**Update** Empty McMansion #2 – SOLD!

Back in February we profiled a series of empty McMansions in Arcadia. Most of them were brand new, big and overpriced. After a total of 217 days on the market, the following McMansion on 8th Street finally sold.

Original listing price: $2,980,000 ($398/sf)

Final sales price on 6/12/08: $2,600,000 ($347/sf)

The 13% price reduction might not seem significant but the new owner saved himself $400,000 by buying in June versus 7 months earlier.

As for the seller, I wonder whether they made any money off this property:

Purchase Price in 2004: $750,000
Construction Cost: $1,500,000 ($200/sf)
6% Agent Commissions: $156,000
Carrying Cost: $186,200 ($3,800/mo x 49 months of ownership)

Total cost to seller: $2,592,200

Total profit to seller: $7,800

I have a feeling that $2.6MM was the break even point for this seller. What are your thoughts?

**Originally profiled on February 28, 2008.

1103 S. 8th Ave.
Arcadia, CA 91006

1103s8thave.jpg

Asking Price $2,880,000 ::: Sq-ft 7478
Purchased Price $750,000 ::: Lot Size 27,063
Purchased Date 04/19/2004 ::: Beds 7
Days on Redfin 113 ::: Baths 7.5
$/Sq-ft $385 ::: Year Built 2007
20% Downpayment $576,000 ::: Area Near Monrovia
Income Required $720,000/yr ::: Type SFR
Est. Payment* $14,561/month ::: MLS# A07162003

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

Brand New Luxurious Estate at Prestigious location in Tree Street.

Riiight. Since when did 8th Street become a prestigious location? The seller would certainly want potential buyers to think that it’s prestigious when in fact it’s just a 6 blocks away from the Monrovia shooting last month. Let’s see, another house requiring half a million dollars downpayment and still over $14,000/month in mortgage payments for basically an overbuilt McMansion doesn’t sound appealing to me.

Assuming the same $225/sqft in construction costs as we did in yesterday’s profile, this house would have cost our specuvestors $225/sqft x 7478 = approx $1.683MM to build.

$2.88MM (asking price) – 6% commission – $750,000 (purchase price) – $1.683MM (construction costs) – $174,800 (carrying cost at $3800/month x 46 months) = just under $100k profit

Purchase Price $750,000
Purchase Date 04/19/2004
1st Loan $616,000
2nd Loan $77,000
Downpayment $57,000

Listing History
11/7/2007 $2,980,000
2/16/2008 $2,880,000

The mailing address for this property’s seller is on the same street as that from the property profiled yesterday. Do flippers congregate and live in clusters? Lately I’ve been seeing a lot of properties on the market where the seller’s mailing address is just a few blocks away right here in Arcadia. It makes me wonder if they decided to buy and flip property on a whim during a stroll in the neighborhood. The number of McMansions in certain parts of the city is overwhelming and with the reckless market psychology we’ve had in the past few years, it’s understandable how so many people got caught up in the storm.

The very act of flipping is going to cause some major problems because flipped properties sit empty. It generates no income yet have reoccurring monthly costs until the property is sold. Every month it sits on the market casts a larger financial anvil on the investors. This particular home has been on the market for almost 4 months with just one 3% price reduction.

If you made $720k/yr, is this a house you’d be willing to pay $14k/month to live in? In an area just a few blocks from recent gang-related shootings? I think not. With the higher interest rates and tighter lending standards, most people won’t qualify for a loan this size. The ones who do have documented income to qualify and enough cash for a $500k downpayment will probably not want to live here.

Things aren’t looking good for these sellers.

21 thoughts on “**Update** Empty McMansion #2 – SOLD!”

  1. Hat off to the buyer who has committed a lot of dough for this place. Wish them happy ever after.

  2. People who can afford this house are in a different price range and their financial decision shouldn’t be judged based on our standard of values. For example, I still don’t see who in their right minds would buy a Birkin handbag for $10,000. Mortgage of $14k to them is like $1400 to us. The house may not be in the best neighborhood of Arcadia, but it is absolutely gorgeous. If the buyer wants something special and has the money to spend, why not?
    Truly wish them happy ever after!

  3. I guess the tragedy here is the seller who spent 4 years and $2.6MM building the home. Unless he went with cheap labor, this guy would’ve been lucky to break even.

  4. Of course he went with cheap labor (shout out to my boys at Hombre Depot!).

    Anyway, my in-laws live in a Rosemead McMansion and the workmanship in these homes is terrible. Crooked door frames, gaps in the molding, excessive numbers of light fixtures, and poor water pressure for the numerous bathrooms are de rigueur. It’s a good thing we have gentle weather in the San Gabriel Valley; these “houses of cards” would get blown down at the first heavy wind.

    If I had 2.6 mil to spend, I’d get something tasteful in San Marino.

  5. I’m sure the sellers are very happy to have broken even or a small profit, as well as getting this white elephant off their balance sheet.

  6. I couldn’t agree more with Cato… if you’re going to spend that much money, there are so many beautiful homes in San Marino that hold value much better than this one ever will.

  7. To TheArcadian:

    These multiple million $ McMansions are very nice but they are mostly out of reach to the middle-class working families like us even we have very good double incomes (~$160K/yr combined). If you can profile some SFR or condos below 1 million $, that will be more helpful.

    Thanks,

  8. [shaking my head]

    $2.6M? Has to be a foreign buyer who doesnt know better and bought cash? No bank/appraiser bless that deal.

    What can the upside on that property be 5-10yrs from now?

  9. The 13% discount from original asking more reflects the builders normally inflated ask price, to leave room for a bid such as this, rather than evidence of the still hoped for and much awaited reduction in Arcadia home prices.

  10. The builder did not account for a 13% price reduction in his budget. It is evident from the property’s listing time of 217 days. By waiting so long before reducing the price, the seller ended up paying 7+ extra months in interest on his construction loan.

    Being very familiar with experienced local and national builders, I can tell you that the goal is to sell the home before construction is even completed. Of course, the housing bubble made many normal folks believe they were “experienced developers”. Go figure.

  11. My God the Buyer is a doofus. The house is a mishmash of conflicting architectural styles. Just another generic stucco mess. Blech.

    Buyer has to be a multi-generational family. Nobody else would pay nearly that much for such a POS. The house is nearly twice as large as one could possibly need, even before taking into consideration the additional sf in the back house.

    The neighborhood is pure sketch, and the home and the lot dwarf all but a few homes in the surrounding area. I hope the buyer plans to be there for a full 10-15 years, because they’re not getting their money back otherwise. They overpaid by at least $300,000, probably closer to $500,000.

    To provide a comparison – I lost a bid on 1964 Glenview Terrace in the estate section of upper Altadena. The property – 2/3 acre, all flat, gorgeous residential street – sold for land value of $1.1M (which was at least $100K more than it was worth). You could build this same ugly house on that lot – in a much, much better neighborhood – for the $2.6M this sucker of a buyer paid.

    The frustrating thing for other buyers is that fools like this guy are keeping the market from settling back to something more reasonable.

    They’re like the idiots at the blackjack table who hit on 17. Aaargh.

  12. The USDOJ is finally cooperating with the Chinese government to go after corrupt former government officials taking up refuge here in the U.S. It is believed by many in the SGV real estate circles that corrupt $ from the PRC has contributed to the continued high demand for luxury homes in the SGV, especially in places like Arcadia. A recent conviction in the Central District of California is a wake up call to many such potential “McMansion” buyers from the PRC:

    http://news.asiaone.com/News/Latest%2BNews/Asia/Story/A1Story20080902-85487.html

    There are estimated more than 1000 major corrupt officials “hiding” in the U.S., and perhaps thousands more “lesser” corrupt officials living here as well. Surely they know that buying McMansions at inflated prices will send a red flag to the USDOJ as to their whereabouts. Let’s hope the USDOJ will finally deport some of these McMansion owners/buyers/potential buyers back to where they belong and bring down the demand a bit at the same time.

  13. Most Chinese in the area know this but it’s been look, see, and hear no evil as long as the commission checks keep rolling in and sellers can cash out on their way to more reasonably priced pastures. The way I see it is it’s just US consumer money being recycled back into the local economy.

  14. Buyer are rich Chinese immigrants who paid cash. Upside doesn’t matter if you plan to live in it your whole life.

  15. JW:

    How did you know this for sure – Chinese immigrants who paid cash?

    Could you provide evidence?

    Thanks,
    George

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