Saturday, September 09, 2006

General Rule of Thumb

I have been asked to explain how I determine home values? Well, generally speaking in Southern California, the closer you are to the ocean the pricier it gets. However, there are many areas that are 10 miles inland that have special attributes such as great school systems such as Poway and Scripps Ranch that demand higher home prices. Bottomline is that it depend on your lifestyle and your needs. I like to think that I am an average middle-class individual and based on that the cost per sq ft above is quite reasonable when making a decision to buy a home. Lets take some examples:

Coastal Example:

A typical 2000 sq ft track home in Encinitas should not cost you more than $250 sq ft. That would get you to about $500K, which is still pretty pricey. Today however, the lowest price for a home like this is $700K, nearly $200K overpriced.

Valley Example:

Rancho Bernardo is a nice example. Here a 2000 sq ft home should typically be around $200-250 / sq ft. That would mean you should pay between $400-$500K for a home in Rancho Bernardo. A search on yields homes in the $575K range which is still overpriced by $75-175K.

Inland Example:

Lets look at Ramona. This is an up and comming area with many newer homes being built daily. Typically you don't want to pay more than $150-$200/ sq ft for a 2000 sq ft of living area. That puts us at $300-400K and a search yields homes starting from $375K which is not that bad at all.

I guess the best answer to the question comes down to what you are willing to pay to meet your needs and live comfortably and this should be a good start.

Big Trouble in Point Loma


3 Bedroom, 3 Bath, 2 Car Garage, 1931 Sq Ft Home builit in 2005.

Original List Price: $740,000-$875,000

Listed on: 7/25/2006

Positives: Nice Area, Close to downtown San Diego.

Negatives: Small lot, $63/month HOA, $340/month Mello-Roos

This flipper purchased this home in Jan 2005 for a mere $825,379. As you can already see this seller has a $135K range in which he is willing to accept offers, which in and of itself is quite insulting. This is a cheesy method that realtors talk their clients into because the seller refuses to believe that the gravy train is gone and it not heading back. With a steep $400/month in HOA & MR fees, the next buyer is sure to get a rude awakening. These homes were built on a old Navy facility and is adjacent to Navy housing. What would I pay for it? Since this home is near the beaches and San Diego night life I would pay $250 sq ft. That gets us to $483K, subtracting the $400/ month fees over 30 years at 6% (equivalent to $70K) gets us to $413K.
Yeap, thats all its work to me....sorry to disappoint. We have a ways to go before we see this price but who ever though someone would pay over $800K for this box.

Thursday, September 07, 2006


Original List Price: $$535,000-$590,000

Listed on: 8/31/06

Specs: 3 Bedroom, 2.5 Bath, 2 Car Garage, 1659 Sq Ft Built in 2005

Positives: Balcony, Rain gutters

Negatives: $89/month HOA, $210/month Mello-Roos, small home

This flipper purchased the "American Dream" in June 2005 for $600,334. In less than 15 months this flipper is in a deep deep hole. Even though the home has been on the market for a few days this one could be on the MLS a while. Why? First, you have a small living area; 2) you are paying $300 monthly in addition to your mortgage payment and 3) Seller wants to minimize his losses so he probably won't go near the low end of the asking price.

What would I pay for it? $200 per sq ft = $332K. However, with a $300 HOA/M-R, it is equivalent of adding an extra $50K to the mortgage over 30 years at 6%. So today the home is worth only $332-50K = $282K.

I know what your're questioning my methodology right. But only five short years ago a house like this in Chula Vista would have sold for $175-$225K. Just think about it.....


Original List Price: $598,000-$658,000

Listed on: 7/21/06

Specs: 4 Bedroom, 3Bath, 2 Car Garage, 2582 Sq Ft Built in 2005

Positives: Nice Views, Some Upgrades

Negatives: $176/month HOA, $876/year Mello-Roos, small lot

This flipper purchased the "American Dream" in May 2005 for $437,835. In less than 16 months this flipper believes that she made enough improvements to warrant a $160-220K profit. The upgrades must be made of gold. If you would like to contribute to this flipper's retirement fund and be her next vicitim -> go right ahead.

I believe that this house in this current market is worth: $475-525K max. What would I pay for it? $200 per sq ft = $516K. However with a $176 HOA, it is equivalent of adding an extra $30K to the mortgage over 30 years at 6%. So today the home is worth only $516-30K = $486K.

Between you and me, that is way to much for this home, however it is a fair price in todays marketplace.