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Tag Archives: McMansion

How to Lose Megabucks on Real Estate

Lot of McMansions are on their way to being worth less than half of what they cost to build. Problem is in high end homes, personalization makes a home only the person who built it can love. Second problem is out pricing the market. This one was the King of McMansions, a $42 million white elephant purchased by Tyler Perry for $7.9 million…

As a tear down.

Like Yachts – it isn’t the purchase price that is the issue…

$42 Million Tear Down...

At $1 million a year in maintenance and upkeep on the property – Tyler better hope his formula continues to work.

After 17 Years on Market, Mega-Mansion Sells

Celebs plunk down millions on mansions every day, but Tyler Perry’s new acquisition is somewhat more storied. The scribe bought Atlanta’s Dean Gardens, which cost $25 million to build, features 58 acres, a golf course, wedding chapel, and what the New York Times calls an almost universally mocked “collision of self-indulgence, bad taste and a waste of money.” Which might explain why it took 17 years to sell. Perry, who paid $7.6 million, plans to rip the whole thing down anyway.

Dean Gardens was the child of software entrepreneur Larry Dean and his first wife, who spent four years and the aforementioned $25 million building it before moving in with their four kids in 1992. Less than a year later, the Deans split and the house went on the market—where it has sat, like a garish elephant in the corner, until now (though Michael Jackson reportedly almost bought it for Lisa Marie Presley when the asking price was $40 million). “The luxury-home market has been hit very hard, and this was a very special property,” says one tactful local Realtor.

 
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Posted by on August 22, 2010 in Giant Negros

 

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Walking Away From the Pain

The New Mortgage Revolution: Walk Away

Underwater on your McMansion? Dump the Mortgage!

Big real estate developers do it all the time – like yesterday, when the owner of New York City’s Stuyvesant Town complex decided to stop paying its $3 billion mortgage. So why are you still writing a check every month on that mortgage that’s much bigger than your home is actually worth?

Good question, University of Chicago economist Richard Thaler says. Thaler tells New York Times readers that it’s not just alright to walk away from one’s over-sized mortgage — it may actually be a moral imperative. (An earlier Times article, by Roger Lowenstein, said much the same thing.) After all, lenders had no second thoughts about lending more than many borrowers could afford or than the homes might actually be worth. It’s just not fair to expect borrowers to follow rules that the lenders don’t.

But why stop there? Some commentators are now calling on borrowers to start a mass mortgage strike.
“Remember burning draft cards? Burn your mortgage,” the blog DailyKos told readers recently:

“The real risk to the banks and investors is that the people in those homes might just decide to walk away. And that’s what we must do. Doesn’t have to be everybody, of course; but anyone who finds themselves seriously underwater with no hope of ever recouping their investment….just walk away Renee. Morality has nothing to do with it. You are a cog in the wheel of a machine that is killing this country and if you remain a cog you enable it. Remove your cog and the machine will not keep running. Remove millions of cogs and the machine gets replaced.”

Now the call for a borrowers’ revolt is being joined by folks who know an opportunity when they see it: real estate agents. Over the past month, agents have been rushing to declare 2010 “the year of the strategic default.” Here’s Connecticut Realtor Minna Reid

Loan modifications do not address the real problem of heavy negative equity and are sure to fail most of the time. Even if the homeowner lowers their current payment they are left more trapped than ever. There will be no quick recovery this time. Years later when there is a need to HAVE TO move, the original problem of being upside down remains and the modified homeowner is left to short sell or foreclose once again.

Isn’t it better to just cut the losses upfront ?

I know many will consider strategic default wrong or immoral, but as for me, I stopped passing judgment long ago.

Reid is far from the only real estate agent using mass revolt against the banks as a sales strategy. San Diego broker Bob Schwartz asks, “How many homeowners will suddenly wake up to the fact that their home is now worth tens of thousands of dollars less than their mortgage balance? Only the naive will believe that their San Diego home’s value will bounce back anytime soon…. Defaulting “strategically” can entice more walk-aways by buying all the major items they may need in the near future, such as a car or even a house, right before they take a hike. As long as you stay current with other mortgage lenders, one could potentially have a good credit standing in 2 years after the walk-away.”

Ouch for the banks! But strategically not a bad move.

 
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Posted by on January 26, 2010 in News

 

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Forclosure Goes Upscale

Remember back when the Foreclosure crisis started all th Republicans running around claiming it was the fault of all those poor and black folks in taking out loans they couldn’t afford?

ForclosureWell – Now foreclosure in the top market tier is nearly 1/3 of all foreclosures in the market.

About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.

The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.

The Zillow research compared homes against the median values for their local market and broke each market into three tiers by value. Zillow then looked at the share of monthly foreclosures in each tier over the past decade.
[Moving Up chart]

Foreclosures are rising in more expensive markets as home values in those areas fall, leaving more homeowners with mortgages that exceed the value of their properties. Prime loans accounted for 58% of foreclosure starts in the second quarter, up from 44% last year, according to the Mortgage Bankers Association. Subprime mortgages accounted for one-third of foreclosure starts, down from one-half last year.

The issue here is that these homeowners typically are massively under water on their homes. A house which could have sold for $1.4 million in 2005 is now only worth (in some markets) $750,000. This issue if exacerbated by financing vehicles in the high-end market allowing the buyer to make only (sometimes partial) interest payments for 5 Years, at which point the purchaser has to pay off the “balloon”. In a hot real estate market with prices climbing 7% a year, this was a good deal – because the home could be “flipped” for more than the balloon payment…

With the market crash, it’s death.

The second issue is the economy – supply and demand. The number of high-end homes far exceeds the demand – or the number of folks with the income to afford them. There are just so many folks who can afford a $5,000, $10,000, or $15,000 a month mortgage anymore – and that number isn’t expanding because the number of folks “movin’ on up” isn’t expanding… it’s shrinking.

Indeed, the only way to make sense of some of this may well be “multimillion dollar tear downs” where there is enough land to build several units – or a reverse McMansion creating a duplex or triplex …

The lower end of the market seems to have bottomed, and is on it’s way to recovery. However the huge, ugly elephant in the room is that 30% of all mortgages in the country are under water.

 
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Posted by on October 14, 2009 in You Know It's Bad When...

 

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Sub-Prime McMansions?

Back when the Sub-Prime crisis first hit, the Republicans sought to blame the crisis not on the financial incompetence of the banks, or the failure of the Federal Government to regulate the banking industry…

Price Reduced

Price Reduced

But poor (minority) folks who obviously took out loans they couldn’t afford.

Like damn near everything conservatives say – that was a lie, too!

LITTLE TORCH KEY, Fla. — Jack Warner leaned against his home bar and checked his watch before resuming his blank stare at the white tent outside his multimillion-dollar dream house, with its swimming pool and views of the Florida gulf, soon to be sold at auction.

“My whole life happens in two hours,” he said. “I feel like I am playing the part of Old Yeller,“ wondering if he will survive financially or perhaps just be put out of his misery, like the fictional dog. An auction, and having people traipse through a house in previews before bidding, smacks of desperation. But increasingly, people with multimillion-dollar homes who need to raise money are discovering they have few alternatives, as the luxury real estate market is especially moribund.

“We are seeing more people with homes that were on the market for $4 million to $7 million that are not selling and they are calling us,” said Jim Gall, president of Auction Company of America.

Mr. Warner, 61, bought his house and an adjacent property that once had a trailer park on Little Torch Key, north of Key West, in 1993. It was appraised at nearly $14 million just two years ago. But after losing a large amount of money, he liquidated his construction business in Elkhart, Ind. Last year, another company he owned, Lucky’s Landing, which essentially owned his Florida real estate, filed for bankruptcy protection and its assets came under court oversight.

When no buyer emerged at the listing price of $5.9 million, Mr. Warner asked the United States Bankruptcy Court in Miami to approve the property’s sale at auction. He had a lot riding on the request. To avoid personal bankruptcy, he said, the sale had to generate more than $3 million, roughly the remaining amount of the mortgages.

The gavel ultimately came down at $2.5 million. Mr. Warner’s hopes withered as he uttered softly: “O.K., I’m broke.”

Now obviously, the bankers and stock market guys who created this mess aren’t anywhere near selling their McMansions. Especially with the sort of $10 million bonuses still being handed out by Banks and investment firms to their 5,000 “most valuable” employees.

But a lot of others are being whipsawed by a failed economy, and a reduced need for the sort of services business which generates the sort of income to afford one of these monsters.

Has the market hit bottom? Probably for the low to mid market. Houses are beginning to move in the under $1 million range. However the McMansion market, which is vastly over built in many areas will likely continue to plummet.

 
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Posted by on August 9, 2009 in You Know It's Bad When...

 

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