This is the house we bought in Grass Valley, California as an investment on December 22, 2010. We called her “Grizabella.”  She was built in 1887 with 2 bedrooms and 1 bath.  She was 1176 square feet in size and sat on a generous .3 acre city lot near downdown Grass Valley.  How is “Griz” doing as an investment?

But first, let’s look at the Grass Valley real estate market as a whole for properties of this size.  For my study, I compared the period of Dec 22, 2010 through May 13, 2011 with the period of Dec 22, 2011 through May 13, 2012.  I selected houses between 1000 and 1500 square feet sitting on parcels less than 1 acre.

                                                     12/22/10 thru 5/13/11           12/22/11 thru 5/22/12        

Number of homes sold                                  36                                                    41

Highest price sold                                   $320,000                                      $300,000

Lowest price sold                                       $45,000                                         $55,850

Average price sold                                    $169,722                                       $151,858

Median price sold                                      $175,750                                      $144,000

Average list price                                       $177,398                                      $157,580

%sold price/list price                                     96%                                               96%

Price per square foot listed                         $137                                              $125

Price per square foot sold                           $131                                               $121

Average days on the market                          84                                                  67

ANALYSIS

You can see that more houses (41 to 36) sold this year, and faster (67 days on the market to 84).  But (and it’s a big but), prices have fallen.

Just comparing price per square foot of sold properties ($131 to $121) you can see that the value of small homes in Grass Valley market has declined about 7.8% in one year.

If you compare median price of homes sold a year ago ($175,750) with the median prices of home sold this year ($144,000) you would think the Grass Valley market has declined about 18%.  Let’s not do that.  Yuck.

The first calculation, price per square foot, is the more accurate, and less scary, “but it is what it is,” as we say in this crazy game.  The market continues to drift downward.

So, how did Grizabella do?

We bought her for $92.69 per square foot.  She was a bargain at 71% cost of the other homes sold,  based on price per square foot.  So, we were already ahead of the game.  But by the time we fixed her up, we had brought her cost up to $161 per square foot.  Now we cost more than the other homes sold during the first five months of this year, almost 19% more than the comparables.

Did we overspend, or more precisely, overimprove?

No.

There are numerous variables in play (depreciation, tax advantages, and the real value added by remodeling or improving property), but the most important variable is this:  after property management expenses and maintenance, we are netting $1250 a month in rent.  That’s $15,000 a year.  That’s about 8% return on investment.

Of course, Uncle sam wants a piece of that, but doesn’t he always?

In an upcoming blog, we’re going to get even more sophisticated.  We’ll look at the same Grass Valley market for the same two periods of time, but we”ll compare conventional sales with homes sold as foreclosures and short sales.  Do you think we will see a marked difference?  Do you think there are really two different real estate worlds out there?  Let the truth be told.  Next time.