Category: Real Estate Investing (page 4 of 4)

by Greg Swann

Sun City Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Has the Phoenix real estate market turned the corner? It’s too early to tell, but May’s results suggest we may be nearing the bottom

Are you in the mood for some good real estate news for a change? How about some news that’s not all bad? Here’s what news there is, in any case:

May was a very strong month for clearing bread-and-butter inventory in the Phoenix real estate market. BloodhoundRealty.com tracks sales of newer suburban tract homes — three bedroom, two bath, single-story homes with tile roofs and two-car garages — the middle of the housing-supply bell curve.

We have records going back to January of 2004, so we have tracked both the boom and the bust in our recent real estate history. May 2008 was the strongest month for the homes we track since May of 2007, with the best month before then being November of 2006. A total of 170 of these homes sold in May, up from 114 in April.

Prices were down, month over month, and not by just a little bit, so May’s results no doubt reflect the sale of a lot of lender-owned properties. But inventories of the homes we track are down by 7% from April and by over 14% from March.

The implied absorption rate from May’s results is 5.2 months, down from 8.4 months for April. Absorption rate is the amount of time it would take to absorb all currently-available inventory at the current rate of sales.

The absorption rate calculation is less than reliable, since it uses backward-looking numbers to make a forward-looking projection. But substantially greater sales taken together with substantially lower inventories is a very good sign.

As a matter of anecdotal evidence, earlier this week I phoned the listing agent of a very market-weary short sale. After months of no activity, three offers came in over the weekend. The seller issued multiple counter-offers, with the high-bid being $17,000 over the list price.

So has the Phoenix real estate market finally turned the corner? We won’t know for sure for two or three months after the fact, but May or June could be the bottom of the market in Phoenix.

Technorati Tags: arizona, arizona real estate, investment, phoenix, phoenix real estate, real estate, real estate marketing

by Greg Swann

Sun City Real Estate Broker

Author website

The prices on lender-owned homes in the Phoenix area are getting to be incredibly low. It’s true that many of these homes will require some serious work to bring them back to turn-key condition. But others require little more than a cosmetic effort to return them to rent-ready condition.

Here’s the best news: Because the prices are so low, because interest rates are still very aggressive, and because rents are holding their own through the rough real estate market, it’s relatively easy to make a newer suburban home throw off positive cash flow. It could be that we’ve already found the bottom in the Phoenix real estate market. But, even if we have not, a well-chosen rental home will self-amortize. You can buy now, while the selection is great, as you wait for the market to fully recover.

A great example of a near-turn-key lender-owned home is 14912 West Watson Circle in Ashton Ranch in Surprise, Arizona. The home will need some cosmetic work, especially paint and landscaping, but it is in very good condition for a foreclosure. The cost to make it rent-ready might only be around $5,000, and, as this cash-flow analysis shows, the $115,000 list price should yield a positive cash flow even using relatively pessimistic assumptions.

Here’s the bad news: As I write this, I may have already sold this home.

Here’s the good news: There are dozens more like this, well-priced lender-owned homes in decent shape that can make very nice, cash-flow-positive rental homes.

These homes are not flip candidates. There’s not enough upside in the short run to justify the risk. But as buy-and-hold rentals, they could end up paying for a lot of feathers for your retirement nest.

 
Further notice: I ended up writing a contract on this house, but here are 26 more newer suburban homes priced at $115,000 or less. Some are in better condition than others, but all of these homes are in areas that can command premium rents and should appreciate well over time. Each one requires on-the-ground inspection, but I’m very choosy about what makes a good rental. If we pick the right home, it should stay rented consistently for the entire time you own it.

Technorati Tags: arizona, arizona real estate, investment, phoenix, phoenix real estate, real estate

by Greg Swann

Sun City Real Estate Broker

Author website

This is from my Arizona Republic column (permanent link):

I represented tenants for my first two years as a real estate licensee. Working with tenants didn’t pay very well, but it was a good way to get a lot of real estate experience very fast. Gradually I started working with home buyers, and then with home sellers. By now, I only work with tenants as a courtesy. It still doesn’t pay very well.

But in those two years, I saw an awful lot of rental homes. Or, more precisely, a lot of awful rental homes. Again and again, I would find myself wondering why anyone would think a particular house would be appealing to tenants. Not just the condition of the property, often atrocious, but simply the location itself. It’s astounding to me how many vacant rentals are situated nowhere near where tenants might want to live.

In the years since then, I’ve represented a huge number of investors. Market conditions haven’t been kind to them lately, but Phoenix is once again a market ripe for landlords. Prices are low and cash flows are positive. If landlords buy the right properties to use as rentals, the homes should rent quickly and stay rented.

So which homes will work best as rentals?

I’m looking for a home in a built-out suburb. Buckeye is a bargain for owner-occupants, but why would tenants move to a town with no employment base? What I want are jobs, schools, shopping and entertainment, all nearby, with decent freeway and bus access. I want a north-facing home; tenants read their power bills, too.

Am I looking for the cheapest house? No. Price matters, but what matters more is livability. Parents worry about the kids taking a header down the stairs, so I want a single-story home. There has to be at least a little grass in the back yard so toddlers can romp.

Here’s the magic bullet: If you buy a house that will resell well, and you maintain it in a way that communicates that you like and respect your tenants, it should rent well the whole time you own it.

by Greg Swann

Sun City Real Estate Broker

Author website

This is from my Arizona Republic column (permanent link):

It’s still a buyer’s market out there, but is it an investor’s market? The answer to that turns on three other issues: Vacancies, values and cash flows.

Lenders get all the blame for the downturn in home values, but that’s not entirely fair. Another big share of the blame goes to the builders, who built new homes far beyond any reasonable estimate of demand. So, even though folks who might have gotten home loans two or three years ago are stuck renting for a while longer, is there enough tenant demand to keep a rental home profitably occupied?

Even if there is, will the prices of Valley homes continue their decline? This seems likely, at least in the near term. There is still a tremendous amount of inventory in the MLS system. The best bargains, though, are houses that are in the foreclosure process. These can be hard to wrest away from lenders, but they may be a leading indicator of the bottom of the market.

More significantly, will a rental purchased at a bargain price throw off positive cash flow? Unequivocally: Yes. To qualify for an investor loan, you will need to have great credit and a 20% down payment. But interest rates are still very low, and rents have held up just fine through the downturn.

So the big bet boils down to this one question: If you buy a rental home in the Phoenix market now, will you be able to sell it at a significant profit eight or ten years from now?

Alas, no one can predict the future. If you pick the right rental home — good house, good location, good orientation, easy access to schools, playgrounds, shopping, freeways and jobs — it should rent well now and resell well later. If you get the right loan and don’t refinance, your income property will actually produce income — which means it will pay for itself and still throw off a few bucks a day in cash profits.

But will it appreciate in the forthcoming years? For the answer to that question, we’ll just have to wait and see.