Bad Bad Investment

I’ve been relaxing lately watching some of the Olympics like probably many of you. Had an interesting conversation with this guy that recently bought a one bedroom/one bath in LB for $405/sq. ft. A little pricey for Long Beach for this particular property. For privacy sake I won’t disclose the exact property.
He had just gotten done fixing the property up for a rental and we struck up a conversation. I asked him did he think he overpaid for this property. His reply was that in 5 or 10 years the value will go up and plus it’s a great write-off.
I didn’t want to burst his bubble but I had to shake my head. He seemed like an okay guy and I hope he has the money to cover the amount that he’s bleeding every month but I had to wonder.
I know this building well and the rental on this property is about $1100 average though he said he was renting it to a friend for around $1,000. His payments per a month are $1700. Whoa Nelly! He told me his real estate broker did a great job and now he has a “real estate portfolio”. Let’s add a couple of hundred for association dues and a bit over $200 for taxes and he’s paying $2,100+ a month. Yikes, a thousand a month plus whatever he put down?? Why does this have “short sale” written all over it in a year or two?
Maybe he knows something that I don’t? Like there will be an amazing real estate turnaround and prices will go up astronomically again? I don’t think so. I absolutely cannot fathom how somebody could buy that property with these numbers. I can’t. And I’m pretty good in math.
Maybe if some others of you have a CD coming due and you don’t know what to do with your money, contact me. I’m sure I can get you a better return than this. (Disclaimer: this is sarcasm, I’m not a financial advisor but heck send me your check anyway, or blow it on a “great rental property” like this.)
Thinking like this is what got people in trouble.