live in most parts of Arcadia because of the McMansions (looks a lot like Downey). However, as a developer who works hard for a living; works with his hands; puts his own money and reputation at risk; invests extensive time and energy researching cities, nieghborhoods, designs, codes and building methods, I do not understand why so many people are hoping these developers lose money.

    I also enjoy watching idiot flippers lose money, however, these builders appear to be competent. Instead of hating the developers, I suggest you hate the city planning dept. who allow these monstrocities and the realtors who make ungodly commissions for little effort.

    FYI – Most good developers (using their own money) expected and are enjoying this market downturn.

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