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

*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.

Today we have two properties that could not be more different. One is a 69 year old “sold as-is” home located in the Northern hills of Arcadia. It isn’t a flattering place but you supposedly get a “Great city light view”.

The second property is a typical 5,100sf McMansion located near Longden and Baldwin Ave. It boasts of granite counter tops, grand staircases and even a guest house.

They both share one thing: the sellers are stuck in 2006 pricing and hoping to make hundreds of thousands of dollars after a few years of ownership.

2215 Cielo
Arcadia, CA 91006

Price: $1,470,000 ($471/sf)

• Beds: 4
• Baths: 2.25
• Sq. Ft.: 3,124
• Lot Size: 0.28 Acres

Sales History
Dec 13, 1995 $430,000 ($137/sf)
Mar 13, 2003 $665,000 6.2%/yr ($212/sf)

After 5 years of ownership, the owner is currently listing the property for $805,000 more than what he/she paid for it. Did the “city view” get a lot better over the last couple of years?

732 W Lemon Ave.
Arcadia, CA 91007

Price: $1,988,888 ($390/sf)

• Beds: 6
• Baths: 5.5
• Sq. Ft.: 5,100
• Lot Size: 0.47 Acres

This seller bought the McMansion in 2005 for $1,690,000 and has relisted it for nearly $2,000,000. $2MM is easy to stomach when there’s no 20% down payment requirement and you’re on a interest-only mortgage plan. Now take away all that and your buyer pool is quite limited. If I had $400,000 for a down payment, I can think of several dozen homes I’d rather buy than to sink it into this monstrosity that doesn’t even offer proper landscaping:

Sales History
Oct 07, 1988 $154,000
Mar 27, 2002 $508,000
Sep 30, 2005 $1,690,000 ($331/sf)

Currently listing for $1,988,888 ($390/sf)

There is absolutely nothing wrong with trying to maximize your profits when selling a home. You would be crazy to argue otherwise. Unfortunately, what we see here are uninformed sellers stuck in yester-year’s pricing and the Realtor is going along with it. A quick look on Redfin will reveal grander McMansions being sold for under $1.8MM so $1.988 for the one above isn’t even within kife-catching territory.