$60,500 in 2014 sold for $199,000 in 2018 Would You Take That Return

Compelling yes; however what about the person who purchased in 1998 and 10 years later lost the unit to foreclosure.

Earlier this week I closed the seller-side of a condo at Monaco Place in SE Denver.  From a previous blog post I suggested this complex represented the Denver Real Estate Market of the past decade.

This is a complex with a stellar location i.e. 1 block east of I-25 and Hampden Avenue. Excellent walk score, units ranging from 1-2 bedrooms in various configurations. Ample open areas professionally landscaped. Amenities include an indoor pool, workout facility and the HOA provides both heat and air-conditioning.

The complex was built in the early to mid 1970’s. Stacked 2-3 stories most units included wood burning fireplaces. Top floor units have vaulted ceilings. There are communal washers/dryers and some units have stackable units installed.  Each unit comes with one deeded carport parking space and guest parking is ample. The units did fall on hard times from decay of the exteriors to investment units outnumbering owner-occupied (of note at present 63% owner-occupied and climbing).

Thus the unit I am going to profile I believe represents the Denver market and may be an indicator of where the market is going. Spoiler alert, softening yet not a crash landing.

Being respectful of the seller and buyer I will not disclose the actual address and unit #. I can advise the unit is a 2BD/1.75BA top floor condo. My seller during his tenure did various cosmetic and mechanical upgrades totaling approximately $15,000 over his time of ownership during which time the unit was rented.

Based on Denver Assessor Office Records:

  • 9/30/98:       Purchased for $59,000
    •            -$91,210 in today’s dollars
  • 7/9/08           Foreclosed upon by Bank of New York
  • 9/5/08           Placed on market by Bank of New York asking $29,500
    •                -$34, 526 in today’s dollars
  • 10/30/08      Unit sells and closes for $36,375
    •             -$42,573 in today’s dollars
  • 2/14/14        Placed on market for $69,000
  • 2/24/14        Sold for $60,500
    •            -$64,400 in today’s dollars
  • 6/6/18           Placed on market for $209,900
    •             – Asking based on comps selling for $209-$216 within prior 3 month
  • 6/17/18        Asking reduced to $199,000
    •             -Prior week 4 showings no offer
  • 7/23/18        Sold for $199,000 minus $3,000 Concession
    •            Net Sale $196,000

Thus looking at the history, the 10 years between 1998 and 2008 were not kind to the owner of this unit including a foreclosure during the Great Recession.

The next owner did well i.e. in 6 years of ownership enjoyed a gain of $24,000 or $4,000/year equity appreciation. Of note the seller was attending college in the area, thus owning not only comparable to rent yet also enjoyed equity appreciation of $4,000/year.

However my seller literally knocked it out of the ballpark with a gain of $135,500!

In addition to the rental income i.e. $1,200/month – HOA fees of approximately $450/month, my seller was netting $750/month on his initial $60,500 investment.

Over the 4 years and 3 months of ownership:

  • Initial Investment     ($60,500)
  • Net Rental Income    $38,250
  • Upkeep and Maint.   ($15,000)

Thus just from rental income over the 4 years 3 months of ownership my seller netted literally half his initial investment.

And he sold the unit for $196,000 after seller concession.

Thus once calculating all the numbers, his net gain over the 4 years and 3 months excluding commissions:

$158,750 or a staggering $3,100/month during his ownership tenure.

My view is a follows:

  • Such gains will NOT be replicated for the foreseeable future if ever.
  • When we priced at $209,900 was based on market, had to reduce to $199K to sell.
  • Market may be softening due to higher yet still historically low interest rates.
  • Rents seem to be retreating coupled with additional inventory.

At $199K w/ 30 year fixed including HOA and taxes comparable rent i.e. similar unit asking $1,495/month. Factor in tax benefits and potential equity appreciation still an attractive opportunity for the buyer.

While I am not an economic forecaster I do believe within the next few years we will witness a softening of the market in real estate coupled with the potential of a mild recession. Further out I am more concerned with another Great Recession or potential Depression gripping the world economy around 2030.

My prediction is based on economic cycles, tax cuts which will balloon our deficit, rising interest rates worldwide to tame potential inflation, higher oil and overall commodity prices and I have not even considered the potential impacts of a trade war waged with tariffs.

BTW: I am not alone in my thinking: Dr. Alan Beaulieu, President of ITR Economics

The following article is great reading: 2019 Recession/2030 Depression

 

 

 

 

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