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Cherokee Court #
Last Post 01 Jan 1900 12:00 AM by Anonymous. 9 Replies.
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05 Mar 2007 11:27 AM
    16 unit condo conversion. Must sell for $147k per unit to break even.
    1 bd unit currently selling for $189k - $209k.
    MLS #: 076017975

    05 Mar 2007 11:40 AM
    $150K for a one bedroom in a nice neighborhood doesn't seem all that bad. That said I don't know what the rents are like in Kensington. I do like that neighborhood a lot though.

    05 Mar 2007 01:50 PM
    A 150k purchase works out as follows:
    Loan Amt 150,000
    Int rate 6.25%
    Monthly Int 781
    Monthy Prop Taxes 150
    HOA 200
    Insurance 25
    Total Expenses 1,156
    I think that rent for a 1 bd that area is about $900-$1000/mo. $150k for a 1 bd condo sounds about right for someone who wants to own. With principal payments, the cash "expenses" would be about $150 more.
    I ignored the income tax savings because of the $10,500 standard deduction for a couple. Interest + Property taxes is only slightly more than the standard deduction for a couple.
    All in all, I'd say that anything more than $150k is not worth owning, unless appreciation kicks back into high gear again (unlikely in my view).

    05 Mar 2007 03:35 PM
    While I'm bearish on the market this example to me is actually more bullish than bearish. Since the delta between buying and renting is a small number the intangible value of being able to paint whatever you want to put in a tile floor over the weekend has some value.

    I do think some value has to be given to the tax benefit, at least on paper. Since you can itemize state income tax, registration and employee business expenses you should probably factor some savings.

    Let's assume that in order for the person to get a classic mortgage on this place you would need to make $50K per year, let's say that's roughly $3,500 in State of California income tax. Interest and property tax is $11,172.

    The numbers look like so:

    $14,672 in itemized expenses

    $4,672 is actually experienced (you would have had a $10K deduction anyway)

    Marginal tax rate of 28% is an annual savings $1,300 or $110 monthly. (.28 * $4672)

    This actually makes renting and buying about the same on paper. This is a decent chance that prices or interest rates will decline. Keep in mind though that moving is driven by other events and that renting can be hassle. I personally would wait but again this is actually a bullish or at least neutral indicator in my book.

    When downtown condos go neutral like this I think you'll see some people that have been out of the market start trying to work deals. That said downtown isn't there yet.

    05 Mar 2007 05:24 PM
    All good points, Smith. Thanks for refining my analysis.

    It's interesting to note that $900 is pretty much the floor and that $2,000/mo it the ceiling in terms of condo rentals. Few people are willing and able to pay much more.

    With that in mind, I think that projects where the monthly purchase costs are within that range will continue to sell.

    I have a hard time seeing luxury condos with carrying costs of $4000/month selling like hot cakes like they have in the last few years.

    The way I see it is that those luxury condos downtown are loosing $3000/mo and up from there for each month that they sit vacant. How many investors with real wherewithal are there in the condo market?

    05 Mar 2007 10:18 PM
    I have no idea how people are buying downtown condos for $5,000 per month. There must be either a lot of equity or leverage. The stock market is very very unsettled over the subprime meltdown, I suspect credit is going to tighten considerably over the course of the year. Very interesting times.

    05 Mar 2007 10:39 PM
    I am taking this stock market correction very seriously. I have moved to cash and short positions.

    I'm short homebuilders, mortgage companies and the QQQQ tracking stock.

    In my view there is a least one more big selloff before the market rallies.

    07 Mar 2007 10:37 AM
    which mortgage companies have you shorted?

    07 Mar 2007 04:52 PM
    Fannie Mae, I was going to short Accredited Home Lenders (LEND) which is in North County but could not a get a trade done.

    I do think the GSE's are going to take a hit at some point, the have bad accounting, huge risk in their portolios and even Bernake is talking about limiting their focus.

    13 Mar 2007 11:58 AM
    LEND is getting decimated. Also the homebuilder stocks are as well.

    This would seem like a very serious event in terms its impact on the housing market.
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