It gets better and better. Any doubts about my neighbor’s report that Dave’s Used Car Lot, Marina, and Weed Arboretum sold instantly at auction were resolved by a Saturday morning chat with the new owner, who surfaced with a gang of junk dealers come to cart off the trash Dave left behind. So, we might add, did a horde of neighbors, who showed up asking to take this piece of junk and that piece of junk, requests the proud new owner was happy to accommodate. The more junk the neighbors carted off, the less he’d have to pay his clean-up crew.
It is indeed true that the house has been sold. But the auction price was not $192,500, an amount $32,500 less than I paid for the house across the street before the bubble started to inflate. Oh, no. That $192,500 figure is the new owner’s asking price!
That’s what he wants to get for the house. The For Sale by Owner sign in the front yard is not Dave’s FSBO effort: it’s the new owner’s.
This guy is a bottom feeder who grabs the most desperately distressed properties he can get his grimy hands on, shovels out the debris, does virtually no fix-up, and then flips them at “drastically reduced” prices. (Reduced from what? Please: don’t ask.)
So I said to him, “Are you crazy? A house just as run-down as this, right around the corner, just sold for $265,000. Put the house on the market for an amount that will pay you for buying it!”
Oh, no, said he. “If I did that, I’d have to do a lot of fix-up and improvement…and if I were going to do that, I’d have to sell it for $340,000, the amount that one house over there sold for.”
That one house was dolled up as a freaking palace and has NO, count it NO blight near it.
What this means is, first, the guy paid even less than $192,500 for it, an unheard-of devaluation around here. Second, the jerk is going to sell it to another bottom-feeder who will slap on enough paint to cover up Dave’s purple-and-green ceilings and rent it or resell it to the unsuspecting. It will be sold as a dump and chances are it will remain a dump.
Lhudly sing goddam!
One thing you have to say about properties in this neighborhood: once they’re blighted, they tend to stay blighted. I know of only two badly run-down houses that were turned around to make them into reasonably clean, well-maintained properties. All the rest have stayed in the dumps through several owners. I guess that’s what we’re going to see across the street.
Rumor has it that Dave’s Used Car Lot, Marina, and Weed Arboretum has already been auctioned off. A neighbor called one of the numbers on his FSBO sign and was told the house just sold for $192,500.
If that’s true, it’s a disaster for me:just before the bubble started to inflate,I bought my home for $232,000. If Dave’s pigsty sold for any such price, it means my house is now worth less than I paid for it.
On the other hand, why do I doubt this story? Let me count the ways:
No real For Sale sign ever went up.
No “Foreclosed” stickers ever appeared on the doors or windows.
No “Auction” sign was posted.
Dave has been out of the place for less than a week.
Houses in the neighborhood, even deeply discounted for-sale-by-lender houses, have sat on the market for weeks and months without moving; it’s unlikely Dave’s would have sold in less than a week.
As anxious as banks are to unload distressed properties, it’s unlikely that they’d let it go for $65,000 less than a similarly trashed house went for just a couple of weeks ago.
No. This story smacks of disinformation.
Well, we’ll find out soon enough. The place is not habitable as it is, so if someone bought it, we’ll soon see workmen swarming around. With any luck, maybe a speculator will clean it up and resell it at the market price (which still exists, after all).
My estimate for clean-up and updating: about $60,000. Thirty thou’ on the lowest end; sixty thou if you wanted to do a decent job of it.
Clean garbage and weeds off lot: $800
Disassemble and haul junk storage structures, the large, dangerously decrepit wooden children’s climbing set, and other large pieces of junk: $800
New air conditioner: $5,600
Reroof: $5,000
Replaster large pool and replace decrepit, probably broken pool equipment: $10,000
Scrape and paint exterior: $1,500
Paint interior: $2,000
Recarpet: $3,000
Stovetop: $800
Refrigerator: $1200
Dishwasher: $500
Cleaning service: $200 (no one in her right mind would clean out the sty for less than that!)
There’s the bare minimum: about $30,900. That would make the place rentable, but not for much. Now let’s make the place saleable for a decent price:
Wall oven: $1,200 (viewed through the haze of a filthy window, the oven looks relatively new and might stay if it’s functional and can be cleaned)
Poor old Dave, proprietor of Dave’s Used Car Lot, Marina, and Weed Arboretum, is finally moved out, having spent a week and used the services of three male friends equipped with pickups, a flatbed, and SUVs to haul off his collected junk. He’s posted a do-it-yourself “For Sale” sign in the front yard (“Drastically reduced!”) and ridden off into the sunset, leaving his weed garden behind.
This afternoon some kinda seedy-looking guys climbed over the weed haystack in the driveway to ogle the peeling batten around the eaves. Evidently they were calculating what it would take to revive the decrepit house to its former glory…or at least to rentability. Early in the evening, a father came by in the wake of his toddler’s tricycle. Dad and son broke into the back yard through the side gate and disappeared into the weed jungle. The kid’s trike is gone now, so either they came out and went on their way or the cockroaches carried the hardware off.
Old Dave, as we learned, was foreclosed. My neighbor and I found that out when the notice was mistakenly slapped on her front door instead of Dave’s. He borrowed $320,000 against the place. Zillow values it at around $307,000. Even though it has a pool (soon to be a mosquito pond, no?) and a good-sized corner lot, there’s no chance it’ll fetch that much. Another foreclosure in similar condition around the corner sold for $268,000.
In a way, I’m sorry to see Dave go, despite the mess he lived in. The trashed condition of his property and his habit of parking a used-car-lotful of rolling stock on the front lawn affected the property value of houses all around him, and that was irritating. But at least Dave was quiet. I dread what’s going to end up in that dump next.
O.K. There’s a remote chance someone will buy the house for a song, fix it up, and live in it. More likely, though, some speculator will grab it out of foreclosure, throw a cheap coat of paint on the outside and some apartment-house carpets on the floors, and rent it out. This will add to the already thick population of rentals in the neighborhood. It will join the place that houses Biker Boob, a Hell’s Angel who roars up and down our residential street on his unmuffled Harley and who uses the garage to conduct a shade-tree mechanic’s operation, complete with LOUD heavy-duty shop equipment that he starts up at 7 a.m. every weekend and operates until after 11 at night, and the shack whose out-of-state owner rents to SEVEN unrelated adult men, all of whom park their cars on the front yard and none of whom is interested in hacking back the knee-high weeds on the property.
The other possibility is that the new owner will be yet another of those folks who buys on the cheap, thinking he’s found a bargain, without having a clue to what’s involved in maintaining a forty-year-old tract house. Once they get moved in and discover how much it costs and how much work is involved in taking care of one of these places, they just let it go to pot.
Either way, the result is the same: a run-down house on a run-down lot, dragging down property values in the our little six-square-block development. Add to this recurring phenomenon the City’s kind decision to rip out a whole row of houses to make way for the train tracks, and you can see if you want to move up but stay in town, you’re flat out of luck. There’s no way you can afford a comparable (or even a lesser) house in a better-maintained neighborhood that’s located in the central part of the city. The only way to get back into the middle class is to move way, way out into the sprawl on the outer fringes of the metropolitan area.
You, too, can drive two hours each way to work. You’ll love it. It’s the American way!
Yesterday evening I walked Cassie past a foreclosed house a block to the west. The place has always been trashed: the people who lived there for years took pride in running it down, and so by the time they were tossed out, it was quite a mess. The “For Sale by Lender” sign has been up for several weeks.
Curious to look inside, I kicked the back gate open and found…lo! brand-new double-paned windows and Arcadia doors! A brand-new heat pump, merrily humming away in near silence. Through the windows, some of which still had the manufacturer’s plastic wrap clinging to the glass, I could see new cabinetry, appliances, and countertops in the kitchen. The house was tiled throughout with attractive Saltillos. A closer look at the structure revealed brand-new roofing, and it had a new paint job inside and out.
Dang! It looked pretty darned nice. Only things remaining to be done were to install a shade structure over a large patio slab, to revive the landscape, and maybe to put in a couple of shade or fruit trees. Since the grass is already pretty much dead, it wouldn’t take much to xeriscape the yard.
So I was standing in front thinking maybe I should consider buying that place, since it’s offered for significantly less than I could net on my house: it’s smaller (less work! lower utility bills!) and all the other houses around it are well maintained. Archie, the resident across the street, is a right-wing crazy, but that’s OK: for unknown reasons, he thinks I’m a right-wing crazy, too, so as long as I don’t disabuse him I’ve got a friendly neighbor. Pretty quick along came one of the other dog-walking regulars, a neighbor named Mike.
Mike knows what’s going on around the neighborhood, in extended detail. The house, he says, is in escrow: selling price is allegedly $260,000.
“That will pretty much set our prices for the next few years,” says he.
“Yup,” say I, knowing that now there’s no chance of escape.
Mike said the lender had put about $60,000 into the place. Some time back, Archie said he’d talked to the rep, and his story was that the upgrades cost $30,000. Assuming the tile floors were already in, I’d say thirty grand for the roof, air-conditioning, windows, and kitchen is closer to the truth.
Well. If the outfit that ended up owning that decrepit rathole fixed it up to this extent, maybe the same thing will happen with Dave’s Used Car Lot, Marina, and Weed Arboretum. Even a coat of paint on the outside would help: the place is a wreck. Right now the girlfriend has mounded the weeds she’s pulled during the past three or four weeks into a big haystack on the driveway. Somehow she manages to drive around the stack and park her car on the slab the between the closed garage and the stack—how, I can’t imagine. The garage, of course, is packed with junk, so there’s no way to get a vehicle in it. Take that back: about two weeks ago, Dave hauled away enough debris to get his pickup in there, but the mother of the new baby can’t put her car in out of the heat.
So maybe there’s hope: if a lender has to clean up a property to unload it, maybe the outfit that ends up with the Weed Arboretum will at least clear the brush and paint the tired (not to say “exhausted,” “debilitated,” or “comatose”) exterior. That would sure help a lot.
Mike has done a lot of renovating and upgrading on his house, another half-block to the west and dangerously close to the coming construction mess. Asked what he thought would be the effect of the train track project on our property values, he said he was disgusted when the City refused to give fair consideration to the residents’ request to turn the streets now opening onto 19th into cul-de-sacs but instead ramrodded its own half-baked concept past everyone’s objections.
During the construction of the trolley-car tracks, he said, our property values will drop significantly, and the foreclosure situation will drag values down further.(He’s calling it the “trolley”; I call it the “train”; no one who thinks the scheme is the biggest boondoggle to grace Arizona since the Freeway to Nowhere calls it by the City’s pet name, “lightrail.”) However, he has learned that neighborhoods near completed segments of the trolley-car tracks already are showing increases in property values. So, the folklore to the effect that trolley lines improve property values may contain a grain of truth.
We’ll see.
Anyway, I felt a little better about things after exploring the partially upgraded little house and imbibing Mike’s optimism. Maybe we’re not on a handcart to hell but on a roller coaster, instead. Roller coaster rides generally climb back up after they’ve gone down.
Dave’s Used Car Lot, Marina, and Weed Arboretum has been foreclosed. Yesterday evening the neighbor behind me, whose address is the same as Dave’s except it ends in “Lane” instead of “Way,” showed up at the door with a foreclosure notice that had been plastered on her door. She was shaken up, because at first she thought it applied to her house and was afraid she’d been the victim of a scammer. But on closer inspection we saw that it had been delivered to the wrong address and was intended for David.
My feelings about that are mixed. On the one hand, I’ll be happy to see the end of Dave’s proprietorship. On the other, I don’t look forward to another rental across the street! Maybe the new tenants can band together with Biker Boob and open an entire chain of shade-tree mechanic’s garages. And I feel bad for Dave: though there are times when I’d like to kick him in the shins, he is a sweet-natured and quiet man. Besides, given how overgrown my front yard has become what with the thick screen of shrubbery designed to block the view of the Weed Arboretum, I can’t be calling his kettle black.
Well, if we’re lucky, maybe we’ll get somebody who wants to live in the property and actually will take care of it. Not likely, though: the people who bought my old house after La Viajera defaulted are letting it go to pot. Often folks don’t realize how much it costs to maintain an aging tract house, and they just can’t afford to keep it up.
Dave owes $320,000 on a house that couldn’t have cost him more than $80,000 or $100,000. He’s been in the neighborhood at least as long as I have, and I paid an even hundred grand for my first house here. LOL! I guess it explains why he never goes to work: he’s been living on the equity!
M’hijito dropped by last night. We considered the possibility of trying to buy the place and either moving him and his roommate in there or renting it out. It’s really a wreck, though. The place has always been a disaster area—it was run down long before the Bubble came along. I’m afraid the cost of making it livable would be more than we can sustain.
Here’s how it looked when I moved in, back in 2004. Nice plywood in the front window, eh? Satan, the previous owner of my house, had quietly paid David to store the boat off the lot while the house was on the market, so it’s not visible here among the trailers and the vehicles, plus the junker car and the flatbed trailer full of ORVs are missing. Satan probably arranged to have the yard cleaned up, too: it hasn’t looked that good since he and Proserpine moved out and I moved in. The boat in the photo at the top of this post is a new model; he replaced the old one, which was nonfunctional and faded blue, with a nearly identical one in red.
M’hijito is beginning to worry that we won’t be able to turn over the Investment House before the 15-year period that we have to pay off the 30/15 loan runs, and if that happens, we won’t be able to refinance. That’s a bridge we’ll have to cross when we come to it, though. If we sell now, we’ll just break even; in fact, we might sell at a loss. Fifteen years is a long time. While it’s true that the D word is being bandied about in high places, if the world economy goes into a depression, we may have a shot at coming out of it in less than 15 years. Maybe not: as someone pointed out, the Dark Ages was actually an economic depression. But things move a bit faster these days….
Yesterday I called my investment adviser to discuss the possibility of buying a smaller house in a nicer neighborhood. I was operating under the assumption that I would apply all the proceeds from my present paid-off home’s sale to the new house.
He, however, urged me to finance as much of the new purchase as possible—80 percent—and invest the remaining cash in the stock market. The 5 percent drawdown (projected “take” for retirement income) from the increased amount in savings would cover the cost of the mortgage and, when combined with Social Security, would give me enough to live on. And then some, in his opinion.
Leveraging debt, as we know, is something that goes against my bourgeois grain. However, since this is a very smart guy with an MBA, I reckoned I’d better listen up.
So today I ran a bunch of figures, in an attempt to see the practical outcome of borrowing against real estate instead of paying it off. The fly in the proverbial ointment is the $1,000/month payment I’m making toward the house my son and I are purchasing as an investment, which we would like to hold until after the housing market turns around. That could be anywhere from two to ten years.
I assumed my monthly costs of groceries, clothing, gasoline, and the like will not change significantly, since I do not eat out and don’t have to buy special clothing for the office. Gas probably will drop a little, but not much, since the Valley’s sprawl requires everyone to drive from pillar to post just to accomplish ordinary errands. Monthly routine nonnegotiable costs such as tax & insurance, utilities, and the like probably won’t change if I move to the cute little house in Willo, but will drop sharply if I move to Sun City.
So: would I be better off to mortgage my home and add the cash to savings? Here’s what my calculations show:
In the first scenario, my real estate agent gets the seller to come down off his price by $10,000 and I get my full asking price of $325,000, netting a grandiose $274,100 after the Renovation Loan and closing costs are paid.
That’s depressing. Even without the cost of the Investment House, I can’t afford to move to the cute little house in Willo. Moving on…let’s suppose the guy is right, that carrying a mortgage on my house would allow me to leverage debt in such a way that I would have more to live on in retirement. Maybe that strategy would make it possible for me to stay right where I’m living. Suppose I did that right away, while I have a job, since no lender is likely to fork over 240 grand to an old lady on Social Security.
Wow! I profit by a fantastic $1,076. What keeps me in the black is my salary. In theory the positive balance is a bit higher, because I get a small income tax advantage. That notwithstanding, this does not look like it’s worth the effort, or the psychological stress of diving into debt up to my eyeballs.
Once all I have to live on is Social Security plus retirement savings, this scenario puts me deep in the red. Clearly I can’t afford to stay in my house using this strategy after retirement.
So, what if I pay off the Renovation Loan, leaving my house free and clear, and try to stay here after I retire. Can I afford that?
What with the ever-increasing property taxes and skyrocketing utility bills, it doesn’t look good. The only way I can stay here is to sell the Investment House prematurely, taking a loss on that. This will cause my son also to take a financial hit, which I would prefer not to do.
Ohh-kayyyy…. This leaves moving to Sun City as the last option. Costs there are much lower, because taxes are controlled and home and car insurance is much lower. Videlicet:
This represents a significant savings on the cost of living in my present (much preferable) home. So, what happens if I finance a sorta comparable house, which out there will cost around $260,000?
Lovely. I’m still in the red. Either my son has to come up with an extra $542 a month, or we have to sell the Investment House. This is getting depressing: so far, no matter what I do, I can’t afford to retire. Period.
But I can afford to pay for a Sun City house in full. What happens then?
OK! I probably could survive if I move to Sun City, buy a place for much less than I get for my present home, and continue to live frugally. The amount of play in my present budget is $29 a month, and so in this scenario my lifestyle would not change much. Except, of course, I would be enjoying the silence of the mausoleum in a ghetto for old folks.
In any event, this comparison suggests that paying off your debt is better than leveraging debt, at least in terms of providing you with cash to cover your living costs. Math is not my strong point, and there very well may be something in the logic that I just don’t understand. But if these figures are right, paying off all debt—mortgage included—is the sanest way for a middle-class earner to go.
