41 E Winnie Way
Arcadia, CA 91006

Price: $850,000 ($546/sf)

• Beds: 3
• Baths: 1.75
• Sq. Ft.: 1,557
• Lot Size: 8,100 Sq. Ft.

This is a fairly decent starter home built in 1956. While it lacks the charm or extravagance of newer properties, you get adequate living area, privacy and some upgraded features. Unfortunately, the $850,000 price tag puts this home way beyond the classification of “entry” or “starter”.

First, the seller. They bought in 2003 for $430,000 and put a sizable 42% down payment. Regardless of where the money came from, it was very prudent borrowing. Assuming a 30-year mortgage, their monthly payment should be around $1,500/month. More or less depending on the interest rate.

A $1,500 mortgage on a this property is very reasonable due to the $180,000 down payment. BUT take that $180k and apply it to the current listing price and we have a mortgage of $4,297 per month; not including taxes, insurance, ect. Would you spend $4,300+ a month to own this home?

Given that a property like this will go for $300/sf or less in the near future, the following valuations are still too high:

After 5 years of ownership.

3%    $498,488    ($320/sf)
4%    $523,161    ($336/sf)
5%    $548,801    ($352/sf)
6%    $575,437    ($370/sf)
7%    $603,097    ($387/sf)

$300/sf = $467,100

Current asking price: $850,000 WTF

If I was the seller, I would start slashing the listing price ASAP because once the Summer season is over, we’re looking at a even bleaker housing market the coming Fall and Winter.

2222 S. 2nd Ave.
Arcadia, CA 91006

Price: $2,888,000 ($414/sf)

• Beds: 5
• Baths: 5.5
• Sq. Ft.: 6,981(!)
• Lot Size: 0.38 Acres

Today’s new listing is a 6,981sf McMansion sprawled across a 1/3 acre piece of land. The description calls it a “Gorgeous Luxury Custom Built Estate.” Of course, we all know that this “custom home” was built using a mid-90′s floor plan and originally designed by San Gabriel Valley architects. Don’t believe me? Walk into a dozen McMansions built between 1995-1999 and you will see the same plans used over and over.

There are two things that are rediculous about this property: 1) The nearly 7,000sf living space and 2) a asking price of $2.8MM+. Do you think adding the ‘888‘ will increase this seller’s luck in finding a rich knifecatcher?

Cost to build this McMansion @ $150/sf = $1,047,150
Cost of property purchased in 2003 = $636,000

Total cost = $1,683,150

Current asking price: $2,888,000 = $1,204,850 profit (!)

What does not make sense is why someone would spend nearly $3MM to purchase an overbuilt McMansion when they could build the same thing for much much less. There are several land lots in Arcadia currently asking for ~$1MM. Assuming you spent another $1MM building a custom home, total savings would be over $800k!

48 W Le Roy Ave.
Arcadia, CA 91007

Price: $1,300,000 ($754/sf)

• Beds: 4
• Baths: 2
• Sq. Ft.: 1,725
• Lot Size: 0.44 Acres

This seller did not provide any photos so I’m unable to comment on the physical condition of the home.  All we have for now is a street photo (above) and the following description:

Incredible Value!! One of the best Million Dollar Area. Warm, Cozy home with wood laminating and tile through out. Great back yard with sparkling and gated pool. Guest House over looking the pool and Jacuzzi. This property is good for investor who wants to get immediate income or Built your own Dream Home.

This is a direct copy and paste. The strange use of capital letters and grammar mistakes belong exclusively to the agent. My writing isn’t great but for a potential $39,000 in commissions (3% x $1.3MM), I would make sure this listing is at least presentable.  Hey, maybe the Realtor even knows this is a WTF asking price and no one in their right mind would purchase the 88 year old property for $1,300,000, a whopping $754/sf.

Although here is nothing to indicate that this home was recently remolded or even upgraded, the property looks to be well maintained and shows a lot of potential.

People who tell you that it’s okay to buy now if you plan to hold it for 5-7 years are like the Wall Street idiots who forget any event that is over 4 months. Take a look at the sales history:

Dec. 1988 $500,000
May 1994 $450,000 -1.9%/yr

The 1988 buyer waited 6 years after buying near the peak of that era’s bubble. The result? He lost $50,000 plus several years of paid interest. That was just a 10% loss… can you imagine current buyers who are facing 25-40% price declines?

Using the ’94 sales price, here is my valuation of 448 W. Le Roy:

3%    $680,665    ($395/sf)
4%    $779,254    ($452/sf)
5%    $890,969    ($517/sf)
6%    $1,017,407  ($590/sf)

At nearly half an acre and sitting on a half decent street, I can see someone purchasing this property for around $1,000,000; it’s fundemental value is obviously a lot less. Essentially, you will be acquiring a large piece of dirt… perfect for another Arcadia McMansion.

605 Lorena Ave.
Arcadia, CA 91006

Price: $695,000 ($363/sf)

• Beds: 4
• Baths: 3
• Sq. Ft.: 1,915
• Lot Size: 4,918 Sq. Ft.

I’ll great straight to it. This is a 32 year old freeway-loaded property. It is definitely in need of some TLC… no, scratch that. This home needs a complete renovation.

Did I mention that your neighbor is the 210 freeway?

This property was purchased in 1999 for $243,000. The current listing price is 3x that.

Valuation after 9 years of ownership:

3%  $317,060 ($166 /sf)
4%  $345,865 ($181 /sf)
5%  $376,973 ($197 /sf)
6%  $410,543 ($214 /sf)
7%  $446,746 ($233 /sf)

Currently listing for $695,000 ($363/sf)

So even assuming an above-average appreciation of 7% a year, the home is a quarter million dollars overpriced. Now, I don’t consider this move-in ready so $197/sf is a more reasonable valuation at $376,973.

Today’s new listing is a property that, for the right price, would be a decent home. Although it backs up against Michillinda, you get decent living space, a 10,400sf lot and what looks like a floor plan that can be worked with. Of course, the asking price of $788,000 rubbish….

1151 Drake Rd.
Arcadia, CA 91007

Price: $788,000 ($485/sf)

• Beds: 3
• Baths: 2
• Sq. Ft.: 1,626
• Lot Size: 10,400 Sq. Ft.

Unlike most properties that slowly appreciated in value between 1996 and 2003, this one got an early start on the bubble:

Sales History
Sep. 1998 $310,000 ($190/sf)
Apr. 2000 $400,000 ($246/sf)
July 2002 $486,000 ($299/sf)

The last 2 owners made approximately $90,000 after two years of ownership. The current seller is aiming for a $302,000 profit after just 6 years! If this was 2006, I would have no doubt that this home would sell between $800 – 900k. Well, that is no longer the case and a $485/sf asking price for this 57 year old home unrealistic.

Straightline appreciation from 2002 gives us the following values:

3%    $580,309    ($357/sf)
4%    $614,945    ($378/sf)
5%    $651,286    ($401/sf)
6%    $689,400    ($424/sf)

My suggestion? List the property at $600k and allow the knife catchers or sideliners bid up the finals sales price. This is a sure way to get a quick sale and still walk away with a sizable profit.