Sunday, July 02, 2006

Mica Condo Studio for Rent

A flipper bought a studio at the Mica Condos in downtown Silver Spring. The studios sold for between 230K. Now, the flipper is trying to rent the studio out for $1700 a month. See this Craigslist Post:

$1700 - New Luxury Condo at Silver Spring Metro for Rent

Newly renovated studio condo for rent featuring:

Walking distance to SS Metro, Discovery Channel and Downtown SS.
Brand New club room, media center and swimming pool.
Security system, snow and trash removal and on-site maintenance.
Upgraded kit. - Maple cabinetry, stainless steel appl. and granite countertops.
Upgraded bathroom - Ceramic floor, granite countertop.
Washer and dryer in unit.
42" Plasma TV included!
Parking space also provided
The problem is that studios in downtown Silver Spring generally rent for between $800 to $1000 a month. There is NO way this flipper will be renting this place out for $1700.

Even, if the flipper could rent it out for $1100 a month, the flipper would still be losing significant money each month as the cost of the mortgage, taxes, condo fee and maintenance would add be more then the rent potential.

96 comments:

  1. You can get a single family rambler rented out for less than that price, or just about any 2-bedroom apartment out there. This sad excuse for an investor is screwed.

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  2. If he's overpriced it he'll find that out pretty quickly. How do we know he bought it to flip it? Who's been in contact with him? Could it be he bought it to live in but maybe later lost his job, or his fiance backed out in getting married? The glee shown by bubbleheads at this guy's misfortune is really very telling as to where bubbleheads are coming from. Frankly, finding joy in others' bad luck or bad decisions isn't the kind of emotion I would let the world know about.

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  3. Lance said...
    "Frankly, finding joy in others' bad luck or bad decisions isn't the kind of emotion I would let the world know about."

    I've noticed numerous post on this blog where "flippers" are gleeming with joy about how much they've robbed from others. It's all about Karma!!!

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  4. You're right. I live literally across the street from Mica. One block closer to Metro, dontown, and all that jazz. I pay $1200/month - including utilities and parking - for a one bed.

    My building is not newly renovated, and I have to deal with community laundry faclities. But even those things considered, there's no way in hell I'd move a block further down the road for 500+ extra bucks a month!

    Also, keep in mind that the new condos at the old Canada Dry bottling plant will be opening up soon. They're in spitting distance from Mica, and are only going to drive condo prices in the neighborhood down further.

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  5. anon said: "I've noticed numerous post on this blog where "flippers" are gleeming with joy about how much they've robbed from others. It's all about Karma!!!"

    Really? Can you point one out? I can't seem to remember even a single one.

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  6. It looks like the guy bought the condo and is renting it out in hopes of covering his carrying costs. Ain't gonna happen.

    Rent is determined in the marketplace. Housing prices do not pull up rents, contrary to what some people argue. The housing price is fundamentally determined by the tax-adjusted present value of future imputed rents.

    If housing prices are too high relative to rents, the prices must come down.

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  7. oh, and incidentally, again, how do we know this is a flipper here?

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  8. keith said:
    "The housing price is fundamentally determined by the tax-adjusted present value of future imputed rents."

    This would be correct if a unit can only be used as a rental unit. It is not valid for owner-occupied units/houses because home ownership entails other benefits from the purchase including tax write-offs, increased prestige with family, friends, co-workers, and neighbors, etc etc. (I.e., what someone will pay for a house to live in is not the same as what they would pay for it to rent it out ... inputed present value of rents is what they would pay to rent it out).

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  9. Lance, careful reading of my post:

    The housing price is fundamentally determined by the tax-adjusted present value of future imputed rents.

    Actually, given the Bush tax cuts, the tax-adjusted benefit of housing went down slightly over the last few years, since the marginal tax rates that you avoid with a mortgage interest deduction decreased.

    You then mention intangibles. But you'd have to make an argument that people suddenly valued those intangibles more than they did in the past if you're going to use those intangibles to explain price changes over time. After all, if something's always there, it does a poor job explaining changes over time. You seem to be confusing a level effect with a rate effect.

    So, do you think that it suddenly became a lot more prestigious and bragworthy to own a house during 1999-2005 than in the past? Do you think everybody started getting more of a kick out of home ownership during this time period? Because that's what you have to believe in order to use home ownership intangibles to explain changes in the price-to-rent ratio.

    Econometrically, if you put something that stayed constant over time into a panel-data setting and tried to use it to explain changes over time, it would simply drop out of the regression (at least in a fixed-effects setting).

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  10. Obviously, the condo owner did not research the Silver Spring rental market well. Yes, rents are going up everywhere all around Silver Spring. But $1,700 for a studio size apartment is absolutely outrageous for Silver Spring.

    I pay $1,200 (all utilities included) for a 800 sq. foot one-bedroom apartment in downtown Silver Spring. I think I have the better deal than what this chump is offering.

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  11. Lance,

    The odds that this guy in anything but a real estate "investor" is less than 10%. So the nonsense about the dude's wife leaving him is just silly.

    Also, you say that "Frankly, finding joy in others' bad luck or bad decisions isn't the kind of emotion I would let the world know about":

    Do you know how many morons I had to watch on CNBC who were mailmen or bartenders turned into genius Miami Condo Flippers? These guys got lucky for a while, no different than someone winning a few hands at the tables in Vegas.

    Now its time to give back the paper gains. That is just the way it works - there is no such thing as a free lunch.

    Don't get me wrong, a handful of people made money and were smart enough to get out of the game - just like Nasdaq 2000, but that is a minority.

    I trade at a mid-sized hege fund and I don't expect anyone to feel bad or cry for me if I lose my shirt on a trade - that is what the market is all about.

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  12. typo - I meant hedge fund

    Nic C

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  13. ha ha ha
    For the goody-goody who thinks the guy's wife left or something, he must be a flipper because anybody from the neighborhood who's in it to live there knows that's way above market rent. hell, a studio in DUPONT doesn't go for that much. My 1200 square foot apartment a block away goes for $1750 market. I know that the apartments in our building, even the newly remodeled ones going for $1750, don't have granite countertops and stainless steel appliances, but that's not worth $900 a month. I know he's a flipper because the only way you can rent this is by finding a greater fool than yourself, and only a flipper would think there's a fool that big out here.

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  14. I am a proud and happy Silver Spring renter. That price is way out of whack with local rental conditions.

    An expensive rental for that place, perhaps justified by the recent renovations and the inclusion of the parking space, would be 1100. And that would be tops. You could certainly find something less expensive in Silver Spring than that if you want a studio, though.

    Lance, the people who have the business model of "pay top dollar for a Sil Spr studio and rent it for $1700 a month" have got to be flushed out of the market before it returns to sanity. Yes, it makes me happy to see someone like this do something stupid and get creamed, because the sooner s/he realizes they got creamed, the sooner they give up and move on, and house prices fall back to realistic levels.

    A Redskins fan

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  16. Keith said:
    "Because that's what you have to believe in order to use home ownership intangibles to explain changes in the price-to-rent ratio."

    That is easily explained by the fact that rental increases lag price increases ... especially in cases where everyone is trying to buy (and leaving the rental market) as was the case the last few years. Rents are already starting to rise quickly. The price-to-rent ration will restore itself within the next couple years by virtue of rents rising significantly.

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  17. Keith said:
    "The housing price is fundamentally determined by the tax-adjusted present value of future imputed rents."

    Again, tax-adjusted present value of future imputed RENTS doesn't enter into the equation when determining what a willing buyer will pay a willing seller for a home in which to live in WHERE THERE ARE NO RENTS in the calculation ... tax-adjusted or not.

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  18. waiting for godotJuly 02, 2006 4:31 PM

    OMFG These people place this post on craigslist at least 3 times a day - I am so sick of seeing it that I am about to go and take a dump on their doorstep. Anyone else notice how much that post this?

    http://washingtondc.craigslist.org/nva/rfs/177742924.html

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  19. "The glee shown by bubbleheads at this guy's misfortune is really very telling as to where bubbleheads are coming from"

    I showed NO glee in my post.

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  20. Redskins said:
    "Yes, it makes me happy to see someone like this do something stupid and get creamed, because the sooner s/he realizes they got creamed, the sooner they give up and move on, and house prices fall back to realistic levels."

    I don't agree with the part about prices falling back to realistic levels once the flippers leave the market. (a) My guess would be that they are by and far already gone. They stopped buying last summmer --- the minute every newspaper in the country started talking about a "bubble", (2) Flipper can't cause prices to rise, they can only come in and take advantage of an existing situation. As we have seen, their model for making money is buying low and selling high in a rapidly rising market taking advantage of already quickly escalating prices. They wouldn't go to where there was a rapidly rising market. So, you can't really blame them with the rising market.

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  21. "Again, tax-adjusted present value of future imputed RENTS doesn't enter into the equation when determining what a willing buyer will pay a willing seller for a home in which to live in WHERE THERE ARE NO RENTS in the calculation ... tax-adjusted or not. "

    There are always rents implicitly in the calculation, because the rent measures the consumption value of shelter itself. That's what makes rent and interest rates the fundamental drivers of housing prices. Haven't you read any of Investor's posts?

    You can talk about intangibles all you like, but intangibles from ownership existed in 1985, 1995, and 2005, all with very different price/rent ratios. So unless you have some explanation as to why people started liking these intangibles more in recent years, then you really don't have an explanation for the runup in housing prices.

    Lance, again you are just wishfully thinking if you believe that the entire adjustment process will take place through rising rents. The only way rents can rise is for more people choose to rent instead of buy, so rents rise and housing prices fall until you get back to equilibrium. Housing prices are in no way a fixed point. They've already started to fall in various parts of the DC area, including DC proper.

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  22. Probably this guy has been sent overseas by his commander to go hunt Osama. He might need the $1700./month to pay for his body armour. Any sufficiently patriotic red-blooded American should rent that apartment at $1.7K/month simpy to support our troops and make the world safe for freedom, even if they have no intention or need to live at the Mica. God Bless America.

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  23. Lance,

    By the flippers being gone, I don't mean they merely stop buying. I mean they sell their properties, stop trying to rent them out at outrageous prices, and go back to speculating in internet stocks or playing the lottery or whatever they were doing 4 years ago.

    Of course flippers can affect the market. If you go from a market where most buyers are bringing 10-20% down and expecting to live in the property for 5-10 years minimum to a market where a huge portion are buying with 0-2% down and expecting to rent out the property and/or sell in 1-2 years, you will have a lot more buyers. A lot more buyers will mean higher prices. But if these buyers don't have a good business model, then the price rise will be temporary, until the business model collapses under the weight of its own reality.

    When the flippers really exit the market, there will be fewer units sitting vacant as an insane little flipper draws down his capital waiting for someone to pay him 1700 a month for a studio in Silver Spring. And when you do go to buy a studio condo in Silver Spring, you will be bidding only against other people who want to live in it, not someone with an ARM loan and a wild dream.

    I wouldn't say I have "glee" when these guys get what they deserve, but a little schadenfruede, definitely. After all, look at this clown with the Mica condo. He has done nothing. I try to work every day and make a living, and save a little. This guy is trying to increase my monthly costs by 5-600 a month. If he eats a huge excrement sandwich, how do you expect me to react? By saying, "better luck next time old chap?" At least when my apartment complex raises rent, I know that these guys are in it for the long haul, and really trying to make money by providing rental units they have built and maintained for a long time, not just swooping in, trying to make some quick cash off me, and swooping off. Yeah, I might laugh a little bit as these guys hit the brick wall of reality.

    I think these flippers are going to really get it. I don't think the big apartment complexes in Silver Spring are not going to sit around with their arms folded across their chests, going "I am going to get 1700 a month in rent, or 250K in sale, or I ain't selling or renting." They are going to fill up their units. I have noticed a rise in rents around here recently, but not to ANYTHING like the levels this joker wants.

    A Redskins fan

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  24. All, please remember that Lance (an admitted real estate agent) uses a 'faith-based' system of economic thought, in which he needs to supply no evidence or data for what he writes, but others must for what they write.

    Buyers beware.

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  25. "this guy's misfortune" - oh please. misfortune means chance bad luck. this isn't a case of bad luck, this is a case of dumb speculation pure and simple.

    there is no reason to feel sorry for someone who choses to ignore the rule that "if it sounds too good to be true, it probably is."

    this guy probably got talked into buying by a realtor friend who told him "there has never been a better time to buy real estate. even if you are cash flow negative, your losses are tax deductable and appreciation will more than make up for it over the long run." he should have learned not to take investing advice from realtors.

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  26. Just as a datapoint in the "rents are rising!" game, I just signed for another year of renting the condo I'm in. Landlady wanted a six percent rent increase. I offered two and a half. We settled on four.

    She is not, in fact, getting this year's total increase in HOA dues from us. (Of course, that has a lot to do with HOA in this complex being absolutely insane, at least $100/mo more than comparable condos in the area. More reasons to rent, not buy.)

    She bought in 2001, so my calculator says she's not quite losing money on us... but she's not making much, either. C'est la vie.

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  27. Lance,

    I hope Flipper loses his condo, his fiance, and his dog, and then moves in with you...

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  28. Little something from South Riverside area CA.
    You should be able to get 2004 prices on your home in 2006 right? You should.

    http://forsakencraft.com/proof.htm

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  29. One thing I have noticed recently; The Immobilization of a once mobile society; due to falling home prices. When you are not able to sell at a price that would cover all the mortgages, aren't you trapped? Do some people feel like they are prisoners in their own castle? What is causing this, and what does this mean for those who are stuck? I kind of know the answer, but I would like to here how others would express it.

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  30. anon said: "The Immobilization of a once mobile society."

    I can empathize with people having to buy their starter home in this market of high prices. Without family help or the good fortune of having one of those rare high paying jobs, it is probably nearly impossible. However, let's not exagerate the extent of people affected by the high prices. Something like 40% of all homes in this country are owned free and clear. Ditto, 80% of all vacation homes are owned free and clear. The vast majority of people with a mortage have significant equity in their houses accumulated over the years from having rolled it over from house to house to house. It is by no means true that the high prices are "immobolizing a once mobile society." The vast majority of us can move at will ... selling and re-buying easily. The few that can't (i.e., those young and sometimes not-so-young folks who haven't yet bought their starter home), may very well have to wait a while to buy ... but in the meantime they are renting and HIGHLY mobile. (They just have to wait for the 1 year lease to be up, that's all.)

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  31. "Flipper can't cause prices to rise, they can only come in and take advantage of an existing situation." - if they create extra demand over supply, they can.

    Keith 21 : Lance 10
    end of the first half.

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  32. Dorothea said...
    "Landlady wanted a six percent rent increase. I offered two and a half. We settled on four."

    Ouch that must have hurt! My mortgage didn't go up at all this year! (It's fixed.) At that rate (4% a yr), your rent will have increased by 48% in 10 years! My mortgage won't have changed a bit. And if inflation hits, and adds another 4% a year, your rent will have gone up 116% in ten years! Yikes! It will have more than doubled! My mortgage payment won't have changed. It must really hurt being a renter. I'm sorry for you. Btw, does the landlady come into your place while you're away and check out what you have in your drawers?

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  33. anon, good luck with your fix rates, but you home-fixing costs ant taxes will go up with inflation as well. Yikes!

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  34. You can rent a complete rambler for $850? Where in Silver Spring is that? Maybe a few years ago...

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  35. Lance,

    I'm talking about the once red hot markets where 60% of the population lives. Florida, Phoenix, San Diego, Boston, DC, etc. Sales down 30 to 50% in some of these places. 6 months or more now to wait for a sale, not weeks like before.

    An impatient society that was once highly mobile is now bottled up. If this was me, I would feel trapped, or somewhat claustrophobic.

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  36. Anon,

    I see what you mean about having to wait for the sale something like 6 months. I don't think you realize though that for most people that is not an impossible situation. For example, many companies will pay for a rental at the new local while looking for new housing ... or they'll buy the old house, etc. And even if that is not the case, the seller has a thousand and one options including or leaving it vacant for those 6 months. For most individuals with either their free and clear houses or their substantial equity in their house, that is not a major hardship. It's a cost of life. That's all. Just like if you had to move and the landlord kept you to your lease and made you pay the rent through to the end of the lease. On average, on a 12 month lease, that would be 6 months rent ... The same time it would take to sell a house. So it is 6 or one-half dozen. Either you pay a mortgage for those 6 months you are not there or you pay rent for the 6 months before the end of your lease that you've moved out.

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  37. Lance said: "Rents are already starting to rise quickly. The price-to-rent ration will restore itself within the next couple years by virtue of rents rising significantly."

    Actually, Lance rents could go up quite a lot and still be far less than comparable housing costs in the west. Rents are higher in the East compared to house prices. In the West, rents are half house payments and the housing sector will crash big time.

    The correction of rents coming up to house payments in the west would be 20 years at 5 percent per year. But way before that the housing crash will have occurred out here. And I see deflation as a real possibility, which would make this mess even more dramatic!

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  38. "My mortgage didn't go up at all this year."

    You have already overpaid so much for your house.

    "I offered two and a half. We settled on four"

    Thats a reasonable adjustment for inflation.

    Thats about how home price should also have gone up.

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  39. Gary,

    My first job out of college was in the SF bay area, and I remembered thinking back then how out of line house prices were with (a) back east and (b) rents. I was sure they'd have to crash. I mean, who in their right minds would pay $200K for a Marin townhouse that in Fairfax (Washington metro) was going for $50K back then. And the rent on that townhouse split two ways HAD to be a lot less than what the owner was paying. I was sure California house prices would have to crash. Recently, I checked what townhouses in Sausalito are going for now. Seems they are selling for well over a million. And the same $50K townhouses in Fairfax? $500k- $600K! I was wrong ... boy was I wrong!

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  40. This comment has been removed by a blog administrator.

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  41. "Anonymous said...
    "My mortgage didn't go up at all this year."

    You have already overpaid so much for your house."

    No, I am paying for my mortgage what the person who was renting the house before me was paying for their rent. Smart people buy!

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  42. What a stupid discussion, if someone bought a house/condo in 1998 - 2001 and rent it out, he has a positive cash flow. Those who bought in 2003 - 2005 have a negative one, unless they paid ~50% down.
    "Smart people buy!" is incomplete stratement, " Smart people buy at the right time" is much better.

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  43. "I was wrong ... boy was I wrong!:

    You were wrong then NOT to buy.

    You will be proved SO wrong to
    have bought now or in the last few years.

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  44. you said-
    " Smart people buy at the right time" is much better. "

    No. I bought last year - mid 2005 ... Does that clarify things for you? Like I said, smart people buy. Don't believe David that you can rent for half the price of buying. That's as false as saying "there are no people in China". He should have banned his own post for such a blatantly false statement!

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  45. Anon, I don't have a problem if you bought last year at the MARKET price and have a positive cash flow renting out. For the majority who goes with less or equal to 20% down its next to impossible, just do the math yourself if you can.
    Smart people buy... even under negative appreciation conditions? This alone disqualifies you :-)

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  46. This past weekend in the Washington Post Magazine section there was an article about the financial genius of a woman speculated in real estate. The article is online at:
    http://www.washingtonpost.com/wp-dyn/content/article/2006/06/27/AR2006062701390.html

    The article was raving about her net worth of $1M at the age of 36. At first I felt depressed, then I read the article closer and some of it just didn't add up. Essentially she bought homes with borrowed money then used the increased equity to buy or renovate more homes. Even assuming she is able to rent out her homes, I don't see how she's able to keep up with mortgage, taxes, etc. Could she really be pulling this off? From my cursory calculations, she may have $1M in real estate equity, but she also has $1M in real debt! If the main stream media is printing out articles like this, it's no wonder why the real estate market is so screwed up by speculators. In fact I fear for all of us.

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  47. Don't believe David that you can rent for half the price of buying. That's as false as saying "there are no people in China".

    What?

    I know it differs dramatically from location to location, but here in vancouver you can rent the same apartment for as little as 1/3rd of the cost of owning in some locations when you factor in strata fees, maintenance, etc..

    http://vancouvercondo.info

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  48. Anon,

    I doubt that woman is drowning in debt. It seems everything she has is cash flow positive. She is, however, a prime example of lucky timing. She has also never known a down market in her time in real estate. Anybody who can sign paperwork would have made money in the real estate market over this time period. The real test will be if she could continue to grow and make money in a 3-5 year down cycle in real estate...

    My $0.02.

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  49. anon said:
    "The article was raving about her net worth of $1M at the age of 36. At first I felt depressed ... "

    First, like mytwocents said, she's most likely doing very well due to timing ... I would argue it wasn't "lucky" timing but "educated" timing, but ... What I really wanted to comment on was your saying that you were "depressed" that someone had succeeded? That is a recipe for disaster. Call it Karma or whatever you want, you'll never succeed yourself by being jealous of those who have. It's not a zero sum game out there as so many people mistakenly believe. Success is contagious ... embrace it and let this woman's success by an incentive for you to succeed in your own way. She observed what was going on around her and contributed to it and was consequently rewarded for her efforts. You can do the same, it may not be buying now, or it may not be buying where you first thought you wanted to buy, and it may not involve buying a house but be something completely different. But the main thing is, don't be jealous of others' success. That will only hold you back and not help you.

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  50. Isn't this more of a classic example of someone being greedy than an indicator that the housing market is in a bubble? In my opinion, these pre construction condo flippers are just lazy and are looking for quick money. These condo flippers are too lazy to do the hard work. They are too lazy to buy and renovate a home. They basically want a check handed to them for the time they spent filling out paperwork. And that is why I think we will see substantial declines in this market. Most of these flippers had no intention of having to wade into the rental market. That takes work. It isn't easy money.

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  51. My wife and I looked at a new condo that had gone up across the street from the East Falls Church train station. I called the number on the sign and the realtor told me that it was a bargain for only $3K a month! She was going to put it on the market for $3,400 but we could grab it right then if we liked. I declined and then laughed and laughed...

    I later posted the story on the Washington Post forum on a thread about the housing bubble and a flipper said that $3K wasn't unreasonable because people would pay anything to live within walking distance of a train station. But still, $3K for Falls Church? Both of these stations are in the middle of nowhere and it's 25 minutes or so to get anywhere interesting.

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  52. polishknight.

    That's basically a complete lie. I pay about $1,200 for a large, nearly new 1 BR two blocks from the Metro in the City of Alexandria. I personally don't use it though.

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  53. Polishknight,

    You're correct, that is way over market. There are single family homes in the Clarendon/Ballston metro area that rent for less than that. With the added amenities of being that much closer to the city with more walk-able/popular night life.

    My $0.02.

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  54. waiting for godotJuly 03, 2006 11:10 AM

    Rent VS Buy

    Home @ 650k

    PITI (7%)- Approx $5000.00
    Tax back - $1500
    Maintenance - $200

    Total Cost - $3700 month

    Rent Same Place:

    Monthly Rent - $2000.00
    Standard Deduc tax back - 200.00
    Total Cost - $1800 month

    Savings - $1900 month
    Per Year - $1900 x 12 = $22,800
    Plus Interest - $22800 X 1.05% = $23940
    Total savings for Rent Approx - $2000/month -

    Now, I am not suggesting that it has always been a better time to rent, but it is right now. The above equation is a crude representation of the cost of each, and there could be higher expenses on either side - particularly maintenance for home. Additionally, the risk is particularly high on the buy side; wheras, the risk has been higher on the rent side in the past since you would have missed out on price appreciation.

    My Advice - wait til Christmas at the earliest to find a bargain, or wait for a couple years for things to shake out if you can. Even the most optomistic real estate cheerleaders forecast a flat market.

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  55. Anon 8:41
    "Don't believe David that you can rent for half the price of buying. That's as false as saying "there are no people in China".

    David did a post about a month ago comparing 2 townhouse, 1 for rent and 1 for mortgage. He tallied the expenses for each townhouse and show that it was about twice as much to buy than rent. Of course this want apply in every situation but proves that it is way more expensive to buy then rent. Now that interest rates on the rise his argument is even stronger."

    "He should have banned his own post for such a blatantly false statement!"

    Wrong, he provided facts that supported his claim. He has permission to write on his own post. You statement is false and unsupported it it should be banned.

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  56. Lance said"
    "I can empathize with people having to buy their starter home in this market of high prices." That's the thing, nobody HAS to buy a starter home. Right now renting is considerabley cheaper. In normal times they are much closer. I bought in '99 and my 15 year fixed PITI on a small, old, three bedroom in college park is only ~1100 bucks. If I could rent something similar for something like the same price, I would have sold at the beginning of the year. I also don't think that I'll see a <5% mortgage again in my lifetime. Buying RIGHT NOW is probably a very bad move. I council people to look at how much they're saving by renting and PUT THAT MONEY AWAY for a future down payment.

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  57. If you look at ing or capitalone, they both have interest rates for online checking at 4.25 and 4.5% respectively. They then turn around and loan out the money at 7%. God Bless America.

    So: $22800*1.0425=$23769

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  58. polishnight said:
    "If you look at ing or capitalone, they both have interest rates for online checking at 4.25 and 4.5% respectively. They then turn around and loan out the money at 7%. God Bless America."

    Checking accounts are very expensive for banks to administer. A lot of banks now charge (and don't pay interest.) Money that is loaned out for mortgages usually comes from people putting money in CDs or Bonds (like the bubbleheads are doing.) These are cheaper to administer and should allow higher rates being paid to the saver. I'm not sure where you get the 7% though. I thought mortage rates were closer to 6 1/2% at max? And yes, God bless America. In some countries communists would say that profit and processsing costs were taking money away from the person benefiting from the process ... and after much regulation, the result would be no loans for the person who needed them ... all 'cause some busybody thought he knew what was best for everyone.

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  59. waiting for godotJuly 03, 2006 12:35 PM

    Citi E-savings pays 5% currently - I am in it, and it is the best deal I have seen

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  60. "Citi E-savings pays 5% currently - I am in it, and it is the best deal I have seen"

    So you bubbleheads are saving for your downpayments in these types of accounts, with returns of zero factoring inflation? I'm not surprised, since one of you thinks cash in your pocket is earning 4.5%. I hope nobody actually makes decisions based on your "advice."

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  61. "with returns of zero factoring inflation"

    Huh? The U.S. inflation rate for 2005 was 3.2%

    http://www.cia.gov/cia/publications/factbook/geos/us.html

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  62. http://www.washtimes.com/fhg/20060621-085645-6351r.htm

    "'The rental market is very good right now,' says Leonard Wood, an apartment and condo builder from Atlanta and chairman of the National Association of Home Builder's Multifamily Leadership Board."

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  63. This comment has been removed by a blog administrator.

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  64. dc_housing news aka Bill ... Again, you should read before you post. Do you realize that the newarticle you are pointing to explains that the rental market is good for LANDLORDS? ... not rentors! Also, the article gives stats supporting the real growth here in Washington that I have been talking about ... real growth that helps justify increased RE prices!


    and here is the rest of what Leonard Wood said:
    "The rental market is very good right now," says Leonard Wood, an apartment and condo builder from Atlanta and chairman of the National Association of Home Builder's Multifamily Leadership Board. In an e-newsletter from NAHB, Mr. Wood says, "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

    July 03, 2006 1:03 PM

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  65. Mr. Wood - "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

    Wow, it's too bad there's nobody trying to rent out their condos!

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  66. Check out the article in the current edition (6/30/06) of the DC City Paper called "DCRA: Defending the City’s Ruling Aristocracy" to get a better understanding of why rents are increasing at this moment primarily in DC. Article doesn't deal with Maryland but areas close to DC such as Silver Spring are likely experiencing similar scams

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  67. Anybody remember the infamous article in The Economist that proclaimed with supreme confidence that the housing market was poised for a spectacular collapse?

    Well, here's their latest offering - can you say "permanently high plateau"?.

    Priced to perfection

    Jun 29th 2006
    From The Economist print edition
    An overvalued market is vulnerable to higher interest rates

    DURING the past decade Britain's housing market has had its most sustained boom in post-war history. Between 1997 and 2006, house prices rose by 175%, one of the biggest increases among developed economies (see first chart). At its peak, in 2002 and 2003, house prices were soaring by over 20% a year.

    A bubble had emerged, as Gordon Brown, the chancellor of the exchequer, acknowledged last autumn. By then, it was already deflating. In 2005 residential-property sales in England fell below a million for the first time since 1996. House prices stopped rising for several months.

    On past form the slowdown seemed likely to presage a long slump. The boom was the fourth since the early 1970s, and on each of the three previous occasions a bust had followed. At the end of 2005, according to the OECD, house prices were about 30% above their trend level.

    The market staged an unexpected recovery, however. Property transactions picked up. Monthly mortgage approvals for house purchase, which had slumped to 76,000 in November 2004, recovered to 117,000 in May of 2006. House prices have also perked up. Fionnuala Earley, chief economist at Nationwide Building Society, now expects house prices to rise by around 5% in 2006.

    The housing market appears to have stabilised at much higher valuations than were previously reckoned possible. A common measure of affordability is the ratio of average house prices to average earnings, since income must ultimately pay for the acquisition of a property financed with a loan. Looked at this way, homes are even more overvalued than they were at the peak of the boom in the late 1980s: the ratio stands at 6.0, compared with 5.2 in the third quarter of 1989. Much the same message emerges from another valuation method, which, rather like the price-to-dividends ratio for equities, measures the relationship of house prices to rents.

    Yet such yardsticks are not the final word. When homebuyers work out whether a property is affordable or not, the cost of servicing a new mortgage as a chunk of take-home pay is more salient. On this basis, valuations are also stretched, but homes are still considerably more affordable than they were at the end of the 1980s (see second chart).

    The decline in borrowing costs over the past decade goes a long way to explaining why house prices have proven so irrepressible. Most of the fall in interest rates has arisen from the collapse in consumer-price inflation. In itself, that makes no difference to the real cost of servicing a loan over its lifetime. It does affect the timing, though. When inflation is high, the burden is “front-loaded” in the early years of the loan, but then eases as the real value of the debt is swiftly eroded. When inflation is low, the initial payments are more bearable but more of the real debt persists, which shunts a bigger share of the costs into the later years of the loan.

    This fall in the initial debt-servicing burden on mortgage borrowers has underpinned the rise in house prices over the past decade. Homebuyers have also benefited from greater competition in the market. This has whittled down the margin between banks' deposit and home-loan rates, so lowering the cost of mortgages.

    Buyers have also been encouraged by the Bank of England's quarter-point cut in the base rate to 4.5% last August. This followed a tightening in monetary policy that lifted the base rate from 3.5% in October 2003 to 4.75% in August 2004. A more important relief to homebuyers over the past couple of years, however, has come from unusually low longer-term interest rates.

    British mortgages have customarily been at variable short-term rates, closely tied to the Bank's base rate. But since the start of 2004, the share of fixed-rate loans being taken out has risen from 30% to 70%. Most of these are for brief terms, typically two or three years, but they have allowed borrowers to exploit the fact that longer-term rates have been lower than short-term ones. The overall effect has been to offset about half the Bank's monetary tightening, estimates David Miles, chief UK economist at Morgan Stanley.
    Too good to last?

    The resilience of the housing market owes much to these exceptionally benign credit conditions. The recent upsurge in immigration may also be supporting the market. But purely domestic factors such as planning restrictions, by contrast, are less important than is sometimes suggested. Other countries—notably Australia—have also avoided a bust in their housing markets, and have instead seen price increases flatten out. This suggests a common cause: low interest rates worldwide.

    But what has been given can be taken away. Monetary policy around the world is tightening to keep inflation at bay. The Bank for International Settlements—the central banks' bank—said on June 26th that the squeeze must continue. The Bank of England is expected to push the base rate back up to 4.75% later this year.

    Britain's homebuyers are vulnerable to quite small increases in the cost of mortgages because they have taken on so much debt during the good times. Overall household borrowing has risen from 110% of disposable income in 2000 to 150% at the start of 2005. The burden of repaying so much more debt means that the total servicing charge is high even at low interest rates.

    The most frightening words in the financial lexicon are that it's different this time. This refrain, a favourite of boomsters, was much in vogue at the time of the dotcom bubble. It remains just as suspect when applied to a housing market that is unnervingly priced to perfection.

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  68. http://www.cepr.net/columns/baker/2006_03_30.htm

    Thus speaks an economist.

    Vinnie, you forgot to extensively quote Michael Hudson's article, "The New Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse," in the May 2006 edition of Harper's magazine.

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  69. Baker is to be applauded for extending his record of never, ever being right about housing.

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  70. "The New Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse,"

    I LOVED that article almost as much as his "Elvis Lives As Bigfoot's Love Slave" piece.

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  71. In fact, it wasn't an article, so much as it was a several-page graph chronicling the bubble. You read it thoroughly, huh smart guy?

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  72. waiting for godotJuly 03, 2006 7:31 PM

    These days, Inflation has a different meaning to different folks...I felt inflation for the past 5 years, yet I made a half to 1% interest on my savings. At 5%, I am enjoying the cash that I have saved. I own one property, and would like to buy more, but not in the current conditions. I will take my 5%m for the next couple years and love it. Someone tell me where I can do better at this moment?

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  73. godot said:
    "I felt inflation for the past 5 years, yet I made a half to 1% interest on my savings."

    To people who've lived through inflationary times, your statement is akin to someone coming from the Dentist's office and telling his Jewish friends, I know what it's like to be gassed ...

    Just be patient, real inflation will hit in the very near future and when it does you'll realize how keeping money in the bank or in stocks was a very bad idea and how the only ones benefitting from inflation are those holding fixed-rate low interest mortgages.

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  74. waiting for godotJuly 03, 2006 9:38 PM

    Who brainwashed you Lance?

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  75. Waiting for GodotJuly 03, 2006 9:51 PM

    Admittedly, that was not an appropriate comment that I made, but it was the first thing that came to mind. The truth is, that it is unusual that you are so anti-diversification, yet so gung-ho on mortgage backed securities and housing related investments - even in the wake of the drop in demand and the increase in supply. As the fundamentals deteriorate around your argument, you still seem to power ahead as your ship is sinking. No one ever accused you of being soft in your position; of course, no one ever accused you of being well thought out either. Happy 4th to all.

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  76. Lance, deflation will put a hurt on the housing market, but so will inflation. Inflation will caused fixed rates to skyrocket, and that will also tank an overpriced market. It will help you with your payment if you already have a fixed, but it won't save the housing market.

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  77. Lance said...
    “Just be patient, real inflation will hit in the very near future and when it does you'll realize how keeping money in the bank or in stocks was a very bad idea and how the only ones benefitting from inflation are those holding fixed-rate low interest mortgages”

    …..And paid top dollar for their home…….??

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  78. Real estate development continues apace in DC.

    Item From The Monday, July 3, 2006, Washington Post

    From the Ground Up
    Garage Owners Sold Carefully

    By Chris Kirkham
    [http://www.washingtonpost.com/wp-dyn/content/article/2006/07/02/AR2006070200608.html]

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  79. Robert asked:
    "…..And paid top dollar for their home…….??"

    yep, because "top dollar" will have been paid in "pre-inflationary" dollars. think about that one. The value of a dollar isn't "fixed" like a lot of people would like to believe. It is only as good as what it will buy you. And, in inflationary times, it buys you less and less. I can remember when people thought that spending $40,000 on a house was a lot of money. That was "top dollar" when most houses could be had for between $20k and $30K. It isn't anymore ... because of inflation. Of course, rents at the time were also something like $100/month ... they aren't anymore either. The difference being between buying and renting that the guy who paid that top dollar $40,000 for his house 30 years ago now has it paid for free and clear ... while the guy who was spending $100/month on rent is now spending $2,500/month on rent ... and will be spending that and more for the rest of his life.

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  80. "paid that top dollar $40,000 for his house 30 years ago now has it paid for free and clear"

    Not so simple. Taxes and maintainence costs go up year to year.

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  81. David said:

    "Not so simple. Taxes and maintainence costs go up year to year."

    ... and wouldn't you rather be in the position 30 yrs from now of only having to pay taxes and maintenance costs ... and have no monthly lease payment to make? Taxes on an average-priced house in the District are something like $2,400.yr or $200/mo. Maintenance I'd estimate at $100/mo at a max. So, $300/mo vs. $2,375 ?

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  82. Spoken like a true real estate agent, Lance.

    Buyer beware.

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  83. no, dc_housing_new aka dc_bubble_meter aka Bill,

    this was spoken like a true thinking person and not like a moronic non-thinking person like you. so, when're you going to change your name again? you must be getting bored with the current one by now ... So, how do we spell "Stable"? LOL ...

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  84. Calm down lance, It's ok -- it's 4th of July today! Put aside your blog habit and go spend some time with your family...

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  85. Bill, don't leave me hanging like this. What will it take to get on your dance card? Every person I know wants to have your baby, and I am no exception.

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  86. someone pretending to be me said:

    "Every person I know wants to have your baby, and I am no exception."

    NOT! Bill would have to show some maturity and responsibility first by being a homeowner! My baby don't want no daddy who can't provide! ;)

    Besides, Bill's too busy trying to have his landlord's baby to pay me any mind. :)

    He gives it up to the landlord each and every month!

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  87. Anonymous said...
    "Calm down lance, It's ok -- it's 4th of July today! Put aside your blog habit and go spend some time with your family..."

    But Anony, you ARE my family!

    XOXOXOXOXOXOXO !!!!

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  88. Negotiation
    Renter vs Owner

    NO Negotiation
    Federal, State, and Local taxes vs Owner

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  89. And if you have a mortgage, you give it to the lender every month. No one owns till the deed is paid!!!

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  90. My baby wants a daddy that can afford food and clothes besides a house. My baby likes to go on vacations and enjoys toys at Christmas. My baby enjoys not hearing mommy and daddy fight over how they are going to afford the rising cost of the stinking house they bought because everyone else was too.

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  91. Bill:

    I have told you in several private emails that your comments are not wanted here. Consider this a very public message - YOUR COMMENTS ARE NOT WANTED HERE! You have your own blog. Please post on there till your heart's content!

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  92. Lance said...
    “…yep, because "top dollar" will have been paid in "pre-inflationary" dollars. think about that one…..”


    And of course post-inflation, the value of your home will only go up, outpacing inflation by ay least 250%. We know that they aren’t making any more land. And if you’re like a large percentage of Americans, you move every five or so years (according to my realtor). If you sell your house, does the buyer purchase it with pre or post inflation dollars?

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  93. This one is better... $4299 LOL!! WHAT A MORON

    $4299 / 1br - !!!! Unbelievable Brand New 2 Lvl Loft - 1Bed/ 1.5 Bath !!!!

    --------------------------------------------------------------------------------
    Reply to: hous-178948583@craigslist.org
    Date: 2006-07-06, 11:30AM EDT


    The most awesome DC location of any new Condominium bar none. In the heart of DC, steps from the Verizon Center, Gallery Place, Chinatown and Downtown. This 2 story Loft is on the top floor with private balcony in the center of brand new office and retail development.

    Featuring:
    2 level urban contemporary loft
    1 Bedroom
    also configurable for Den
    1.5 Bathrooms
    Urban Loft with balcony
    Top Floor with Fabulous Washington Monument & Old Post Office VIEWS
    1263 sf
    10’+ soaring ceilings with floor to ceiling windows
    Stainless and Granite Finishes with Maple Cabinetry
    Crema Marfil Marble and 12” Ceramic Bathrooms
    Natural Hardwood Flooring (living)
    Plush Carpeting (sleep)
    Washer/Dryer
    Fitness Center
    Concierge/Security

    Contact: Michael Sullivan 703 901 5922

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  94. "I have told you in several private emails that your comments are not wanted here. Consider this a very public message - YOUR COMMENTS ARE NOT WANTED HERE! You have your own blog. Please post on there till your heart's content!"

    Again, not catching your drift here. Especialyl not the part you mention about free speech and an open society.

    Really, you let an uneducated real estate hack like Lance spout on (well, he does contribute close to 50% of the postings here in various names, which does boost the numbers on your blog), but want to muzzle me and others.

    That's not very nice.

    Tell you what. You delete my posts, then I'll just post under another name. (Maybe I already am...) Deal?

    Or you can save yourself the trouble and don't concern yourself with my postings, as long as they don't threaten others' security or threaten national security - or threaten the self-esteem of Lance, a man who spends most of his working hours on this blog...

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  95. I've started a new listserv for people that have purchased units at
    Mica Condominiums in downtown Silver Spring. The link is :
    http://groups.yahoo.com/group/mica_condo_owners

    The objective is for us to get to know each other and share pertinent
    information about the development, construction progress, delivery etc.
    Please sign up if you have purchased or signed a contract on a unit.
    Also, please pass along this link to anyone you may know that has done
    so.

    For starters, membership will be restricted to actual buyers only. We
    can collectively decide if we want to open it up later. Thanks !

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  96. back to the "maybe the guy's wife left him jazz...". i thought about that for awhile and it really made me laugh... then i thought, hell maybe it's true. if some guy was dumb enough to buy a studio (~500 sq. feet?, maybe?) in an old building that was going to cost the couple a grand and a half with the parking and the utilites a month, and then ask me to marry him and live in that 500 square feet... live there for at least 5-6 years to cover their investment... hell set the bathroom up as the nursery for the baby in a year or two kind of thing...well hell i'd be out the door too.

    nice try.

    nice try.

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