Real Estate The Best Investment? Some Sellers Are Banking On It
Rather than merely give you the heads-up on some new listings in Berkeley, I am inspired by my Sweet Digs neighbor Anna Hibble (and she by some nifty sales snapshots on Submedian), to look at the sort of return on investment appreciation the owners of these homes are eagerly anticipating.
(First up is strange to say the least: a 7-bedroom bank-owned house for sale in Berkeley which last sold for $1,000 so the math doesn’t really work. But I had to include it as it looks intriguing.)
1234 Haskell Street, Berkeley 94702 (pictured above left)
Asking: $606,000 (or $645,000 depending where you look)
Last sale: $1,000 (8.24.2007)
Difference: $605,000 in 5 months [or $121,000/month value increase!]
927 Euclid Avenue, Berkeley 94708 (pictured above middle)
Asking: $1,075,000
Last sale: $806,000 (6.8.2000)
Difference: $269,000 [or $38,408/year value increase]
1404 Oxford Street, Berkeley 94709 (pictured above right)
Asking: $749,999
Last Sale: $585,000 (1.10.2003)
Difference: $164,999 [or $41,250/year value increase]
Asking: $590,000
Last sale: $105,500 (3/19/1997)
Difference: $484,500 [or $48,450/year value increase]
Update: In a comment to this post, a sharp reader pointed out the error of my ways in using the term “return on investment” rather than appreciation on an asset — hence my correction. Coincidentally, over at SocketSite at the same time a lively discussion has been under way about the difference between appreciation and added value.
anna said:
Interesting stuff here, Tracy- a very cool spin on the Submedian data. Love to see if you can follow up when they actually sell, to see how the investment actually pays off.
-Anna
January 9, 2008 11:29 AM
Lance Knobel said:
Be careful with your language. You’re not describing return on investment. You’re describing merely the capital appreciation of the asset.
To know the return on investment you would need to know what the purchaser’s downpayment was, what the terms of their mortgage were, and what the transaction costs were. The world of housing is filled with people who will claim houses are great investments in all circumstances, but don’t take into account all the factors that truly determine investment return.
For a recent debunking of this notion see http://www.portfolio.com/views/blogs/market-movers/2008/01/08/the-national-association-of-realtors-fuzzy-math
January 9, 2008 11:34 AM
Tracey Taylor said:
Thank you Lance for exposing my ineptitude when it comes to matters financial.
Anna: I will do as you suggest and follow up.
January 9, 2008 11:45 AM
Toady said:
Haskell is actually bank-owned. The $1,000 sale in August was just an accounting transfer from the lender to an REO holding company. It was last sold for $750k in August of 2006. As I recall, it was listed last summer as a short sale at somewhere around $725k. So even if they could sell it at $606k, and they clearly can’t since it’s been on the market for at least two months at that price, nobody’s going to make any money on it.
The previous owner made out though; purchased for $440K in 2004. About $135k/year in appreciation.
Nice neighborhood, too. Very convenient for one’s crack cocaine and prostitution needs.
January 9, 2008 1:12 PM
Tracey Taylor said:
Toady: Ouch!
January 9, 2008 2:13 PM
curious said:
Looking at dollar amounts, rather than rates, of appreciation can be misleading. To put the numbers in context: looking at the Euclid property, for example, if you had put the original purchase price in an investment earning 4.0% per year, the expected value at the end of the same period of time would be approximately $1,081,650. The compounded rate of appreciation is 3.87%, without taking into account any costs of ownership (such as the annual ding of $9,000 or so for property taxes). Hardly the extremely high rate of appreciation implied.
As Mr. Knoble has pointed out, the actual return on investment is highly dependent upon the transaction structure and includes, in addition to the factors noted in his comment, the tax ramifications of the transaction.
January 10, 2008 12:26 AM
tracey.taylor said:
Curious: You are of course correct. Thank you for your insight. But even investors need a roof over their heads.
January 10, 2008 9:45 AM
Real Estate The Best Investment? Some Sellers Are Banking On It | ImmediateRealEstate.com said:
[...] admin article is brought to you using rss feeds.Here is a great article on the latest real estate buying and selling news.Last sale: $1000 (8.24.2007). Difference: $605000 in 5 months [or $121000/month value increase!] 927 Euclid Avenue, Berkeley 94708 (pictured above middle). Asking: $1075000. Last sale: $806000 (6.8.2000) … [...]
January 24, 2008 8:02 AM