Mar. 24/31, 2006: 'Cheap' Phoenix home may not be what it seems
"What is wrong with this house," a client asked in email, "for it to be selling at such a low price?"
First, praise the internet for giving ordinary people the power to search MLS listings. And second, praise my client for knowing that, if something sounds too good to be true, it probably is. But third, praise the Realtors for cultivating the specialized knowledge necessary to answer a question like that.
If you saw the on-line listing, you might have been tempted, too. The home looked sweet in the photos, and the description made it sound heavenly. So what was wrong with it?
It was manufactured housing, and you would never have guessed that from the photos. Manufactured homes can be much lower in price than built homes, but there are reasons for that. They tend to deteriorate quickly, and, even if well-maintained, they are often found in substandard areas.
Still worse, this particular manufactured home was on a leasehold lot. In other words, it wasn't technically real estate at all, but rather a moveable chattel sitting on rented land. The lot lease was $350 a month, making this 'cheap' home pretty expensive.
Different people want different things from real estate, and this is why there is such a broad range of available products. But if one of your goals is to grow your wealth by owning and living in an appreciating asset, there are certain real estate options you should avoid.
A manufactured home will tend to appreciate much more slowly than a built home. It may actually lose value in time.
A leasehold is essentially a game of musical chairs. No matter what improvements you make to the land, everything will revert to the landlord when the lease expires. The closer you are to the expiration of the leasehold, the less 'your' property is worth.
Surprisingly, there are a significant number of leasehold estates in the Valley, and not just manufactured homes. There is talk of building new homes on land leased from Native American reservations, but this seems highly unlikely to me.
At first glance co-ops and condominiums sound similar, but they're not. In a co-op, you don't own any actual real estate, but rather an interest in a corporation that owns the whole property. This makes co-ops difficult to finance. Add to that the sometimes tyrannical behavior of co-op boards and you have a formula for financial disaster.
Condominiums have their own drawbacks, but they're still a better buy. In a condominium plat you own all the land, structures and amenities in common with your neighbors, but you own your own residence all alone. If you subtract the commonly-owned property, what you actually own is a legally-described cube of airspace, but it's all yours. Usually, you'll also own your own air conditioner, and in some communities you'll also own the roof--even though you still don't own the exterior walls.
Historically, condominiums haven't appreciated as well as single-family housing, but that may change as all types of multi-family housing become more appealing to first-time home-buyers. Note that most forms of multi-family housing--some patio-homes, many twin-homes, most townhomes, almost all apartment-style and loft units--will be condominiums no matter how they are marketed.
There is a campaign in Arizona right now to build so-called 'affordable' housing. The trouble with this idea is that while the homes might be sold at below-market prices, they cannot be resold at their appreciated market value, lest the inventory of newly-built 'affordable' homes evaporate with the first buyers. The homes will appreciate, but their nominal 'owners' will not be able to profit from this appreciation.
If you want to own a home that will appreciate, you must choose from the products most avidly sought by other buyers. Practically speaking, this limits your choices to single-family housing and condominiums. While other types of real estate might sell for less on the way in, they will also sell for less on the way out. You won't be able to use your starter home as leverage to buy that move-up home.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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