Welcome to Lake Forest

"WELCOME HOME TO THE CITY OF LAKE FOREST," the listing description shouts. We say, welcome home to your new bank-owned apart-condo. If there's any risk that the market will stay bottomed out and you'd be stuck living in this type of property for the next 7-10 years, is there any reason to jump in now?


20702 El Toro Rd #240, 92679
Asking price: $192,500
Previous sales price (bank): $222,304
Purchase date: 9/24/09

Beds:	2
Baths:	2
Sq. Ft.:	950
$/Sq. Ft.:	$203
Lot Size:	-
Property Type:	Condominium
Style:	Contemporary
Stories:	1
Floor:	2
View:	Greenbelt
Year Built:	1980
Community:	Lake Forest North
County:	Orange
MLS#:	U9004575
Source:	SoCalMLS
Status:	Active
On Redfin:	5 days

From listing: WELCOME HOME TO THE CITY OF LAKE FOREST. THIS MAY BE ONE OF THE BEST LOCATIONS IN THE CITY, AND WE THINK ONE OF THE BEST ASSOCIATIONS IN THE AREA. THE PROPERTY IS A TWO BEDROOM TWO BATHROOM CONDO THAT FEATURES CLOSE TO 950 SQUARE FEET OF INTERIOR LIVING SPACE. THE ASSOCIATION IS FANTASTIC, IT HAS WATER FEATURES RUNNING THROUGHOUT THE COMPLEX WHICH CREATE THE FEELING OF LIVING IN A MOUNTAIN RESORT. YOU WILL ENJOY THE H.O.A POOL, AND SPA, TENNIS AND BASKETBALL. SO COME HOME TO LAKE FOREST AND START TO ENJOY THE BEST OF ORANGE COUNTY TODAY.

On the positive side, it's good to see that a property like this appears to have quickly moved through the foreclosure pipeline and that it's going to probably be unloaded quickly to a new owner. Hopefully one that doesn't pay $368,000 for this shoebox.

To give you an idea of how crazy that is, we estimate your monthly housing expense at about $2,700 per month (after mortgage principle and interest, HOA dues and property taxes and before the mortgage interest deduction, assuming 3% down with an interest rate of 5% and no PMI). After the generous government benefits to owning, your total monthly cost of ownership would be somewhere around $1,950. Really, $1,950 to live in this place?! Well, if you actually bought the property when the previous owners did, you probably used an exotic loan product to lower the monthly cost.

What few rental properties we saw offered on the MLS in this city, at this size, seem to say this property is probably rentable at about $1,300-$1,400 per month. Our back-of-the-napkin calculation with a 160 GRM target for an owner-occupant tells us this property is "worth" about $200,000. So as you can see, we're at rental parity...if you would actually consider owning this as a long-term solution. We would argue the actual GRM should be much lower, or it should be an investor who purchases this and holds and rents.