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November 29, 2008

Someday soon we may have to turn back the clock on home lending

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Sun City Real Estate Broker

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

 
Someday soon we may have to turn back the clock on home lending

Furniture stores are offering weekly payments. Department stores and jewelry stores are making Christmas easier with layaway plans.

Check the calendar. Did someone dial the clock back to 1968?

Not quite, but the credit crunch has got us looking backwards in time to try to remember how we used to do business, back before easy credit made things so easy.

Here’s the dirty little secret no one shared with you: For many, many years, the business of America has been credit.

Car dealerships don’t sell cars, they sell financing, selling your loan at a discount as soon as your tires hit the pavement.

Furniture stores don’t sell furniture, they use your desire for new furniture to get you to sign a promissory note.

One of the best protections of your financial interests is called Regulation Z. The Z reportedly stands for Zales, the easy credit jewelry store.

New home builders are in the same game. That’s why the incentives are so much better if you use the builders’ lender.

And that’s why there’s no interest for the first six months. Or no payments at all for the first two years. And all it takes is one quick signature…

But those days are done. Consumers — and corporations — are defaulting on debt like never before in history. The buyers of promissory notes aren’t buying any longer. Instead, they’re in Washington begging for bailouts.

And that leaves the furniture stores and the jewelry stores back in the merchandise business. They need to come up with ways to get people with no money to part with what little they have — a little at a time — in order to have any sort of cash flow at all.

And all this will come to real estate, too. We still have easy credit, but when interest rates start to climb, we’ll see our own kinds of “old fashioned” financing arrangements: Seller carrybacks, land contracts, wraps, lease purchases, etc.

We may be headed into tough times, but we still have a roadmap from 1968 to show us how to sell actual economic values and not just easy credit.

November 23, 2008

The bottom of the Phoenix real estate market may be in sight — but, alas, the end is not near

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Sun City Real Estate Broker

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

When will the Phoenix real estate market finally hit bottom?

Believe it or not, I can answer that question with a high degree of precision: When the number of homes being added to the available inventory each month is generally lower than the number of homes sold each month.

But that’s a sleight of hand, isn’t it? I can’t say which month on the calendar will be the market’s nadir, I can only tell you what kind of market activity to watch for.

So here’s one way of looking at things. A newer suburban tract home in the West Valley is selling for $100 a square foot, on average. Practically speaking, this makes new home building unprofitable. Very few new homes will be built, so that source of new inventory is cut off for now.

Meanwhile, various loan workout programs are depleting the foreclosure pipeline. Where before a house might be offered as a short sale and then as a lender-owned home, now there will be an interregnum for the workout. What had been a gusher of lender-owed homes may slow down to a trickle, at least for the next few years.

Meanwhile, the low prices of currently available lender-owned homes are providing incentives for monied investors to come to Phoenix to snap up bargains. The nationwide economic slowdown might put the brakes on our normal in-migration patterns, but if people do move here, they’re going to be soaking up inventory as well.

So we should see some slowing in newly-listed homes, and we have upticks in demand. Are these enough to stop the general decline in home values in the Phoenix market? Ask me in three months.

But even if they are, we’re very far from being out of trouble. The loan workouts, particularly, may well keep home prices from plummeting. But because they will stretch out what in most cases will be an unavoidable foreclosure process, they will probably keep home prices low for years to come.

Buy and hold? No problem. Profit on resale? Don’t bet on it, not for a while.

November 15, 2008

A workout loan can be a win-win solution to avoiding foreclosure

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Sun City Real Estate Broker

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

 
A workout loan can be a win-win solution to avoiding foreclosure

We talked last week about lender “workout” loans — a scheme lenders have come up to keep homes from falling into foreclosure. The premise is simple: If you can’t pay your mortgage, the lender will write you a new loan that anyone could pay.

I’m not kidding. Let’s say you bought a house in 2005 for $300,000. If you put nothing down, your payment might be $1,500 a month — not counting taxes and insurance. But the market value of the home is now $150,000 — a $750 mortgage payment.

As an investment, your home isn’t performing all that well. You bought at the top of the market, and you probably can’t even sell at a loss.

Worse news: Your hours at work have just been cut back.

You’re not in foreclosure. You’re making your payments. But you are an excellent candidate for what lenders call “jingle mail” — mailing in your keys and your deed. This would wreck your credit — for a while — but you’re looking at wrecked credit anyway.

But wait. Your lender’s workout department wants to speak to you before you do anything rash. If you qualify — which means if you have income — they might suggest something like rolling both of your mortgages into a new interest-only third mortgage at a very low interest rate.

Your existing monthly obligation of $1,500 will accrue month-by-month as new debt by negative amortization. In two or three or five years, you will resume paying on your old debt while you continue to pay down the new debt accrued on the third mortgage.

If this sounds silly, it’s because it is. The lenders are doing everything they can to make bad debt look good — temporarily. But a workout could be a win-win for you. If the market rebounds strongly, you can refinance all three notes. And, if not, you will have lived almost rent-free for the next few years before you lose the home in foreclosure.

P.T. Barnum said there’s a sucker born every minute. But who would ever expect to find suckers running our banks?

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November 1, 2008

Restoring a bargain-priced lender-owned home is easy — if you have cash — but a HUD 203k rehab loan makes it easy even if you don’t

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Sun City Real Estate Broker

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

 
Restoring a bargain-priced lender-owned home is easy — if you have cash — but a HUD 203k rehab loan makes it easy even is you don’t

Last week we talked about troubled homes and how they can be restored to livability. That’s fine if you’re an investor with pockets full of cash. But what if you’re an ordinary home-buyer? How can you pick up a bargain-priced home and then refurbish it to its former homey comfort?

If you’re buying with an FHA loan, chances are the home is going to have to be at least partially restored before you can close on it. FHA loans require a more-rigorous appraisal, and any defects rendering the home uninhabitable will have to be corrected before you can proceed.

So if the range is missing from the kitchen, it will have to be replaced. If the water heater is broken, it will have to be repaired. If the pool is green, it will either have to be restored to swimmable condition or drained.

Who is responsible for these repairs? Normally, habitability issues would fall to the seller. But most foreclosure properties are sold “as-is” — take it or leave it. If you have cash, you can pay for the repairs prior to close of escrow and then move in as planned.

But what if you don’t have that kind of money?

One solution is to write your repair issues into your purchase contract. If the seller agrees to restore the pool and replace the range, you’ve dealt with the habitability problem in advance.

Another option is to take advantage of HUD’s 203k rehabilitation program. With a 203k loan the loan underwriter can attach what amounts to a construction loan onto the primary purchase loan. So you could buy a lender-owned home for $100,000 and finance an additional $10,000 to refurbish the kitchen after close of escrow. The appraiser will assess the value the home will have after the improvements have been made.

As you might expect, the fine print is extensive, but for an FHA 203k loan in Phoenix your purchase price plus rehab costs can run as high as $362,000. At 3.5% down, that’s an easy way into a nicely upgraded home.

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October 29, 2008

How does a $100,000 rental home in Suburban Phoenix pencil out? It will pay for itself, sure, but how does it work as an investment?

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Sun City Real Estate Broker

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Lender Brain Brady wrote a follow up to the post I wrote about 100 potential rental homes for sale for less than $100,000 in the Greater Phoenix area.

Brian cut right to the quick:

Investment properties make good sense when leveraged to the point where the rental income covers all costs.  Most mortgage lenders require 25% down for the best rates. On a $100,000 property, that means that an investor will need some $30-35,000 for down payment, closing costs, and repairs to make the home tenant-ready. A $75,000 loan will most likely have a PITI payment of about $600.

I thought this was an interesting problem, so I prepared a spreadsheet on a typical $100,000 property. This is a real property, really for sale right now for $100,000. I took the closing costs as a discount from the seller, but the property is in a subdivision with a community pool, so the HOA fee is fairly high. We’re getting a home in a booming, freeway-convenient suburb — built in 2002, stucco walls, all-tile roof, 1,614sf, 3 bedrooms, 2 baths, 2-car garage on a 7,032sf lot. Decent, walkable schools, with plenty of retail less than a mile away. Appreciation should pace the market, but it won’t beat it. In other words, a nice bread-and-butter rental home that should rent easily and stay rented to premium tenants and should sell easily to owner-occupants on the way out. This is my kind of investment home.

Even though I’m making the seller pick up the closing costs, I’m adding in $5,000 for initial repair costs. This is high for a home like this, but I’d rather be too pessimistic than too optimistic. We’re figuring interest and property taxes using today’s true numbers. We’re allowing for interest, maintenance costs and the HOA fee. We’re assuming a 10% annual vacancy rate, even though I wold expect this property to do better than that. Finally, we’re assuming a relatively tepid 4% annual appreciation rate over an 8-year holding period.

How does the home pencil out? Before taxes (and ignoring any accelerated depreciation), the home should throw off around $1,300 a year in positive cash flow. After taxes, you’ll be closer to $1,800 a year. That’s not the riches of Croesus, but the property should pay for all of its costs the entire time you own it. Even assuming our relatively anemic 4% appreciation rate, your initial $30,000 investment could grow to around $58,000 in eight years. And that’s after you pay capital gains taxes on the investment. If you sell the property using an IRS Section 1031 tax-deferred exchange, you’ll bank even more.

Your real-life mileage will vary, of course, but this spreadsheet takes into account all foreseeable expenses. We bought the right home at the right price and we managed the investment wisely, selling at a premium price on the way out. It’s plausible that we could have done better — or worse — in the securities markets. It’s hard to imagine doing better in a low-risk investment.

I do these every day. There are homes out there that make me drool — so much value for so little money. If you want to talk about investing in a Phoenix rental home, a spreadsheet just like this one will be an essential step in our process. There is no way to make the wrong home profitable, and for that reason I don’t work with homes that are nothing but cheap. But when we know we have found the right home — the perfect rental home — that’s when we’ll run the numbers to make sure it works financially — month-by-month and year-by-year, in the service of your overall financial objectives.

I’m dying to talk about this stuff. I can’t stop talking about this stuff. If you want to explore your investment opportunities in the Phoenix rental home market, email me or give me a call at 602-740-7531.

October 28, 2008

100 under $100,000: Bargain-priced lender-owned properties that can work as premium rental homes abound in the Phoenix market

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Sun City Real Estate Broker

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I normally preach a higher-brow real estate investment philosophy for the Phoenix market, but this is simply amazing to me:

Click on this link for a PDF file of listings for 100 potential rental homes selling — right now — for $100,000 or less. These are lender-owned homes, so they’re going to be fixers. And some of them will need so much work they’re not worth bothering with. But some of them will need next to nothing — $5,000 or less in repairs — and they will be cash-flow positive from the very first tenant.

For the most part these are not Cadillac homes, but they still have a lot going for them: 1,400sf and above, stucco and tile, built 1995 or later, with back yards and garages. These homes can attract decent rents — $800 and above in most cases — and many of them will be appealing to owner-occupants on resale.

I sell a lot of rental homes, and the homes I sell stay rented. A list like this might produce ten workable rentals. But they’ll be choice rentals, attracting premium tenants and selling at a premium price when you’re ready to move on. Take a look at our investments page to find out how I work. Then email me or phone (602-740-7531) to discuss your investment goals.

Prices are low, interest rates are low and choice rental homes are abundantly available at bargain-basement prices. This is a perfect storm for real estate investors in Metropolitan Phoenix.

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October 25, 2008

Foreclosure homes are sold “as-is” — but most need only minor restoration to bring them back to fully-livable condition

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Sun City Real Estate Broker

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

 
Foreclosure homes are sold “as-is” — but most need only minor restoration to bring them back to fully-livable condition

If we were to have a contest for the Valley’s most-gutted home, judging might take a while.

A significant number of homes for sale in the Phoenix area, especially at the low end of the price spectrum, are in the foreclosure process. Not all of these homes are in rough shape, but a lot of them are. At a minimum, buyers of short-sale or lender-owned homes should anticipate painting the walls and replacing the carpets.

But virtually all foreclosure homes will be sold “as-is.” This means, first, that any defects discovered in the inspection process will be the buyer’s responsibility to repair after close of escrow. But the “as-is” addendum also often implies that there may be serious deferred-maintenance issues.

Still worse, many lender-owned homes will have been looted, either by the former owners on their way out or by burglars. Missing ranges, microwave ovens and dishwashers are common. Air-conditioner compressors and hot-water heaters are also absent from many homes. It is not uncommon to see that all of the ceiling fans or all of the knobs on drawers and cabinets have been removed.

My pick for the most-gutted Valley home? The entire kitchen was gone — even the kitchen sink — and the air-handler had been removed from the attic.

I would not want to refurbish that last home, since there is no telling what else has been taken. But for most lender-owned properties, the cost of bringing the home back to livable condition is fairly low.

A new set of kitchen appliances is maybe $2,500. A brand new air-conditioner compressor is around $4,000. A decent water heater is perhaps $1,200 installed. Paint, carpet and tile in the high-traffic areas should run $5,000 for a typical suburban home, less if you do the work yourself.

There definitely are homes to avoid in this market, but there are many, many others that are selling for very low prices. These properties need only very minor restoration efforts to bring them back to fully-livable condition.

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October 18, 2008

This just might be the optimal time to buy a home in Phoenix

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Sun City Real Estate Broker

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

 
This just might be the optimal time to buy a home in Phoenix

Who should be buying residential real estate in Phoenix right now?

If you have been planning to buy a home sometime soon, and if you know for certain that you won’t need to sell it for at least five years, this just might be your magic moment.

Interest rates are still deliciously low, but both current events and long term trends suggest they’re headed higher. You’ll probably have to sell your current home for less than you wanted to, but you’ll be buying your next home at a bargain-basement price.

Sadly, you may not have enough equity in your home to move up. But if you do, there are some amazing homes out there selling for unheard-of prices. Houses that sold for $375,000 in 2005 are going for $175,000 three years later.

If you do have substantial equity in your home, even at today’s prices, moving up now may make a lot of sense. The rules for the capital gains exclusion on primary homes change on January 1st. If you’ve been in your home for more than the last 24 months but fewer than the last 60 months, moving before the end of the year could save you a significant amount of money on your taxes.

It makes sense to me for college students and their parents to snap up condominiums and starter-homes while prices are so low. After the start of the year, if the student holds title, it will take five years to realize the full benefit of the capital gains exclusion — approximately the length of a college career.

First-time home-buyers are taking advantage of this market, as well, with low-down-payment or even nothing-down government-sponsored loans.

Who else should be buying? Investors, of course, but the smart ones have already figured that out. For now, it’s very easy to acquire a premium home in a commuter-friendly suburb that will be cash-flow positive from the first tenant. Investor loans can be hard to obtain, but prices are so low that many investors are simply paying cash.

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October 11, 2008

If you have cash or can qualify for a mortgage, this could be the ideal time to grab a bargain-priced home in the Phoenix area

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Sun City Real Estate Broker

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

 
If you have cash or can qualify for a mortgage, this could be the ideal time to grab a bargain-priced home in the Phoenix area

The Phoenix area is hosting a wave of real estate investors like we haven’t seen since 2005. Unlike the novices who came here during the boom, these are experienced landlords. They’re here now because lender-owned homes are selling for bargain-basement prices.

They’re not alone. Savvy home-buyers are scooping up bargains, too, especially first-time homeowners. Interest rates are still attractive — even if the homes themselves are less appealing.

Interestingly, over the last couple of weeks, many of the lowest priced homes have seemed to evaporate. I’m guessing that October is going to be a banner month for closed transactions. Yes, most of these will be foreclosed homes, but buyers are performing the liquidator function, restoring the value of underperforming assets.

With so many homes selling, are we nearing a bottom in the Phoenix market? It’s plausible, if the number of sales meets or exceeds the number of newly-listed homes to be sold. But, even now, around 7,500 homes a month are entering the foreclosure process.

It could be a long time before that inventory is absorbed. And if it comes onto the market faster than buyers can snap it up, prices will continue to decline.

Visualize the real estate market as a pipeline. The home that gets a foreclosure notice today won’t hit the lender-owned market for three to six months. Are there enough investors and other buyers to snap up record numbers of homes, month-after-month, for the next two years — or longer?

The answer to that question is yes — if the price is right. If the demand for low-priced homes already exceeds the supply in the pipeline, prices will stabilize or even start to rise. If not, lenders will be forced to cut prices until buyers find them impossible to resist.

It’s an awful time if you have lost your home, and it’s not great if you are living in a home you cannot sell profitably. But if you have cash or can qualify for a mortgage, this is an ideal time to snag a bargain-priced home in Phoenix.

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October 4, 2008

Other types of credit may be feeling the crunch, but home mortgages are still readily available

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

 
Other types of credit may be feeling the crunch, but home mortgages are still readily available

Bad news about the economy is coming in from all directions, so you may be in the mood for some good news: There is plenty of money available for home loans.

By taking over FannieMae and FreddieMac, the federal government has essentially nationalized the secondary mortgage market. The lenders themselves are still private entities, but the government’s loan guarantees are viewed as being so strong that, by now, virtually all residential real estate loans are coming through Fannie, Freddie, the FHA or the VA.

The other way of saying the same thing: There is virtually no secondary mortgage market left for non-conforming or sub-prime loans.

So while you may have trouble getting new car financing or a loan for your business, you should have no problem getting a home loan — if you qualify and if the amount you’re borrowing falls within the limits set by the four government agencies guaranteeing home loans.

And there’s the rub: For most of the Phoenix area, qualifying for a conforming loan should be no problem. But higher-priced homes are sold with non-conforming “jumbo” loans, which are difficult to obtain right now and come at much higher interest rates.

Using an FHA loan, it is still possible to buy a home with “nothing down.” FHA borrowers are obliged to pay a 3.5% down payment, but this can be offset by the $7,500 tax credit incorporated in the mortgage relief bill passed in July. FHA borrowers can ask the seller for up to 6% in closing costs, so they can take possession of the home for no money out of pocket.

But there’s a catch: To obtain an FHA loan, the home will have to pass a rigorous FHA appraisal, which will eliminate many foreclosed homes unless the seller is willing to correct the most serious defects.

All that notwithstanding, while the financial sky might be roiling with dark clouds, real estate is still a silver lining. Because of the government’s loan guarantees, lenders are willing to take risks on homes loans much more readily than on other types of credit.

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September 28, 2008

In a declining market, buying a short sale is too tall an order

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Sun City Real Estate Broker

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

 
In a declining market, buying a short sale is too tall an order

Is it time to kick the stilts out from under short sales?

Right now in most neighborhoods in the Phoenix area, the houses that will draw the most attention from buyers will be either short sales or lender-owned homes. They’ll be in all states of repair, but the prices will be very aggressive.

And of those homes, the lender-owned homes will actually sell. They may be completely trashed, but the people whose job it is to sell those properties are judged by how quickly they can unload non-performing assets. Make an aggressive offer and you’ll get a aggressive deal.

There are downsides, of course. You can inspect all you want, but don’t expect repairs. Because of this, many lender-owned homes will not qualify for FHA or VA financing. And once escrow closes, you’ll have to restore the home to livable condition.

By contrast, a short-sale home might be in better condition. And it might be even more aggressively priced. The trouble is, the price in the MLS listing will be meaningless. The seller can approve that price, but the seller’s lender has to approve it as well. And the people who approve short sales aren’t judged by how quickly they sell the home but by how much money they bring in.

The lender can take from 60 to 90 days to respond to your offer for a short sale home. And the response may be to counter at a higher price. If you counter back, you may wait another 30 days for a response.

Here’s the worst part about this unwieldy procedure: Home prices are still falling in the Valley. You could wait months to get approval on a contract for a house that is now worth tens of thousands of dollars less than what you offered for it.

My take? We need to cut short sales off at the knees. It seems foolish for Realtors to take them as listings, and beyond foolish to encourage buyers to pursue them. Lender-owned homes are offered by motivated sellers. Short sales are a waste of time.

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September 21, 2008

This endless election season may give the real estate market time to self-correct before new legislation can make things worse

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Sun City Real Estate Broker

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

 
This endless election season may give the real estate market time to self-correct before new legislation can make things worse

Looking for a silver lining amidst the black clouds of financial news? Here’s one: The fact that we’re in the middle of an election campaign gives us at least a fighting chance of solving our own problems without more government interference in the real estate market.

Everything that’s happened so far has been a triumph for the government approach to what should be free markets. Since the 1930s, the Federal government has been guaranteeing home loans. That made it easier for Americans to buy homes, but it dulled that flinty due diligence we expect in bankers.

Our tax laws favor homeownership with deductions, credits, capital gains exclusions and favorable loan terms. It’s nice to save on taxes, but these incentives induce us to own homes where we might otherwise do something else with our money.

In the recent past, the Federal government decided everyone should own a home, no matter what. After 9/11, the Federal Reserve Bank reduced the cost of money to almost nothing. Hundreds of different arms of government at all levels gave away financial incentives to homeownership. And the U.S. Treasury seemed to hint that American mortgage-backed securities were as safe as houses.

This has turned out to have unhappy consequences. That old-style flinty banker could never conceive of houses losing even 20% of their value, where the Phoenix market has given back twice that much since the market peaked.

Even so, the sky has not fallen. Wealth is not dollars, wealth is the productive power of the American economy. The majority of Americans still have significant equity in their homes, with many of them being owned outright.

What’s happened is that lenders and their financiers and, unfortunately, the American taxpayer, have taken a hit to the wallet. If the Federal government can restrain itself from overreacting, we’ll dig ourselves out in due course. And that’s why we’re blessed by this election: It will be at a least a year before the Feds can marshall any significant new legislation, and, by then, we could be well on our way to solving our own problems.

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September 14, 2008

Fannie and Freddie fall to foreclosure, but, still, lenders lend

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Sun City Real Estate Broker

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

 
Fannie and Freddie fall to foreclosure, but, still, lenders lend

I write this column at the beginning of the week, and it appears at the end of the week. My topics are usually timeless, but, if I turn my attention to current events, there’s always the chance that I’ll end up with my foot in my mouth.

Even so, the news that matters most in residential real estate this week is the takeover by the federal government of the Federal National Mortgage Association (FannieMae) and the Federal Home Loan Mortgage Corporation (FreddieMac). These two quasi-private corporations define the lion’s share of the secondary mortgage market in the United States.

What does that mean? If you got a conforming loan for your home, it will have been sold into the secondary mortgage market in short order. FannieMae or FreddieMac would have guaranteed the loan to investors, this so your lender could have had a renewed supply of capital from which to make new loans. Federal Housing Authority and Veterans’ Administration loans would have been guaranteed by those entities, and sub-prime (non-conforming) loans would have been marketed directly to private investors. The secondary mortgage market exists to keep loan originators liquid in a market where very few people keep their savings in banks.

Given the federal takeover, has the sky fallen on the secondary mortgage market? No, although things may be a little sluggish as the newly-installed management teams learn the ropes. But as San Diego real estate broker Jeff Brown says, “Lenders lend.” There are still plenty of dollars chasing mortgages, so there will be mortgages chasing dollars. It’s plausible that interest rates could even go down, now that the secondary mortgage market has a rich Uncle Sam to back its loans.

What is not so plausible is the notion that investors will suddenly abandon housing altogether. Things will shake out. The ideal situation would be for a new free-market clearinghouse for the secondary mortgage market to arise. A business like that could cherry-pick the strongest loans, those least likely to go into foreclosure, leaving the more marginal loans to the Feds — the FederalExpress principle.

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September 6, 2008

August was a great month for real estate sales, but when 40% of buyers are pushed off the playing field, home prices could plummet

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Sun City Real Estate Broker

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

 
August was a great month for real estate sales, but when 40% of buyers are pushed off the playing field, home prices could plummet

We won’t have reliable numbers for a few days,* but preliminary results leave no doubt that August was a huge month for real estate sales in the Valley of the Sun. Not for prices, alas, which continued to slide by around 1.5% last month. But, of the bread-and-butter suburban tract homes we track, around 200 will have sold, a two-year high.

September promises to be a banner month also, with nearly 280 homes currently under contract. Not all of those homes will make it through the escrow process, but most of them will.

What accounts for all this activity? The single greatest factor is seller-paid down-payment assistance programs like AmeriDream and Nehemiah. An FHA loan requires a 3% down-payment, and these grant programs permit the seller to fund the grant, along with up to 3% more for closing costs. The upshot is that buyers can take possession of the home for “nothing down.”

In recent months, down-payment assistance programs have accounted for as much as 40% of sales of resale homes, and as much as 90% of new-build sales.

Here’s the catch: Under the mortgage relief act recently signed into law, seller-paid down-payment assistance will be forbidden. The restriction takes effect on October 1st, but most lenders have already closed the window on new AmeriDream and Nehemiah loans.

It’s possible these programs will be reinstated by future legislation, but, even if they are not, it’s not the end of the world. It’s no great challenge to find a decent starter home for $100,000. And if buyers cannot manage to save up $3,000 for a down-payment ($3,500 after October 1st), acquiring a huge new debt may not be the best solution to their financial problems.

But the short-run prognosis seems pretty obvious: When 40% of resale buyers are forced onto the sidelines, the downward pressure on prices should accelerate.

The bottom line: If you’re prepared to buy a house in the Phoenix area, either as your residence or as an investment, prices could be very attractive.

 
*Final results for August 2008 are reported in the BloodhoundRealty.com Market Basket of Homes.

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September 2, 2008

More smokin’ deals on premium Phoenix-area rental homes

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Sun City Real Estate Broker

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Here are some more of the investment properties I’ve been shopping in the West Valley suburbs of Phoenix. These are all potentially premium rental homes. All but one faces North or South. All but one is lender-owned, a much easier way to buy than a short sale. All of them are in premium, high-demand subdivisions.

In other words, I eliminated everything that was less likely to appreciate and rent well. These homes should stay rented to premium tenants while you own them, then sell easily to owner-occupants on the way out.

The prices are all over the map, and they matter not at all. It’s reasonable to treat all of these homes as selling for $70 – $80 a square foot, with the smaller homes going for slightly more, the larger ones for less — this because plumbing is the big money in a house and smaller homes have proportionately more plumbing.

Some of these homes need work to make them rentable, but none of them needs very much — perhaps $5,000 at the most. If it’s possible to pick up one of these for $10,000 less than recent comparable sales, it is eminently profitable to do the repairs on the way in. Paying more for turn-key condition may not be the best strategy. In any case, we can arrange for any needed repairs to be done quickly and economically.

Take a look:

I’ll be writing about this in this week’s Arizona Republic: Seller-paid down-payment assistance is essentially gone from our marketplace. This had accounted for as much as 40% of recent sales, so there are going to be a whole lot fewer buyers chasing a large number of available homes. This should make sellers very interested in negotiating price. We are on the cusp of a perfect storm for investors to pick up premium rental homes at unbelievable bargain prices.

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