Archives (page 9 of 17)

August 11, 2009

What’s the best rental home to buy? One with the tenant already in.

by Greg Swann

Sun City Real Estate Broker

Picture a charming home in a shady corner of Phoenix. Good bones, reliable block construction, mature landscaping. Now give it the best feature of all, for a real estate investor: A performing tenant already living in the property.

That’s what you’ll find at 2425 West Cheery Lynn Road in Phoenix.

The house itself is sweet, and the location could not be more perfect: Minutes from downtown Phoenix, seconds from the I-17 Freeway. But the presence of the tenant means that this home will be cash-flow positive from the day you buy it. No months of frustration waiting for a lease-up. No angry glares from your spouse as an alligator eats up your savings.

This home is offered at $109,995. Call your agent to find out how quickly you can add it to your investment portfolio.

July 25, 2009

Why should you enlist a buyer’s agent to help you buy a home? Because you’ll get a much better deal — even if you pay full price

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

Are home-buyers best served by the vigilant efforts of an experienced buyer’s agent? Consider a transaction we have in play right now.

The buyers are a young couple, about to be married. They have about $10,000 in cash.

With a conventional loan, they could put 20% down on a dismal starter home. Or, with Private Mortgage Insurance, they could put 10% down on a nicer home.

But with an FHA loan, $10,000 is 3.5% down on a $285,000 home. We can argue the wisdom of making so small a down payment, but the FHA loan program is the path to homeownership for millions of Americans.

And $285,000 is too much house for our buyers. They found a nice lender-owned two-story home in the suburbs selling for $169,000. The down payment on that home would be $5,915. But the closing costs would probably run to another $5,000 — which comes to more money than they have.

They qualify for the $8,000 first-time home-buyer tax credit, but they won’t get that until they file their tax return. They also qualify for a state-funded grant program that will contribute up to 22% of the purchase price — but which can’t be used for the down payment or the closing costs.

Here’s the deal we put together. We offered $175,000, $6,000 over list price. In exchange, we asked the seller to contribute 4% of the full purchase price to defray the buyer’s closing costs.

The down payment will be $6,125, leaving the buyers $3,875 in cash to pay for the endless expenses of moving into a new home.

And there will be about $2,000 left over after the closing costs are paid. This will be used to buy down the interest rate. The buyers will end up with just over 25% equity in the property for a cash outlay of $6,125 — all at a very low monthly payment. And they’ll still have their $8,000 tax credit to look forward to.

This is the kind of outcome a skilled buyer’s agent can achieve.

July 18, 2009

With MLS listings available everywhere on the internet, why do you need a buyer’s agent?

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

Here’s an intriguing question: Given that it’s so easy to search for homes on the internet, why do you need a buyer’s agent?

Face it, if you use the MLS search tool on my web site, you’re seeing exactly the same listings I see. And you know better than I ever could what you like and what you don’t like.

By now, the home search process is at best a partnership between the agent and the buyer. In some cases the buyer and I will work together to perfect our search criteria. But many buyers simply search the available inventory on their own, emailing me the MLS numbers of the homes they want to see.

So why do those buyers need a buyer’s agent?

Realtors hoarded the MLS data for so long that even they came to believe it was the source of their value to buyers. But this is very far from the truth.

You don’t need me to search for listings, although I’m happy to do that. And you don’t need me to open lock-boxes. You need a buyer’s agent to guide you through what is in fact an arcane and perilous process — potentially a financial disaster. You might not need me to find your next home, but you need me to make sure that you get it — or that you pass on it, if that is what is truly in your best interests.

A skilled buyer’s agent will write the kind of purchase contract that will prove surprising to you at every turn, with every term and condition tailored to achieve your best advantage. Your agent will supervise the inspection process and negotiate the optimal solution to the repair issues. Your agent will be prepared for every pitfall in the escrow process.

If you bought and sold houses every day, you could do all these things yourself. It’s because you don’t — and because the seller and the listing agent are looking to take advantage of your naivete at every turn — that you need a skilled buyer’s agent as your steadfast champion in the home-buying process.

July 16, 2009

“Home Ownership Was Never a Road to Riches”

by Greg Swann

Sun City Real Estate Broker

Form The Wall Street Journal:

My wife and I have sold all of our four previous homes for more than we paid for them—sometimes a lot more.

We’ve been pretty lucky. We’ve never overpaid much for a house, we’ve always bought in good school districts and decent neighborhoods, we’ve lived in neighborhoods where prices soared during the real-estate bubble, and we’ve been hurt but not decimated by the bursting of that bubble.

When I constructed a very basic cash-flow model for our home-buying history—selling price minus purchase price, renovations and repairs—it showed a roughly 3.5% annualized return on investment, from 1991 through the summer of last year. That’s when we sold our last home and bought our current one.

Then things got ugly. If we were forced to sell our current home, which I estimate has lost 5% or so of its value in our 10 months of ownership—despite the more than $20,000 we’ve made in improvements—our cumulative return over the years sinks to approximately 2% annually. And if prices keep falling in our northern New Jersey neighborhood, as is likely for a while, that return will shrink even further.

So do I regret owning a home? Heck, no. It’s not a get-rich scheme, and Americans never should have viewed it as one. Owning a home has given my family a series of anchors to cling to as we’ve moved around the country for my job. It’s allowed us to live in pleasant neighborhoods where it would have been tough to find a rental house. And paying down a mortgage is a form of forced savings, which should help us in retirement.

Columbia Business School’s Christopher Mayer, who has studied housing markets, says our experience with home-price gains is pretty typical. Home appreciation nationally has run about 1% above inflation over time.

The big price run-ups from the late 1990s through 2006 or 2007 were an aberration. The biggest value you derive from home ownership isn’t appreciation. “It’s being able to live in it,” Prof. Mayer says, and avoiding the rent you would otherwise have to pay.

Once you add in imputed rent and subtract property taxes, Prof. Mayer estimates, my 2% annual home-ownership return looks more like 6%.

July 12, 2009

Is this the right time to buy a house in Phoenix? It depends…

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

Is now the time to buy a home in Metropolitan Phoenix?

It depends.

If you plan to take advantage of the $8,000 first-time home-buyer tax credit, you need to get moving. If your loan hasn’t closed by November 30th, you won’t get the concession.

If you’re afraid of rising interest rates, you’re probably better off acting now. Mortgage rates cannot stay this low forever. When they go up, they’re likely to go up decisively and for a long time.

On the other hand, if your plan is to pay cash, and if you don’t have to move right away — you might be better off sitting tight. The same goes for all-cash rental home investors.

The mini-boom we’ve seen over the past few months was based in an erroneous belief that the supply of homes in the Phoenix area was limited.

This is untrue. The length and depth of our real estate correction is a consequence of our being overbuilt. There is no shortage of homes for sale, nor any shortage of bargain-priced lender-owned homes. And I think it is silly to bid up the prices of properties that are not in short supply.

The market is already flooded with available housing, and there is a three-year tsunami of short sales and lender-owned homes still to come. If there are enough buyers to absorb that supply of homes, prices may not go down further, or at least not by much. But for bread and butter houses, there is no reason to expect values to go up any time soon.

But there’s more. We are headed into a hyper-inflationary economy — which among other things transfers income from creditors to debtors. The money that you’ve managed to save will lose value over time, while the money you owe will be repaid from a progressively higher income.

The bottom line: Whether you take out a mortgage or pay cash, real estate can be a very strong hedge against inflation. Just by itself, that might be a good reason to buy a home sometime soon.

Further notice: I recorded an extended podcast about the state of the Phoenix real estate market, which you can find by clicking on that link.

July 4, 2009

Private ownership of the land is the source not just of our freedom but of our civility and of our humanity itself

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

The “cap and trade” bill that passed in the House of Representatives last week contains within it the seeds of a national building code. It rarely rains in Phoenix and it rarely fails to rain in Portland, but both cities will build new structures according to the dictates of some Washington bureaucrat.

Drive along 19th Avenue in Phoenix and you’ll pass block after block of condemned houses. They were taken by the city for the planned light rail expansion, now delayed. The neighbors are left to fight off the kind of vermin vacant homes attract while they worry what that blight is doing to their home values.

In Glendale, the city government is doing everything it can to prevent the Tohono O’Odham tribe from developing its own sovereign land as a casino.

The essence of the freedom we celebrate on Independence Day is the free ownership of the land. The Hoplite Greeks fought and died to protect their own lands. The Roman Legionnaires fought and died because their farms were their own property. A Cincinnatus — or a George Washington — lays down his arms because being a dictator is nothing when you can instead be a freeholder in the land.

The essence of our freedom is the free ownership of the land, and yet everywhere we turn, private property is subjected to one law after another, and everything that is not forbidden is compulsory instead.

This is a grievous error. The men who become Brownshirts or Klansmen or Khmer Rouge — the men who make up murderous mobs — are men without land. It is the husbandry of the land — each man to his own parcel — that most makes husbands of us, that sweeps away our willingness to live as brigands or rapists or thugs.

By robbing the private ownership of the land of its meaning, the state is, by increments, robbing its citizens of their humanity. No one burns down his own home, nor his neighbor’s home. But when the time comes that we all seem to own our homes only by sufferance, none of us will have anything left to defend.

Further notice: I posted an audio tweet on this topic, as well.

June 27, 2009

Getting outbid for houses? Relax. Available homes are not in short supply, so there is no reason to overpay

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

Here’s a situation that’s all too common in the Phoenix real estate market right now:

You make what you think is a good offer on a home, only to find out that you are one of several bidders. The home can be lender-owned, a short sale or just an ordinary owner-owned home. It’s probably priced pretty aggressively to the market, though. That’s why it attracted multiple offers.

Here’s what happens next: The listing agent sends out Multiple Counter Offer forms. The Multiple Counter Offer can specify some ideal offer, perhaps the best one received so far. Or the lister can simply ask buyers to make their best offer. Or the Multiple Counter Offer can specify different terms to each buyer.

How do you respond?

You don’t know what you’re competing against. And even if you have a fair idea of what the best offer might have been before the lister sent out the Multiple Counter Offer, you have no idea what you might have to beat by now.

But, guess what? It gets worse. Because you don’t even know for sure that there are other buyers, or, if there are, if they are willing to respond to the Multiple Counter Offer.

Do you understand? You could be involved in a brutal bidding war — bidding only against yourself!

What are your alternatives?

First, don’t get caught up in the fever of a silent auction. A property is worth what it’s worth in the current market. It does not gain in value just because people are competing for it. Your offer should reflect the market value of the home. If you lose out, go buy another. Houses are not in short supply.

And because houses are not in short supply, ask yourself why you’re in such a fierce competition to begin with. You might not be able to get the property that’s listed at a very low price but sells at a much higher price. But you may be the only bidder on the home that is priced to the market — and will end up selling for the market price.

June 22, 2009

Cashing in on your $8,000 first-time home-buyer tax credit may take some effort in the current Phoenix real estate market

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

The mini-boom we’ve been seeing in the Phoenix real estate market over the last few months may be abating slightly, but, for now at least, snagging a cheap house can take some effort.

Bargain-priced lender-owned homes are generating multiple offers and are selling, ultimately, at above-list prices. Many lenders are handling their short sales as silent auctions, with every offer being forwarded to the bank for evaluation. Buyers are pitted against each other with multiple-counter-offers.

Many of the buyers of lower-priced homes are investors. Some of them are buying homes to fix and flip, but most are newly-minted landlords in search of tenants.

Most of the rest are first-time home-buyers looking to cash in on the $8,000 federal tax credit. These folks are in a tough spot. Without cash for repairs, they can’t compete for the cheapest of the lender-owned homes. And since the homes they buy must appraise for at least the purchase price, they can’t compete against all-cash buyers.

But here’s the irony in this whole scenario: There is no shortage of housing in the Valley. Right now there are about 33,000 residential listings in the MLS system. That’s down from a high of 55,000, but it’s way up from a low of 11,000 at the peak of the boom.

Moreover, there are many thousands of homes in the foreclosure pipeline that have not hit the market yet. For whatever reason, banks are withholding that inventory — perhaps to put a floor under prices. If so, that floor will likely be a durable one, with the steady drip of lender-owned homes keeping prices at around their current levels for years to come.

But moreover yet again, we are still overbuilt. We simply have more kitchens than cooks. If you have to close before November 30th to get your tax credit, you may not see the humor in our situation. But take heart: Investors can only tolerate so much vacancy before they rethink their spending. Rationality will return to the real estate marketplace.

June 13, 2009

Getting a $15,000 tax credit when you purchase your next home could be as easy as stealing candy from a baby…

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

So we started with a $7,500 tax deduction for first-time home-buyers.

But that didn’t juice the real estate market enough, so we bumped the number up to $8,000 and made it a full-blown tax credit. If you owe $8,000 in taxes next April, your slate is wiped clean.

But even that didn’t juice the the real estate market enough, so this week Republicans — the alleged party of fiscal responsibility — proposed bumping the tax credit up to $15,000 and making it available to everyone — including billionaires.

How cool is that? You buy a $150,000 house, you get 10% back when you file your taxes. And you can file an early return to get the money now. And you can even finance the tax credit now and pay it back when you file your return.

You can’t — quite — use the tax credit as your down payment, but that “reform” can’t be more than inches and hours away. And a $15,000 down payment on an FHA loan buys you a $428,500 house.

Unfortunately, that’s more than the FHA limit for metropolitan Phoenix, so that limit will need to be “reformed” as well.

Paying people to buy houses would be insane if we actually had the money to back up our promises. But, since we don’t, these “reforms” are the mark of true statesmanship.

I’m helping an ambitious young couple buy their first home right now. We’re late to close, a common enough situation.

They just had their second child, an event mere bureaucracy cannot delay. Their baby boy — his name is James — is sweet and beautiful, healthy and smart, a perfect specimen of incipient humanity.

They’re taking the $8,000 tax credit, of course, as they should. The government doesn’t become less insane if you shoot yourself in the foot.

But it is sweet little Baby James who will pay for that tax credit, and for millions of others, and possibly for millions more at $15,000 a pop. Our economy runs on theft — and we’re running out of people to steal from.

June 6, 2009

Do you want to save money in the Phoenix real estate market? Stop shopping for bargains and start shopping for value instead.

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

Are you looking for a bargain in the Phoenix real estate market? Everybody wants to save a buck, but here’s a different way of looking at things: Instead of shopping for a bargain, shop for value.

What’s the difference? A bargain comes about when you get a great price by buying something nobody else wants.

Like this: A grocer puts out a pyramid of apples, selling them at fifty cents each. About half sell at that price, and the grocer marks the others down to twenty-five cents. All but the last six sell, and the grocer accepts your offer of five cents each for the remainder.

That’s a bargain. You got six apples for thirty cents, when they would have cost you three dollars earlier in the day.

The only problem is, your apples are bruised and shopped-over. But that’s why you got them at the bargain price — because no one else wanted them. Tomorrow’s price for fresh, appetizing apples will be the same as today’s price, and you’ll only get the bargain price by bidding low on the shopped-over remainders.

If you’re making a pie, that’s fine. But if you’re having guests over, you’ll pay the higher price.

Apples are not houses, of course. For one thing, every house is unique. If other people are also interested in a home, you cannot expect to pay much less than the asking price.

Even so, when you’re shopping for value in real estate, the purchase price is only one factor in the calculation. What purpose do you have in mind for the property? What are your future financial objectives?

A rental home in a community with no tenants is no bargain no matter how little you pay for it. A residence in a neighborhood where the long term price trend is downward is no bargain no matter how low the purchase price.

Shopping for value means paying as little as you can get away with for a property that actually fulfills your objectives and offers a prospect for future appreciation. Anything less than that is no bargain.

May 30, 2009

How Phoenix real estate investors can make their rental homes more appealing to tenants

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

I work a lot with investors, and I’ve written in the past about the factors I think are important when buying a rental home in the Phoenix real estate market.

I want for the homes I choose to be in built-out neighborhoods in built-out communities with ready access to schools, churches, entertainment, shopping and transportation. More than anything else, I want for there to be plenty of good-paying jobs nearby.

But even taking account of all that, tenants seem to be getting thin on the ground. Is there a shortage of tenants? To the contrary. Folks who have just lost their homes to foreclosure need to rent for a couple of years to get back on their feet.

There’s no shortage of tenants, but we’re seeing a sudden surplus of landlords. Out of state investors are snapping up Valley tract homes at bargain prices and posting their “For Rent” signs in the front yard.

Are these homes necessarily good rental candidates? Probably not. Will they rent? At a low-enough price they will. And landlords are feeling price pressure for the first time in years, all across the Valley.

What is missing, as is so often the case in real estate, is intelligent marketing. There is a huge supply of tenants in Metropolitan Phoenix who would love to live in suburban single-family rental homes. Where are they? In apartments.

Any why are they in apartments? Because apartment communities market very intelligently to tenants. Can an ordinary landlord compete against a $99 move-in special? Probably not. But here is an offer for appealing to apartment renters that makes sense to me.

Instead of a 12-month lease at $900 a month, offer 24-months at $950 — with two months rent-free. You might go for the second and twenty-fourth months, but I think making both Decembers rent-free could be a killer proposition.

The tenant pays more per month, but less over the 24 months. The landlord gives up $700, but nets a faster lease-up on a longer lease. Everybody wins — and that’s the power of marketing applied to real estate.

May 23, 2009

Foreclosures are bringing unscrupulous practices back to the Phoenix real estate market

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

There was a time, just a few years ago, when the residential real estate industry in Phoenix worked like a well-oiled machine.

We were all using the same court-tested paperwork — all the same way and all according to the same standards of care. Realtors knew what to expect of each other, and our arbitration systems made sure we could trust each other.

No more. We’re back to the days of wild west real estate, where every critical detail is negotiated verbally and where every promise is as sound as a three dollar coin.

It’s not the banks who are at fault, at least not directly. Every purchase contract for a bank-owned home will be rewritten by the bank, but lenders are keeping their promises, even their verbal promises, on foreclosed homes.

Short sales are another matter entirely. Many agents handling short sales are scrupulously honest, letting buyers know exactly where they stand and keeping everyone up to speed.

But there are agents who treat short sale listings as an undisclosed silent auction, submitting every offer to the lender and not informing buyers they are being pitted against each other.

So you wait six weeks to six months for a response from the bank, only to learn that the property will be sold to someone else. The upshot is that short sales are not a viable option for anyone who needs to move by a specific date.

That’s a worst case scenario, but in this little mini-boom we’re going through, we are once again seeing some of the worst practices from the boom years.

For example, the bidding wars you’ve read about are carried out by means of the Multiple Counter Offer form. Each buyer is invited to make a better offer, without knowing what the other offers are, without knowing how many there are, and without knowing if the other buyers are even still in the game.

I can’t imagine a situation less fair to buyers. This is the kind of opacity we can expect efficient market systems (read: the internet) to fix going forward.

May 16, 2009

The $8,000 first-time home-buyers tax credit gets even juicier

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

The $8,000 first-time home-buyers tax credit just keeps getting sweeter and sweeter.

First, it’s a true tax credit, not a deduction. In other words, if you would have gotten a $3,000 tax refund next April, with the tax credit you’ll get $11,000.

Even better, a first-time home-buyer is someone who has not owned a home in the past three years.

To get the full $8,000, the purchase price of your home must be at least $80,000. But it turns out that $80,000 is a sweet spot in the Phoenix real estate market right now. In many West Valley communities, $80,000 will buy you a very nice house.

But here’s the icing on the cake: As of this week, The Federal Housing Authority may allow borrowers to use the $8,000 for their down payment.

The lender would offer that money through a second note, and you’ll pay it back when you get your tax refund.

Take a moment to reflect on the implications. That’s right, after nearly five long months of stern fiscal responsibility, we’re right back to doing nothing-down home loans.

The tax credit can be no more than ten percent of the purchase price, but an FHA loan requires only 3.5% down payment. How much house can you buy with $8,000 down? How about $228,500?

The sellers will throw in the closing costs — gleefully — so you could buy a great big Phoenix homestead for no money out-of-pocket.

Make your payments on time and you’ll be living the American Dream — in a home that might have sold for $500,000 in December of 2005.

But don’t dawdle. The $8,000 tax credit ends on November 30th — which means your loan must be completely closed by then. Allowing 45 days for underwriting and another 30 days to find the home of your dreams, you should start your home search no later than mid-September. If you want for the kids to be in their new schools in August, you should probably start looking now.

May 9, 2009

The goal of the BloodhoundBlog Unchained training conference is to push the bums out of the real estate business

by Greg Swann

Sun City Real Estate Broker

This from my Arizona Republic real estate column (permanent link):

We publish a national real estate industry weblog called BloodhoundBlog.com. There are 42 contributors from all over the country, each one an expert in his or her own right. Together we talk about real estate marketing and technology, lending and investment. If you want to know what Realtors and lenders really think, BloodhoundBlog is your keyhole into the industry.

The blog is all about the wired world of real estate, how the participatory internet is changing age-old paradigms of real property and mortgage marketing. When we started three years ago, the Web 2.0 idea of online interaction was still very new. By now, it’s hard to remember a time when these technologies were not ubiquitous.

BloodhoundBlog’s mission is to help Realtors and lenders keep pace with internet tools. In service of that objective, we produce an annual conference called BloodhoundBlog Unchained. Real estate professionals come from all over the country to learn how to market their services in what amounts to a post-marketing marketplace.

This year’s conference ran last week from Tuesday to Friday. We encamped in a hotel near Skyharbor Airport and worked all but continuously for 72 hours. Our world is changing so fast that we felt we had to work that hard, just to learn everything we need to know.

What’s all this to you? BloodhoundBlog is all about promoting excellence in every conceivable way. We do everything we can think of to train Realtors and lenders to provide a better-quality experience by every means attainable.

My objective, expressed baldly, is to chase the bums out of our business. Licensing purports to do this, but it has not. Trade organizations like the National Association of Realtors should do this, but they don’t. But if we can educate consumers to demand better service, better information, better representation, then the bums and the crooks will go get jobs. That’s the way free markets work, when they’re working properly.

Meanwhile, real estate professionals are just catching on to the idea that consumers can see everything we do. Drop in on BloodhoundBlog and keep an eye on us.

May 5, 2009

Reflecting (very) briefly on the Phoenix real estate market: “I got my job through the New York Times”

by Greg Swann

Sun City Real Estate Broker

Last Tuesday, while racing around doing real estate work and preparing for BloodhoundBlog Unchained, I was interviewed by the New York Times about the Phoenix real estate market.

I’ve been interviewed a zillion times before, and it’s cool and fun and it means absolutely nothing. I got picked because of this article, from my column in the Arizona Republic. I spoke to the reporter for 45 minutes on the phone, and about twelve of my words made it into the newspaper.

Okayfine. That’s the way it works. I’m just waxed fruit in these tableaux and I know it.

But here’s the cool part: Yesterday I got a call from a potential client about the article. Never happened before. Real estate investor from Canada looking to balance his risk by picking up some lender-owned homes in Phoenix.

As a marketing strategy, talking to reporters is probably less productive than handing out business cards in the supermarket parking lot, but serendipity is where you find it.