Purchased for $1,280,000 in November of 2004, the 2,217 square foot two-bedroom/bath condo at 1531 Beach Street returned to the market last year asking $1,550,000 ($699 per square foot) but failed to find its buyer.
Back on the market today for $654 per square foot ($1,450,000) in the Marina and an “official” 2 days on the market. A sale at the current asking would represent average annual appreciation of 2.9% over the past four and one-half years.
∙ Listing: 1531 Beach Street (2/2) – $1,450,000 [1531beach.com] [MLS]
Is this on land-fill like the rest of the Marina?
I could never buy in that area for this reason alone. Maybe Cow Hollow or Pacific Heights.
Nice place.
Great half-block proximity to Safeway for drunken latenight beer runs…even though the blondes in the neighborhood roll with Alize these days.
Seller seems determined to sell this thing at any psf, not a good comp for District 7.
If we are rolling back prices to 2004/2005, then this condo is still overpriced. I sold my condo, 2/2 rennovated on Beach a few blocks down for 1.2 in ’05…
It is large, but dark inside. Exterior looks good in the photo, but too close to Safeway.
It only takes one buyer, and places in the Marina with sunrooms go for a premium, but I think we are almost back to 2004 pricing in D7 and this sells for something closer to its 2004 price.
And 2004 was the start of the Option Arm problems. If that’s what they had, I’m guessing they’ve been paying the minimum, and are now just under the recast cap, and so they are now at least paying all the interest to keep from hitting the neg am cap that will cause their payments to explode. Because that amount is higher than the minimum, they’ll want to unload this asap. Their payments have just shot way up. But…
The neg am probably has the loan amount right about where they are on pricing, so the next price drop will be courtesy of the bank.
All of this is speculation, of course (it’s me: that;’s what I do) , but it seems to fit the facts. I think this is the tip of the iceberg, but that tip has finally arrived. If that’s the case, the sellers will *start* to get a bit more motivated. This isn’t the famously awaited recast point, but it’s a turn-up-the-heat-on-the-sellers point, at least a bit.
And if not this property, there will be others purchased in 2004 that are going to start to get more motivated. It’s kind of hard to refinance for 110-120% LTV, so they are all going to sell. And there are two years worth of these on the way: kind of hard to mount a recovery in the face of that!
Everything that sucks about the Marina, all in one little house.
Socketsite is a fall-out-of-your-chair-LOLing day today, and I really like it to be honest!
Is this on the bottom floor? Those units with front windows, and the top deck look pretty sweet.
It looks like these guys tried to start selling this as early as May 2008, and have gone through at least three price reductions (see listing history):
http://www.redfin.com/CA/San-Francisco/1531-Beach-St-94123/home/12509925
Lower floor of three units total, from what I remember. The upper should have views over the SFRs on Marina Blvd. to the Bay, but this unit doesn’t.
a contrarian financial scenario for everyone to chew on… it was a $1 million first loan with $280k cash down (i looked up tax records). I’m going to rough it out that they could have rented this place instead and saved $1300 per month vs. mortgage/hoa/prop taxes less tax write offs… so after 54 months they spent $70,000 to live here… sounds terrible… right?
but if they can sell today for $1,450,000… after all costs they get a net profit of $70k (a financial wash vs. renting). OK, not so bad now.
However when they sell they pull out $358,000 in cash that they can dump into a Dow 8000 market. Whereas as a renter they probably would have put their $280k down payment into a Dow index fund on Sept ’04 and lost 20% or $56,000… plus their rent vs. own saving of $70k probably would have gone into the stock market thereby losing another $14,000.
fast forward to today…. sell for $1.45 million, get their starting capital back, plus the $70k they “invested” into their home… and invest $358k in Dow 8000 for a possible 10% to 40% return in the next 12 to 24 months.
These guys were dumb… they bought at the height, they are trying to sell at the bottom, and they may make a killing.
Tipster do the facts here really suggest a neg am loan? I thought most of those were just for 2 years on the neg am window? Just wondering why you assume this had one that lasted 4 years at the teaser rate and he is just now coming up on the recast cap? Was there a refi in 2006? That might explain it.
I have a friend of a friend that used one of those to buy in San Leandro and his two year period is up and his plan is to start looking for a place to rent while waiting to get foreclosed. So from my experience and what I have heard in the past most of the neg am loans didn’t stretch out the freeloading period beyond 2 years.
Option arm periods, where you could pay less than the interest, were up to 5 years. LTV caps ranged from 110% to 120%. If you made the minimum payment, you typically hit the LTV cap before the 5th year. If you went over it, it would recast, so at the point you were just under the LTV cap, you would start making all of the interest payments to stay under the LTV cap and prevent the recast on that basis – holding it off to year 5.
Your friend may have had a 110% LTV cap that he hit because he could not increase the payment to pay all of the interest and stay under the cap. Or he could have had a shorter recast period.
Some details here, but it isn’t a model of clarity:
http://mortgage-x.com/library/option_arm.asp
trying to sell at the bottom
i’d change this to “trying to sell into a down market” and not “trying to sell at the bottom”. a small quibble.
I don’t know this property enough to know about holding costs. as a homeowner, I incur lots and lots of housing costs.
that said, briefly glancing at your assumptions, nothing really looks out of control… I’d have to analyze them later.
also: this assumes this sells.
also: did you take 6% realtor/transaction fees into account here?
5/Year Option ARM’s with a 125% cap were not uncommon.
FRB: Interest-Only Mortgage Payments and Payment-Option ARMs
This is what it looks like to me:
$1.45m list. Failure to sell at $1.55m indicates that it’s unlikely to sell at $1.45m (since it would have likely received one or more offers around $1.45m while listed at $1.55m). Let’s suppose it goes for $1.4m (though that seems pretty optimistic given what’s happened with this property so far).
Commissions, transfer taxes, and fees (both when they bought and when they sell) should total near 10%. So they get $1.26m, or a loss of $20,000.
Now add in the $70,000 that you estimate they lost vs. renting. Total loss is $90,000.
Downpayment is $280k, so their net return is -32%. I have been keeping in the majority of my cash in pretty conservative investments, so in my case I would have earned about +20% over the same period ($56k of $280k, minus $16k taxes), putting the net loss at $130k (90k + 40k).
If they are risk loving, maybe they would have put it all in stocks. SP500 was ~1200 in Nov 04, and coincidentally it was around ~1200 in May 08 when they tried to sell this place. So an all-stock portfolio would have earned about 0% (plus dividends over that period…maybe +10%, or +7% after taxes? That would be +20k).
So vs a risk averse alternative, they lost $130k by buying this place. Vs a risk loving alternative, they lost $110k. Not sure how either of those translates into them making a killing!!
But I disagree that they are dumb. They may have been foolish to buy, but they are smart to sell now and avoid a bigger loss in the future. They should just be more aggressive in their pricing rather than chasing the market down.
Marina on liquefaction is NOT a buy until under $500/sqft. Even then, it is risky given the likelihood another earthquake destroys your property.
anonm – since everyone here assumes all buyers since 2004 were stupid and only got toxic loans like option ARMs, and worse, only paid the minimum neg-am payment, then lets not assume they would have been brilliant stock investors… fair enough?
We also don’t have to go that far out on a limb to assume they might have lost 40% in Stockton real estate, or spent it all on expensive toys, or lost it all with bernie madoff. So my scenario of them being down 20% when that’s what the market is down seems fair.
Also a minor quibble… most commissions in SF are 5% not 6%… and the “killing” I’m referring to is in taking out a huge chunk of cash just when the stock market is 40% off it’s highs…. and is more likely to go up faster than SF real estate will.
Either way, a compromise btwn your and my examples isn’t a “killing” but it still was smarter for them to buy when they did, and try to sell now… with the obvious caveat that they need to get at least $1.4 now.
sfrob said:
everyone here assumes all buyers since 2004 were stupid and only got toxic loans like option ARMs
Heck no, and that’s the rub.
All of my buyer friends from that time were really trying to things the right way: 20%+ down, fully Amortized mortgage. 2 did an I/O but shopped around and switched to a low rate (thanks Bernie). OK, my circle is the tech world, either SF or SV.
The rub is that those buyers bought a home they thought was rightly priced. As new buyers, they thought that Mortgage = Housing cost and accepted to pay 20% more than renting in mortgage only. But the true cost today is closer to 60% or even 100% over renting when you account for all costs, taxes, repairs, insurance… They are sucking it up as responsible people, but the market is pulling the carpet right from under them.
They were not stupid. They simply got suckered into the bubble, thinking they had everything right.
Okay dug around and see that the 2/28 which I was thinking of and mixing up with the option ARM’s (thinking that the 2/28’s were option arms) was more common in the sub-prime market.
too much chatter about the current owner’s financial situation and not enough about what will determine it’s selling price.
I got a million dollar interest-only, 5-yr fixed option ARM 3 years ago becuase:
1. it’s the highest mortgage amount one can tax deduct
2. i have enough money in the bank to pay it off anytime the interest rate is above what i think my opportunity cost is investing the money elsewhere. I decide when to pay principal, not the bank.
3. if the interest rate reset today it would actually go down. Furthermore I just got a quote to refinance it for an additional 5 years at an 1/8th point lower for no cost.
Fortunately my LTV is low but you shouldn’t jump to conclusions about people who choose this type of financing.
That said, my guess on this property’s sales price: $1.355M
“i have enough money in the bank to pay it off anytime the interest rate is above what i think my opportunity cost is investing the money elsewhere.”
I agree an IO option-ARM loan may make perfect sense for this type of borrower. But what percentage of those in SF who took out these loans are this type of borrower? Maybe 5%? People took out these loans because they did not have the money to put down or the income to make higher payments, and they expected prices to keep rising and an option to refi before it came time to pay the piper.
My full amortized ARM payment is now less than my original minimum payment. So let me know when I have to pay the piper.
I have been very close on the last 3 or 4 guesses i have made on price, so am going to take a guess.
$1.2M
The list price for 1531 Beach Street has been reduced to $1,350,000. A sale at asking would now represent average annual appreciation of 1.3% since November of 2004 for this District 7 home.
The listing for 1531 Beach Street has been withdrawn without a sale.
I bet spencer’s guess of $1.2M would have been in the ballpark, had the seller been willing to take the loss. No matter, the market will continue to deteriorate, and whatever this would have gone for today (clearly significantly less than $1.35M, and likely less than its November 2004 price of $1.28M), it will be much less in a year or two. The Fed loves owners like this, who are now trapped in an asset they no longer want but must continue to pay their “rent” (the mortgage cost) while they absorb the coming declines.