This poor little house (RMLS# 9000296) lost 44% of its value in under 2 years. Bought for $232k in March 2007 (a few months before the peak) by an investor, it's not on the market for about what it sold for in 1999.
"Bought in 2007 for $232k and priced to sell fast! Mins to I-205 & I-84, max line & Mall 205shops. Updated kitchen, fenced private yard. Great first time home or investment."
The reader who send this in commented: "given its location and condition, it's probably still overpriced".
Given that it's in the shadows of I-205, he might just be right. I can't imagine what has caused the owner to lose that much value in that short a time.
We gave up on our search for an investment property (Owner occupied duplex/triplex) late last year given that nothing "penciled out", and we didn't like the idea of negative cash flow, with or without appreciation. Without appreciation being more likely.
But I still run the numbers on the occassional duplex/triplex to test the market, and I just found one that is actually cash flow positive with 30% down, and only loses $400 a year with 20% down. Here's the ad, and the text from the ad:
"Portland population is projected to grow by 2-4 million over the next few decades. Take advantage of this stable, fast appreciating real estate market. It's still affordable but not for long.
Well maintained triplex in a convenient neighborhood. These units have desirable features that make them easy to rent (last vacancy had half a dozen applications from a single Craigslist ad). All have:
Hardwood Floors Fireplaces Air Conditioning Seperate, Secure Large Storage Units On Site Laundry Off Street Parking Close to Transportation Convenient to PCC, Warner Pacific, Reed, Downtown
Over $2200 monthly income and rents could easily be raised 10% or more. Great tenants, great building in a nice neighborhood."
Gotta love his optomistic view of population growth, and I'm not sure how he's definign "fast appreciating" unless he's talking about negative appreciation, but this triplex actually appears to be sanely priced.
You will still only earn a 1.5% return on your investment the first year, but hey, at least it's positive!
Nope, we still have a ways to go before the market has truly corrected.
My wife and I hit on an interesting theory this weekend, as we were looking at yet another Realtor used houses salesperson-owned property featured above(MLS #8051133, 3807 N. Borthwick Ave.).
I believe that more and more Realtor agent-owned investment properties are going to go on the market to raise cash, as the typical Realtor used house salesperson's income has been slashed by 40%
This property just came on the market while still being renovated. We did a quick drive by and noticed the massive amounts of peeling paint, the inch of moss on the roof, and my wife commented that the front porch looks like it's about to fall off. At first I was surprised to see it was owned by a Realtor agent, but then it started to make sense.
The gravy train is over. Lots of Realtor used houses salespeople bought income properties over the past few years during the years of double-digit appreciation. Now that sales are off 40% I imagine a number of them must be hurting for income. Hence they are selling off the investment properties to raise cash. And I assume they need cash badly enough to not even invest a little effort into curb appeal before trying to sell it.
The irony of course is that the more Realtor used houses salespeople that start dumping properties, the more it's going to drive the market down, continuing the cycle. I don't have facts to prove that more investment properties are on the market than usual, but based on our looking it feels like there are.
This is yet another sign that things are going to get a lot worse before they get better.
Thanks to Ryan for asking one of the 10 or so questions I sent in. Here are a few of my favorite comments.
"At a housing industry lunch forum, the brokers said they started noticing fewer potential buyers visiting their listings about last April.
The evidence that the bottom is near?
Brokers point to the fact sellers are finally willing to give up a bit on their price to sell faster. They also point out that real estate insiders themselves are now snapping up investment properties."
Really? They're snapping up investment properties? Show me one. Nothing concrete was mentioned in the article.
Nothing I analyzed last year (2-4 unit buildings) made a positive cash flow with 20% down, most would need 40% down, and then you're looking at a 1% return on your investment. Unless you include speculation on price inflation, but that looks to be over. So I predict prices will have to soften to come back in line where investment properties actually provide a decent ROI and cash flow without hoping for 10% YoY appreciation.
But let's look at a concrete example. Here's a four plex for sale for $415k. With a 44% down payment ($182k) you're looking at a 0.06% cash on cash return. That's not 6%, that 0.06%!
I know interest rates are in the proverbial toilet, but even my savings account pays more than that.
If there are good deals out there, this outsider hasn't found them. You must need to be an insider.
Here's one of the questions I submitted to Frank:
"Why are Realtors afraid to admit the market is softening and will likely decline over the next few months?
"It has," one broker said.
"It's all past tense," another said.
"It has declined," Davies said. "It has softened. But actually the last 60, 90 days have been just like they were last year. It's very active."
Becky Jackson at Realty Trust Group Inc. in the Pearl District said: "When you're speaking to a buyer today you may not be able to say perfectly that it has passed. You might still see something for the next few months but you're not going to know what is the last day of the low market."
Just like they were last year? Sales are down 30% from last year, that's "just like last year?"
It's all past tense? Wishful thinking again. It's all future tense! The decline has just started here.
"Kathy MacNaughton of Realty Trust Group said: "What you say privately and publicly is different."
"How so?" I asked.
"I don't think it does you any good to say the market is tanking. And it's not. We know that. You've heard that today. But I will tell you that probably six months ago I talked to my buyers privately and said, 'You know what, we have to be very careful. I see signs in this market of settling.' And I think all of us did the same thing.""
Prices might not have tanked, but I would say that a 30% decline in sales is pretty much tanking. I know in my industry if we were down 30% from last year I, and 75% of my coworkers, would be out of a job. And if I told my manager that a 30% sales decline was just like last year I'd be fired on the spot.
We had some good friends over for drinks this weekend and, as usual, talk turned to real estate. We mentioned that we’ve had our eye on a house that is currentlyfor sale in their neighborhood, and not only did they know the house, they knew a bit about the owner. Their comments were:
"That house is owned by Mary (not her real name). She made a bunch of money as a mortgage broker and bought six investment properties over the past few years. Her income has dropped recently and so she's trying to thin out her holdings and she listed that house a few months ago. Her original plan was to fix it up to get top dollar, but now she's just hoping to get out from under it fast. She's already dropped the asking price once, and will probably drop it again."
I can't help but think we're going to see more and more stories like this over the next few months (and years). If you were a buyer interested in this house, what would you do? Wait? Submit a lowball offer?
OK, maybe I'm stupid, maybe I'm missing something here, can you folks help me see why anybody would buy this?
According to my calculations, given the current rents and this asking price, with 20% down, and esimating 5% of gross rents for maintenance and 0% vacancy, including the tax break you would LOSE $4443 per year to own this lovely duplex.
What am I missing?
(courtesy of Craigslist)
$549900 Belmont Victorian Duplex
RMLS # 8012653
OPEN SUNDAY FEB 10TH 11-1 P.M. LWR UNIT ONLY Big, bright Victorian duplex in the heart of the Sunnyside/Belmont neighborhood. Easy conversion back to single family home or live in one unit and rent the other. Lower unit has one large bedroom, one small bedroom, generous living room, and large renovated kitchen. Upper unit has two generous bedrooms and large living room. Each unit has off street parking and private storage. Laundry machines in basement. Current rents are $1195/1150. Each unit is approximately 900 sq ft. Great location right at the Sunnyside Sunflower. Just blocks for Zupans, Stumptown, and bus.
My objective with this blog is to present an alternate, non-Realtor, "outsider" view of the Portland real estate market based on my experiences and analysis, to help you make a better decision whether you are trying to buy, sell, or just interested in learning more about the market.
