Let It Ride — Bachman-Turner Overdrive
You can see the mornin’, but I can see the light
Try, Try, Try, to let it ride
Speculating in an inflated market is much like shooting craps. In the game of craps, if your number comes up, you can choose to let your winnings ride in the hopes that your number will come up again. At some point, you need to take your chips off the table because if you don’t, you will lose it all when a 7 is rolled. Many people during the bubble took the equity from one property and bought more. Many would-be Donald Trumps built substantial financial empires. They were playing monopoly with real properties and funny money being given out by the banks as if the borrowers were passing “go”. With money that was easy to come by and properties appreciating at double-digit rates, it is obvious why so many people played this little game. Unfortunately, not many of them took their chips off the table in time.
Today’s featured property is a typical 100% financing walkaway, but the real story is with the previous owners. They were HELOCing themselves into a great lifestyle and multiple properties right at the peak of the bubble. I imagine they are somewhere between fear and denial as their empire falls apart.
Asking Price: $634,900
Income Requirement: $158,725
Downpayment Needed: $126,980
Monthly Equity Burn: $5,290
Purchase Price: $825,000
Purchase Date: 5/17/2007
Address: 11 Iroquois Ct., Irvine, CA 92602
| Beds: | 5 |
| Baths: | 3 |
| Sq. Ft.: | 2,268 |
| $/Sq. Ft.: | $280 |
| Lot Size: | 3,743
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 1998 |
| Stories: | 2 Levels |
| Area: | West Irvine |
| County: | Orange |
| MLS#: | S551556 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
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bedroom & bath downstairs is perfect for a guest room. Second
bedroom upstairs could be used as a bonus/media room. Downstairs with
ceramic tile flooring throughout. All windows have plantation shutters.
Honey Maple cabinetry and Eat-in area in Kitchen. Huge back yard with
fire pit, beautiful landscape and rose garden. No Home Owner
Association. Close to Irvine and Tustin Market place shopping and
Entertainment.
The bagholder for the drop bought this property for $825,000 on 5/17/2007. The news of subprime’s implosion was a month old by then, but since they were still giving out 100% financing to people with decent credit, our bagholder bet on the subprime-containment theory and lost with the lender’s money. If this property sells for its asking price, the lender stands to lose $228,194 after a 6% commission.
As I mentioned in the prologue, the more interesting story here is with the previous owners.
- They purchased this property on 12/15/1998 for $290,000. They used a $232,000 first mortgage and a $58,000 downpayment.
- On 7/31/2001 they opened a HELOC for $77,000 and took out their downpayment.
- On 6/17/2003 they took out a stand-alone second for $40,000.
- On 9/12/2003 they refinanced for $405,000.
- On 10/6/2004 they took out a stand-alone second for $60,000.
- On 12/17/2004 they took out a stand-alone second for $120,000.
- On 6/16/2005 they refinanced with an Option ARM with a 1% teaser rate for $640,000.
- On 10/30/2006 they refinanced with a $660,000 first mortgage.
- Total property debt was $660,000
- Total mortgage equity withdrawal was $428,000 including their downpayment.
These people got away with it. They sold to our bagholder for $825,000 and actually made another $115,500 after a 6% commission. As you can see, this behavior was not punished, and in fact, it was reinforced by the market. Given that fact, do you think they might do it again?
While these people were milking this property, they were buying two others in Orange County:
- On 12/20/2004 they bought a property in Tustin for $650,500. According to the recent comp list, this property is worth somewhere around $500,000 today.
- On 6/13/2007, right after they sold today’s featured property, this couple bought another property in Irvine for $880,000. The borrowed $616,000 and put down $164,000 — most of which was the profit from the previous sale. According to the comps, this property is worth about $700,000 now.
These people likely spent most of the $428,000 they extracted from the first property. Some of the profits from the sale and some of the MEW went into buying two other properties which are now a combined $320,000 underwater… and still falling.
Some people who timed the market well undoubtedly reaped a windfall, and they are enjoying their gains. However, most people took what they did not spend and put it into another property, or multiple properties, and now they are underwater. Absent the mortgage equity withdrawal, these people would probably be OK, but since they spent so much of their appreciation, and since they “doubled down” with multiple properties, now they are going to crap out.
{book}
Good bye, I lied
Don’t cry, would you let it ride?
(repeat)
You can see the mornin’, but I can see the light
Try, Try, Try, to let it ride
While you’ve been out runnin’ I’ve been waitin’ half the night
Try, Try, Try, to let it ride
(Chorus)
And would you cry if I told you that I lied?
And would you say goodbye or would you let it ride?
Good bye, hard life, don’t cry, would you let it ride?
Babe, my life is not complete, I never see you smile
Try, Try, Try, to let it ride
Baby you want the forgivin’ kind, and that’s just not my style
Try, Try, Try, to let it ride
Chorus
I’ve been doin’ things worthwhile, and You’ve been bookin’ time
Try, Try, Try, to let it ride
Runnin’ with the crazy crowd, ooh, ain’t no friends o’ mine
Try, Try, Try, to let it ride
Let It Ride — Bachman-Turner Overdrive
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Jeremiah was a bullfrog
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