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January 17, 2006

Is it time to sell?

Toddi Gutner

It’s already starting…the difference of opinion between family members about what the best move is concerning some real estate. As a personal finance writer, I know there are no easy answers or strategies to working through these types of disagreements. Maybe this blog can provide some insight.

Here’s the situation: My 78-year-old father owns a 2-bedroom condominium in the heart of downtown Aspen, Colo. He bought it for $30,000 in 1969 and it was recently appraised at something north of $800,000. Call him lucky. It is a ground floor condo with views of Aspen Mountain out the front windows and Independence Pass out the side windows. The lodge owners next door are planning a multi-million overhaul of their property which may or may not block our views. My father is considering selling, convinced that this new next door development can only hurt our property value. He isn’t in need of the money, but thinks he can find a better investment opportunity with the sales proceeds (hedge funds? stock market?).

I say, he’s wrong. The condo is already paid off, and at this point, is a cash cow—the rental income more than covers the expenses. Plus it is available for family members and friends to stay—and that is priceless. It is by no means a luxury accommodation, and is likely to need some remodeling work in the coming years, but it is perfectly adequate as a mid-priced rental right now.

My father responds to well-reasoned advice and recommendations, especially if it’s not coming from his three daughters. So I asked Jim Keene, co-author of the recently-published book Retire on the House (John Wiley & Sons) and a regional manager for Wells Fargo Private Client Services, what he thought we should do. Keene recommended that we hang on to the property. The real estate market is all about local markets and Aspen is Aspen--land in that valley is a limited commodity. That means there isn’t likely to be much that can negatively affect the property values there.

I figure as an investment property, it doesn't get much better. But then again, I'm only the heir and not the owner.

05:05 PM

Selling

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Good story Todi, but I believe stories like this inflate expectations of housing. Let's look at the real numbers.

Assuming a $30,000 purchase price it would be equal to ~%160,000 in today's dollars. Since we don't know if he paid cash or a loan, the real cost could have been much higher. The average rate for 1969 was 7.75%, so assuming 20% down ($6,000) and a 30 year note the total P&I cost is ~68,000, which is a whopping $361,077 in 2005 dollars. Suddenly the ROI looks much smaller, though it's still decent and doesn't take into account the actual pleasure derived from the usage for 37 years.

Assuming an average investment return of 10% since 1970, if one had invested $30,000 into an account in 1969 it would be worth $1,020,118.14 today. (T=37,N=1,A=30,000,R=10), a full $220,000 more than the estimated appraisal.

Anyways, not that you need another opinion but I think I'd hang on to it since at this point it's surely only costing taxes, insurance, and upkeep, especially since you have positive cash flow that would end the disucssion right there. IMHO, Aspen is going to become a larger tourist destination as fuel prices rise and Midwesterners stay in the area for vacation instead of venturing down to the south/east coast.

Posted by: Wes at January 18, 2006 10:03 AM

"he real estate market is all about local markets and Aspen is Aspen--land in that valley is a limited commodity. That means there isn’t likely to be much that can negatively affect the property values there."

That's meant with a wink right?

Is there ANY market in the USA where legions of "experts" can't be trotted out to repeat that very same line (replacing the word "Aspen") to describe their own special impervious-to-a-downturn market?

Posted by: NJ Coaster at January 18, 2006 06:55 PM

I sent your blog to a good friend of mine who is a real estate agent in Telluride and his email back simply said "Don't sell". I've known him my whole life - we grew up together in NY and his gut is pretty good on these things. He's lived in Telluride for almost 20 years.

I would tend to agree. Besides, all the enjoyment the family gets out of it is pretty hard to factor into any calculations.

Posted by: Jay at January 18, 2006 10:16 PM

The real estate "professionals" have drunk the koolaid. The economists know that there is a bubble in at least 10 states now, and various high end markets will be affected in the nonbubble states. The Economist said this bubble is global and called it the largest asset bubble in history last June. $800K for a condo in Aspen is reasonable during times when people pay $800K for a condo in San Francisco or New York, but they won't be paying that much for condos in the bubble cities much longer. Your father should sell, invest the proceeds in a portfolio that includes equities like PRAA, FCN, and other entities that will benefit from the collapse of the consumer credit bubble (of which the real estate bubble is the biggest part) as well as security stocks (Bu$hco foreign policy has made this the most dangerous time in our history and more terrorist attacks are inevitable), healthcare cost containment, and a few issues related to the obvious demographic shifts like the baby boomers aging. He can buy his Aspen condo back in 2010 for $500K with the profits from his portfolio.

Posted by: Dave at January 20, 2006 03:12 AM

A rather lively blog tonight about the exodus from California:

http://www.blogger.com/comment.g?blogID=13192854&postID=113795587369545259

Posted by: Jay at January 22, 2006 08:41 PM

I've lived in Aspen since I was six and I'm a Realtor. He could probably get closer to $1 M if it appraised at $800 K. Sounds like he's next to the proposed Limelight redevelopment, operative word, "proposed". There will be greater height restrictions than proposed and view planes will be preserved. Still he should sell it and 1031 the money into an upgraded property here. He's made enough to enjoy something nicer.

Posted by: jonathan feinberg at February 28, 2006 05:13 PM

Hope your dad kept the condo. I am a Realtor in Aspen and the past 9 months have seen nothing but strength, especially in the sub $1m central core condo market. If the unit in question is indeed near the now under construction Limelight (The Monarch) development you should be able to fetch $1200-$1300 per square foot. All this obviously without knowing the condo.

Aspen real estate is at a crossroads with supply running out. Demand will always ebb and flow with national/global events but supply is local and ever decreasing. You figure out what prices will do......

Posted by: Toby Munk at September 30, 2006 09:07 PM


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