Back to Location, Location, Location

Back to Location, Location, Location
By: Payam Raouf Owner/Assocaite Broker
888-777-6664
Arizona Property Management and Investments
www.azezrentals.com

Looking for a better return on your investment? I am not going to tell you what to do with your money. If you are a savvy investor you already know and you are my target audience.

You can easily get somewhere between 7 to 8 percent net return on a good investment property in Phoenix Metro Area right now. I am not going to tell you what to buy and where to buy here on this blog. The same popular floor plan may not be as an attractive in a subdivision within a block away from the other. Arizona is weird when it comes to that. The same home could rent $200 more or less and may not appreciate as much, or appreciate substantially in the future.

One thing I can tell you for sure though is we are back to Location, Location, and Location in real estate again. I get all these calls every day from investors who want to know what such and such home rents for. Some are right on the money; some are misled that it rents for a lot more than it should. Here are the things you need to consider when buying a rental investment property:
A) Location
B) Curb appeal
C) Floor Plan/Landscaping
D) Builder
E) Year built
F) Amenities
G) Taxes and Insurance
H) Costs associated with leasing/management /vacancy factor/maintenance cost, etc.
I) Legal and Tax consequences
The way we calculate these factors, a good rental property should rent for 1% of purchase price and the total annual operating cost should not exceed 30% of the gross rent.
EX:
Price of the home $100.000.
Gross Rent $1000 per month
Total Operating Cost including, tax, insurance, maintenance, management fee, Vacancy factor, HOA Fee etc should be around $300
Your Net Return should be $700 per month or 7% per year

If you are collecting less than that after you calculate all your costs, you are in the wrong business!

I own a pretty good size property management/ Investment Company in Phoenix. I am extremely busy with my own personal investors. However if you need some hints as what to buy and what it rents for etc, give me a call. I can give you my 2 cents to put into your own calculations. I also have several agents I have trained to help you find the right property if you need one. As for managing your property, we are a full service Real Estate/Property Management Company serving the entire valley. My designated Broker Rhonda Urtuzuastegui or one of our seven district managers can give you the personal attention you need. You can reach me at 888-777-6664. Ask for Payam Raouf. Good Luck.

4 Things You Must Know When Buying Arizona Investment Property

Payam Raouf
Associate Broker
Arizona Property Management and Investments
www.azezrentals.com
888-777-6664

Even in a real estate market where you can acquire property at huge discounts, you still need to do your homework! What you know, or don't know, will impact the outcome of the investment. For example if you purchase a property in the wrong area of town or inaccurately calculate the rental market, then you may significantly hinder the growth of your investment. The proper research will allow you to minimize risk. Take the guesswork out of your decision to invest in real estate. This article will not necessarily tell you exactly which Arizona investment property to purchase; however will highlight 4 key components that should be researched when making the buying decision. You will also be provided with a few tools that will aid you in your analysis.

Location
The first component of buying an Arizona investment property is to determine the best location. How would you know this, unless you are actively working in or studying the Arizona real estate market? Just because you can pick up a single family home for $40,000 doesn't mean it is the greatest deal out there. There is a lot of money flowing into the Arizona market from investors located in other parts of the country, as well as other parts of the world. Many of these investors are purchasing property because it is cheap, not necessarily because it is in the best location.

The September 2010: Repeat Sales Index Report, published monthly by Arizona State University's W.P. Carey School of Business, provides detailed information on the state of the Arizona real estate market. This report highlights changes in housing prices by location, which is a great indicator for potential investors.

June 2009 - June 2010 Changes in Housing Prices by Region

Central +5.8%

Northeast -5.1%

Southeast -1.3%

Northwest +1.8%

Southwest +4.2%

Based on the data above, it would appear that homes located in the Central region (Phoenix) have outperformed other areas of the Valley. Some of the other indicators used in determining the best Arizona investment property location are foreclosure rates, median home prices, and pending home sales.

Property Type
The second component of buying an Arizona investment property is to determine property type. Whether it is a single family, townhome, condominium, or multi-family, you need to make sure the property fits in with your overall investment strategy. If you are looking to buy and hold for cash flow, then you are looking for the property that can yield the highest monthly rent (a duplex or tri-plex over a condominium or townhome). If you are looking for a fix and flip property, then a single family home with the most resale potential may be the best option. Once again, this article is not looking at what you should do, but to explain that there is a difference in property type based on your investment expectations.

Let's look at the investment strategy of purchasing a cash flow property. Obviously the goal is to acquire a property at the lowest cost possible producing the highest possible rate of return. The comparison below will show the potential impact that a certain property type could have on your cash flow strategy.

Condominium vs. Duplex Example

Condo

Purchase Price - $50,000

Monthly Rent - $650

Monthly Expense - $270

Monthly Cash Flow - $380

ROI - 9.12%

______________________

Duplex

Purchase Price - $100,000

Monthly Rent - $1,150

Monthly Expense - $270

Monthly Cash Flow - $880

ROI - 10.56%

Based on the above example even though the condominium is half the cost of the duplex, it yields a smaller Return on Investment (ROI). It is important that you factor in the monthly expenses associated with each property type. This particular condo had a $200 monthly homeowner association due (common on condominiums and townhomes), which lowered our monthly cash flow.

Market Value
The third component of purchasing a profitable Arizona investment property is accurately determining the market value. This is a MUST and to ensure the best information it is recommended that you contact a real estate professional. If you are not sure who to contact in the Arizona market, feel free to contact Payam Raouf at Arizona Property Management and Investments for a recommendation.

This section is not a guide to completing your own market valuation; however will provide you some tools to do your own due diligence and to be knowledgeable of the assessment process. There are many websites (Zillow.com, Cyberhomes.com, etc.) that will run an automated valuation for a specific property. In determining the actual value, these should only be used to give you a ball park and do not always take into account all factors that could impact what the property is really worth.

How is a property's value determined? This is not an exact science, but more of an educated opinion. The true value of a property is what someone is willing to pay for it. Whether it is an appraiser or other real estate professional, the market value is determined by analyzing comparable home sales in the subject property's locale. Some comparable factors include; age, lot size, square footage, number of bedrooms and bathrooms, and amenities (pool, upgrades, etc.).

At the end of the day, the market value will have a direct impact on what you will pay for a property. If the value is miscalculated, then you may find yourself overpaying for a property. This could result in a hit to your expected profit.

Rental Market
The fourth component that should be researched before purchasing Arizona investment property is the rental market. Whether your intention is to buy and hold or to fix and flip, it is important to know the strength of the local rental market. For those investors looking for a cash flow investment, the rate of return is largely dependant on this component. How much can you charge for rent in this area? How quickly are properties being rented out? For those primarily looking for a short term fix and flip investment, do not overlook this component. What happens if you are not able to sell your property as quickly as you had intended? This is your exit strategy.

There are 2 main factors to research when studying the Arizona rental market, monthly rents charged and vacancy rates. You may notice significant differences in these factors from one location to another. For example, the Department of Housing and Urban Development's 2011 Estimated Rent Report shows the estimated monthly rent for a 3 Bedroom Property in Phoenix with a 85021 zip code is $1,220 whereas the estimated monthly rent for a 3 Bedroom Property (also in Phoenix) with a 85022 zip code is $1,440. These estimates may have a large impact on where an investor purchases their property.

There are a many resources available to you with information on the Arizona rental market. However as with determining the market value, it is important to consult with a real estate professional or property management company. If you are not sure who to contact in the Arizona real estate market, please feel free to contact Payam Raouf at Arizona Property Management and Investments to get a recommendation.

It is a great time to purchase Arizona investment property; however it is important to do your homework. Now that you are familiar with the key components to purchasing a successful investment, it is time to do your research. Learn how Arizona Investment Property by Arizona Property Management and Investments can assist you in that research.

Arizona home sales propped up by investors

Arizona home sales propped up by investors
Valley landlords buying some houses; hedge funds and equity firms want to buy more

by Catherine Reagor - Oct. 17, 2010 12:00 AM
The Arizona Republic

Investors are dominating metropolitan Phoenix's home-buying market again.

The region's growing supply of inexpensive foreclosure homes is drawing thousands of investors, who can pay cash and close deals fast. The growing supply of renters means those investors can make money off the homes they have scooped up.

The market has drawn a diverse crowd of investors, spurring small-scale landlords to add more homes to their holdings and attracting buyers from around the world looking to get in on a down market.

It also has quietly attracted investment firms that are buying huge quantities of houses in a strategy aimed at reaping big profits from today's low prices. Big investors are showing so much interest that some observers say lenders may soon start selling foreclosure homes in bulk batches, an unprece- dented tactic in metro Phoenix where the homes have always been sold in small groups or one at a time.

Whether the investor-buying trend of the past few months continues at this pace in the Phoenix area depends in some part on the foreclosure moratoriums announced in the past few weeks by a handful of the nation's biggest lenders. So far, many Valley real-estate agents and investors aren't seeing a drop in supply of fore- closure homes for sale or problems finalizing sales on lender-owned homes.

In the past, too many investors hurt Phoenix's housing market. Speculators were blamed for driving up home prices during the area's housing boom of 2004-06.

But now many traditional buyers, who would purchase a single home and live in it, won't buy because of concerns about another dip in home prices or can't because of bad credit.

So market experts say investors are welcome these days; without them, even fewer homes would sell. That would drive home prices down further and likely trigger even more foreclosures.

Investors are behind nearly 40 percent of all Phoenix-area home sales now, according to indus- try estimates, up from about 25 percent in January.

During the next year, Fannie Mae, Freddie Mac and other big lenders are expected to unload tens of thousands of additional foreclosure homes in metro Phoenix, meaning more low-priced properties ready for investors.

Foreclosure homes taken back by lenders are known as REOs, "real estate owned." It's a banking-industry term that has now become a buzzword among buyers and sellers in Phoenix's real-estate market.

"REO inventories have been climbing quickly, up 70 percent since early May," said Mike Orr, publisher of the "Cromford Report," a daily online analysis of metro Phoenix home sales and foreclosures.

"If investors were not active in this market, the situation would be dramatically worse," he said. "Prices would be very much lower, and blighted properties would be deteriorating instead of getting fixed up and resold."

All investors are looking for the best return on their money, whether that means keeping a home as a rental or trying to resell it for a profit. But the huge number of purchases means investors will shape neighborhoods and the resale housing market for years to come.


Classic investors

Julie and Mike Bieganski have bought 10 Phoenix foreclosure homes in the past 15 months.

The couple have lived in the Valley for several years and know the neighborhoods where they are buying. The Bieganskis' strategy is to pay cash for bargain-priced homes in central Phoenix that they can spend less than $20,000 to fix up for renters. Julie is a real-estate agent and finds the homes and renters; Mike handles most of the renovations.

"It's all cash deals now. But if you buy a home for $65,000 and rent it out for $850 to $900, that's a much better return than you would get on your money with a bank," Julie said. "To rent our homes fast, we can list them below current rental rates. With so many displaced people, the rental market will be excellent for years to come."

The Bieganskis already have a renter lined up for their latest foreclosure home, which they closed on less than two weeks ago.

The couple are looking for more to buy.

Julie found a low-priced, lender-owned home in northeast Phoenix last week and was going to make an offer but was unsure if the foreclosure moratoriums would stop or slow a sale.

"I asked the Realtor who has the listing what may happen, and she said everything seems to be fine," Julie said. "There was already another offer on the home. I really think if the folks left the house willingly and let the house go into foreclosure, it shouldn't be a problem to buy it from the lender. There are so many vacant homes out there."

The couple plan to keep acquiring foreclosure homes that fit their strategy and hold onto them longer, profiting on steady rents until they can sell the homes for a considerable profit. Many of their renters can't buy because their own recent foreclosures or short sales, in which banks allowed them to sell for less than they owed, hurt their credit.

If the investor-buying trend continues, some metro Phoenix neighborhoods are bound to have more renters than homeowners living in them. But since many investors are paying cash and fixing up the houses, another foreclosure cycle for those neighborhoods is less likely.

"We try to buy the ugliest home on the block and make it one of the nicest," Julie said. "We are also open to working out deals for people to rent-to-own our homes. We know it's tough to get financing now."


International buyers

Terri and Don Bozok live in Edmonton, Alberta, but were recently in Phoenix shopping for inexpensive houses.

The semiretired couple own a home in Mesa and visit the Valley often. They have seen home prices sag and feel like it's a good time to buy a few fixer-uppers they can renovate and sell quickly.

"We are definitely looking at foreclosures and not short sales because those take too long to negotiate," Terri said. "Because prices are down, we feel like it's definitely feasible we can make a few dollars on homes here."

In April, Canadians passed Californians as the biggest group of out-of-state buyers of metro Phoenix homes, according to the Information Market, a Phoenix-based real-estate data firm.

"Canadians are finding great values in Phoenix homes for their dollar," said Diane Brennan of Scottsdale-based Keller Williams Integrity First Realty. "Some are investing in a home they will rent for a few years and then use as a part-time retirement home."

Phoenix's housing market also is drawing the attention of buyers much farther away than Canada.

"We are seeing an interesting mix of international investors now. Everyone thinks Canadians are the only ones, but we have buyers from Pakistan, Bogota (Colombia) and Israel," said Beth Jo Zeitzer, an REO expert and president of Phoenix-based R.O.I. Properties. "Investors from around the world are seeing the housing deals in Phoenix."

Although some investors have been able to buy foreclosures for prices low enough to resell them quickly for a profit, most investors are buying knowing they will need to hold onto Phoenix homes for at least a few years before prices rebound enough to flip them.


Big groups, big funds

Since last year, G8 Capital has paid cash for more than a hundred metro Phoenix foreclosures homes. The Ladera Ranch, Calif.-based investment firm typically buys Valley foreclosure homes for less than $20,000.

The company led by Evan Gentry, former CEO of MoneyLine Lending Services, has been able to flip some of the Valley foreclosure homes it has bought but is also holding onto other properties and renting them out until home prices climb again.

"We will continue to buy in Phoenix. It's a great long-term market for us," Gentry said. "The foreclosure cycle is far from over, despite any lender moratoriums."

Unlike smaller investors, G8 can buy bulk portfolios of foreclosure homes located across the country from lenders.

"We can buy a portfolio that gives us five foreclosure homes in Phoenix and five in Cleveland," Gentry said. "Our strategies differ by city. We think Phoenix will be a great rental market for a while."

Several out-of-state U.S. hedge funds and investment partnerships are buying Phoenix foreclosure homes. Some of the firms are very low-key about their strategies, partly because they don't want to be seen as "vulture funds" profiting on the real-estate crash.

Most of these large investment firms have had to buy foreclosure properties one-by-one in metro Phoenix. Elsewhere in the country, they have received discounts from lenders when they buy several homes at once.

Zeitzer said when foreclosures started to climb in metro Phoenix in 2008, several groups formed to try to buy portfolios of bank-owned homes in the region. But so many individuals are buying foreclosures that lenders offer few deals to buy multiple Valley properties at once unless foreclosure homes in other parts of the country are acquired at the same time.

"In this second leg of foreclosures, lenders could start to sells homes in bulk to save time and money," Zeitzer said. "Investors are an important part of the market now and will definitely help keep inventories from climbing too fast."

HOA groups in Arizona cutting services, raising fees

For the past six months we have been encouraging our investors to stay away from purchasing single family income producing residential properties in the following cities, Buckeye, Maricopa and Queen Creek. Even though, there are still some pockets in these towns that we might consider at the right price.

Here are the areas we have been recommending:
WEST VALLEY:

North of I-10: Surprise, Avondale, Goodyear, Litchfiled Park, North of Glendale, Peoria north of I-10, West Wing Mountain, Deer Valley area.

South of I-10: Avondale within 1/1/2 miles south of I-10 and Estrella Mountain Ranch

EAST VALLEY: On the edges of Gilbert, Central Chandler, Ahwatukee and some new homes pockets in Mesa, Scottsdale South East of 101 freeway.

NORTH VALLEY: Anthem and North Phoenix

ACTIVE ADULT COMMUNITIES: Sun City Grand

Home Prices in Scottsdale North of 101 have not hit the bottom yet, wait till November and December.

Cities of Buckeye and of Queen Creek are on the verge of Bankruptcy. City of Maricopa seems to be the best of the three.

Payam Raouf



HOA groups in Arizona cutting services, raising fees
Homeowners associations facing own crisis amid foreclosures
by J. Craig Anderson - Aug. 29, 2010 12:00 AM
The Arizona Republic

Thousands of vacant properties and millions of dollars in unpaid dues are taking their toll on Arizona homeowners associations, and homeowners are paying the price.

Over the past 18 months, an estimated 10 percent of the state's million-plus HOA members have abandoned their homes or been forced out by foreclosure, based on data from Arizona's largest community-management firms. Without payments from those members, many HOAs have been forced to raise dues, crack down on late payers and cut back on services.

As a result, the remaining homeowners have become secondhand sufferers in the foreclosure crisis, experts said.

In the most troubled master-planned communities, generally those in recent high-growth areas such as Buckeye, Maricopa and the Hunt Highway corridor near Queen Creek, delinquencies have reached alarming proportions, placing some HOAs under serious threat of bankruptcy.

Should an HOA go bankrupt, prospective homebuyers would not be able to obtain title insurance on the community's homes, making them nearly impossible to buy or sell.

With no contingency plans and little help available from cash-strapped cities and towns, homeowners associations are likely to face money problems for years to come, market analysts said.

"Associations are not designed to have 38 percent delinquencies, or even 20 percent," said Amanda Shaw, president of HOA management firm Associated Asset Management of Phoenix. "They're designed to have a 2 percent to 5 percent delinquency. They are designed to be successful."

Missing instructions

Arizona's estimated 9,000 HOA-managed communities range in membership size from a few dozen homeowners to thousands. Most require homeowners to follow detailed rules. But what they lack is a set of effective instructions telling HOA leaders how to manage when members don't pay.

Until about 15 years ago, HOAs were mainly for condominium projects and retirement communities. But beginning in the mid-1990s, homebuilders began applying the HOA model to nearly all new development on the metro area's fringes.

The HOA model proved useful to developers, he said, allowing them to offer more recreational amenities and maintain strict aesthetic control while they continued to build and sell new homes.

Under state law, each association has the ability to enforce its own rules, known as "covenants, codes and restrictions," which generally require homeowners to keep their property's exterior clean and uniformly decorated and their property free of excessive noise and vehicle traffic. The HOA covenants set regular monthly dues and grant HOAs the ability to raise money for extraordinary expenses through one-time fees known as special assessments.

The covenants also cover procedures for enforcing the rules, which usually begin with written warnings, followed by fines and, in the most extreme cases, home foreclosure. But foreclosure is useless against owners with no equity in their home; the lender receives all sale proceeds, leaving the HOA with nothing.

A recent study by online home-sales portal Zillow.com suggested that two-thirds of Arizona mortgage holders in the second quarter were "underwater," meaning the remaining balance of their loans exceeded the home's market value.

One thing HOAs still can do is pursue delinquent members via bill collectors and the court system, but Chandler resident and HOA member Liz Murray said it doesn't always go as planned.

"Our association went after one of our neighbors to collect $2,700," said Murray, a resident of the 2,100-home Southridge community.

"They won a judgment in court, but then she filed for bankruptcy," Murray said, leaving the HOA at a net loss because of legal expenses.

Delinquency crisis

The more vacancies in a community, the more aggressive an HOA must become to collect money.

At Johnson Ranch, a 6,000-home community along Hunt Highway, southeast of Queen Creek, vacant properties have become so prevalent that it's costing the community $18,000 a week to keep up with the problem, said Debra Campbell, who manages Johnson Ranch Community Association.

So far this year, Johnson Ranch is on pace to see about 1,500 homes change hands because of foreclosure or short sale, up from 1,058 transactions in 2009. Campbell said the HOA has turned that "churn" into a source of revenue.

The association recently introduced a new fee that is assessed every time a home is sold. The $174 fee, known as a "working-capital fee," is charged to both buyer and seller, which means the association gets almost $350 for every turnover.

Campbell said the fee has kept Johnson Ranch's HOA financially viable.

Several Phoenix-area HOA communities have added similar transactional fees, much to the chagrin of real-estate agents.

A law that took effect July 29 may challenge the use of such fees, though industry experts expect a court will need to determine how it applies.

Aside from property-transfer fees, Campbell said, Johnson Ranch has worked to reduce its delinquencies by tracking down current and former members who owe the association money.

Experts said many Phoenix-area HOAs have adopted tactics similar to those used in Johnson Ranch, which include the use of professional bill collectors, process servers and attorneys to track down debtors.

When necessary, Campbell said, her association has been using the courts to garnishee current or former homeowners' wages.

Some residents of the community described the association's tactics as cold-hearted and extreme, given the economic hardship many households are facing because of layoffs and repayment of predatory loans.

"I have been living in Johnson Ranch for five years, always paid my dues and cannot believe the constant harassment from the association," Johnson Ranch resident Michael Masters said. "Do we really need this in this economic hard time? This is the time we need to stick together and look out for each other."

HOA attorney Penny Koepke said it isn't fair to compare HOAs' current collections strategies to those of the past.

"Before, there weren't really that many people who were getting foreclosed on, so there's nothing you can really compare it to," said Koepke, of the Scottsdale-based law firm Ekmark & Ekmark LLC.

Community managers have to hold HOAs together financially, she said, and steep revenue declines have left many managers with limited options.

"We've had some communities where the delinquency rate was 50 to 60 percent and they had to stop providing certain services," Koepke said. "We've had some that have closed the pools, emptied them, because they just couldn't afford them."

Although there are no recorded instances of Arizona HOAs declaring bankruptcy thus far, the home-vacancy problem is widespread enough to cause serious concern, said Steve DeLaveaga, vice president of sales and marketing at Fidelity National Title in Tempe.

"There are over 25,000 homes in our state that are just empty, vacant," DeLaveaga said.

If an HOA did go bankrupt, the most serious consequence would be the inability of prospective homebuyers to obtain title insurance, required for any home purchased with a mortgage loan, he said.

"Title insurers cannot insure a home in an HOA that is bankrupt," DeLaveaga said.

'Self-help'

HOA residents, boards and community managers have few resources to fall back on other than themselves.

West Valley resident Dustin Jones, an attorney who has been working with HOAs and the city of Goodyear on projects to reduce neighborhood blight, is one of thousands of Valley residents who have participated in volunteer efforts to pull weeds and clean up trash and debris inside what Jones called "zombie subdivisions."

"There's like three or four homes in there, and the rest of it is just dead," said Jones, who lives in Litchfield Park.

Johnson Ranch's Campbell, having confronted the problem and developed solutions, is now one of a handful of community managers visiting other developments to teach what she has learned.

At a June meeting organized by Chandler officials, Campbell explained to a group of HOA board members and residents how the Johnson Ranch association's financial situation has improved even though its foreclosure problem has worsened.

Chandler officials at the meeting said they were trying to support HOA communities in various ways, such as by hosting neighborhood meetings featuring speakers like Campbell, in addition to offering limited city resources such as landscaping and cleanup tools.

But with budget deficits of their own to contend with, most cities can't offer what HOAs need most: money and manpower.

"With a $16 million budget shortfall, we're really not able to do all of the things that we'd like to do," said Jennifer Morrison, director of Chandler's neighborhood resource division.

The Arizona Association of Community Managers, the industry group representing management firms, also has committed time and resources since the problems began, including the coordination of a cleanup effort inside the Higley Park community in Gilbert that involved 500 volunteers, industry spokeswoman Laura Zilverberg said.

Campbell said that her firm has organized many "self-help" maintenance groups made up of residents and that management staff have gone beyond what's expected to keep the community safe, even trespassing if necessary to eliminate safety hazards in vacant backyards.

Shaw said associations will continue to do what it takes to help their communities survive until Arizona's economy and job market recover.

Some municipal officials also are trying to figure out how to prevent future HOA meltdowns.

Gail Bosgeiter, Goodyear city code compliance manager, said city leaders are looking into possible new regulations that would keep future HOAs more financially stable.

Linda Lang, CEO of the Arizona Association of Community Managers, said officials probably will have a few years to figure it out.

"Homebuilders are saying the development isn't going to come back until 2013 or 2014," she said.

Just be ready for it.

Team,

There is only one place investors may get 10% plus return on their money and that is buying and holding real estate at these levels in Arizona.

Stocks are down, bonds will tank SOON, banks bankrupt, Fed Bankrupt, (deep)Recession, stagflation, hyper-inflation, war world III around the corner...where the freaking Jiggity would you bury your cash if you don't speak Urdu or Pashtu? Sorry the rail roads are taken! Read this: Remember this dude runs the world’s largest bond fund. Next week we will go over investment strategies. Be at the meeting.

http://www.bloomberg.com/news/2010-08-27/pimco-s-el-erian-says-alarming-data-signals-show-u-s-economy-faltering.html

I have been bombarded with calls from serious investors wanting to re-enter the market in October with a ton of cash...Just be ready for it.

Arizona real estate: Phoenix home prices down

by Catherine Reagor - Aug. 15, 2010 12:00 AM
The Arizona Republic

Home prices in metro Phoenix are falling again, and new data about upcoming sales suggest that they are likely to keep falling over the next few months, bringing concerns of a housing-market "double dip" closer to reality.

Home prices had fallen to a median $119,900 back in April 2009, marking the low point of the region's housing crash. Recent months showed small but steady increases, keeping the price above $130,000.

But in July, the median sales price of a metropolitan Phoenix house fell more than 2 percent, according to the real-estate research firm Information Market. It was the first time the area's median has fallen below $130,000 this year, and the second month in a row that home prices fell.

Pending home-sales data provided to The Arizona Republic show the downward trend continuing.

Thousands of Phoenix-area homes are in escrow. If those deals close at the sales prices listed in their contracts, the region's overall home-sales price will tumble nearly as far as April 2009's low point.

If home prices drop below that mark, most analysts will consider it a double dip. With prices below their previous low point, a housing recovery will be even further away.

July is traditionally a slow month for the Phoenix-area housing market. But there is little data to contradict what pending home sales indicate about where prices are headed.

Instead, several other factors also point to a continuing decline.

The region's recession-battered job market is still weak, meaning few new buyers.

The number of foreclosed homes, which often end up being resold at bargain prices, continues to rise.

And most people who were considering buying anytime soon have likely already bought, getting in on a federal tax credit for homebuyers before it expired in June.

Also concerning to some in the industry is Arizona's crackdown on illegal immigration, which has spurred some people to leave the state.

New residents, who help fuel home buying in metro Phoenix, are no longer moving to the area like they were before the real-estate crash and recession.

"The market is much weaker now than it was a few months ago, with demand down severely almost everywhere," said Mike Orr, who publishes a daily online analysis of Phoenix-area housing called The Cromford Report. "I am currently expecting the average square-foot sales price to fall about 1 percent a month during the next two months. It's anybody's guess after that. It could get quite ugly."

He tracks average square-foot prices because they are less skewed by a few high or low prices. The current average is $87 a square foot, down from $91 a month ago.

Declining prices

The search for a recovery in metro Phoenix's housing market began in April of last year.

Prices had shot up more than 50 percent during the boom of 2004-06, then collapsed amid a mortgage crisis and a local, national and international economic crash.

April 2009 brought the bottom. With the median sales price at $119,900, home values were the lowest they had been since January 2000, according to Information Market. Since then, home prices showed what appeared to be a small, slow recovery. Prices dipped occasionally but never for two months in a row.

Last month changed that. The 2 percent decline was the largest this year.

The Arizona Regional Multiple Listing Service, the home-sales database set up for the state's real-estate industry, now tracks home prices in pending sales agreements.

The index shows metro Phoenix's median home price falling from $128,000 in July to $125,000 this month to $120,000 in September. A slight recovery is expected for October, to $123,000.

The index tracks future home prices by analyzing signed purchase agreements scheduled to close in a given month. The actual median prices for those months may turn out to be slightly higher. The predictions typically run slightly lower than actual sales prices because of last-minute changes to purchase agreements that drive up the final selling prices.

Since most home sales close within three months of a buyer signing a contract, the listing service can track prices and sales from its real-estate-agent members as far out as three months.

"Even with historically low mortgage rates, people in Phoenix just aren't that excited about buying a house now," said Mike Metz, managing director of Scottsdale-based Sun State Home Loans. "More inventory and fewer buyers equals lower prices."

Falling demand

A declining number of home sales indicates that there are fewer homebuyers in the market.

Valley home sales neared record-high levels during the past 18 months as buyers snapped up inexpensive foreclosure homes and houses discounted for short sales. But last month, sales of existing homes dropped 24 percent from June's robust pace. New-home sales in July fell to 534, half their pace in June.

"We have been predicting this kind of contraction as the tax credit expires," said Phoenix home-building analyst RL Brown.

Market watchers say there were fewer first-time buyers last month because of the June 30 expiration of the federal homebuyer tax credit. People who would have purchased later this year or next year rushed to buy to receive the $6,500 to $8,000 credit and are now out of the market.

Investors continue to buy Valley homes, particularly from lenders who have recently foreclosed on them. In July, investors were behind more than 21 percent of all home sales, up from 17 percent the month before, reports Information Market.
"If you aren't selling an inexpensive home, it can be tough to sell in this market," said Jay Butler, director of realty studies at Arizona State University.

Interest rates are near record lows, but it's more difficult to obtain a mortgage now. Also, potential buyers who own homes and can't sell them are stuck until home prices climb.

Rising supply

As demand from homebuyers dropped, the inventory of homes for sale in metro Phoenix climbed. Too many homes for sale and too few buyers will continue to drive down home prices.

There are 43,000 homes listed for sale in the region, up from 41,500 in June and 37,000 a year ago but still well below the record 55,000 homes listed in early 2008, when prices began to plummet.

Still, sales prices are falling, and many of the houses for sale now are lower-priced: one-fourth are foreclosure homes or houses discounted for short sales.

Pre-foreclosures rose 34 percent in July. If many of those homes are foreclosed on and go up for resale, the median price could drop further.

Part of metro Phoenix's home-price plunge can be attributed to foreclosure homes that lenders sold at bargain prices in late 2008 and early 2009.

"So many homeowners and investors are underwater with their homes that foreclosures will continue to lead market pricing," said Deila Mangold, a broker with Scottsdale-based Ideal Homes Realty.

There also is concern that Arizona's new immigration law will cause more legal and illegal residents to leave the state and that many may leave behind homes that will end up in foreclosure.

"Demand for housing is directly related to population," said Ruff, the Information Market analyst. "If there's an exodus due to SB 1070, expect home prices and sales volume to drop dramatically."

Despite the housing market's current setback, many analysts still expect a return to a normal market of steady annual growth by 2015.

For now, market watchers are tracking home sales and foreclosures to determine if prices will drop as far as expected in September and whether they climb again in October as the Arizona Regional Multiple Listing index predicts.

"It's just that there are now far fewer buyers and far more sellers than at this time last year," Orr said. "It's too early to say whether the current setback will be mild, moderate or severe, but there are no encouraging signs in the data from August so far."

Real Estate Market in Arizona August 2010

By: Payam Raouf
Owner/Designated Broker
Arizona Property Management and Investments
888-777-6664 ext 110
info@azezrentals.com

This year renters will be scurrying for shelter in Phoenix Metro Area until the ball drops in NY in 2011.
• Stranded speculators who bought homes for a quick flip at the peak of the market in 2005 and 2006 have been struggling to pay their mortgages. They have simply ran out of resources and no matter what they get for rent is not enough to cover their debt obligations. As the result they are either short selling or having the bank foreclose on them.Bara bing, bara boom and have nice day.
• Many of the homeowners living in their homes currently have thrown in the towel as well. They are too upside down in their homes and they aren't not simply worth keeping, knowing it would take 10 years before they can sell for what they owe on them. Meanwhile they are milking it to the last drop by not paying their mortgages, taxes, HOA fees etc saving as much as they can till they save enough money to move or rent. Short selling seems to do just that for them, so every hour we are having one more. Haleluya and thank you very much.
• Hispanics are vacating homes overnight leaving behind homes full of furniture, appliances, toys and kids bikes! Those homes will be lined up for sales as well. Hasta la vista baby and muchos gracias.
• New home builders such a s Pulte, Centx, KB etc are offering a better solution (kissing the papers again) to first time home buyers. They are sucking a good portion of buyers off the resale market, about 6000 of them last month. The resale inventory keep piling up as the result. Thank you for your contributions.
• The DOW bouncing one thousand points up and down on a monthly basis, long-term bonds losing their desirability, Two hundred and twenty two banks failing since the beginning of 2008, fighting two wars simultaneously, having a un experienced president is not helping the housing crisis in America specially in Arizona. "Xie xie" means "thank you" in Chinese.

Here is what we see happening in the Phoenix Metropolitan housing market.
Rents will continue to go up in most areas and home prices will continue to fall valley wide with no reasonable exit strategy at sight.

Here is economist Dean Baker's solution, proposed more than three years ago. I still haven't heard a good argument against it.

Instead of foreclosing on a loan and evicting the family, the lender should take ownership of the house and rent it out to them at a market rate for an extended period. In many areas, rents are much lower than mortgage payments, so the family can afford to stay put. Eventually, once the market recovers, the bank could sell the house.

What are the benefits of the Baker plan?

• It would reduce the supply of foreclosed homes for sale.

• It would keep neighborhoods intact and maintain home values by avoiding the blight of boarded-up, abandoned houses.

• It would not bail anyone out.

• It would keep families off the street, but wouldn't force them to pay more than the going rate for rents.

What are the drawbacks to the plan?

• It wouldn't work for everyone. Not every homeowner could afford to rent the house they now live in. Many wouldn't want to rent it.

• Banks don't want to be landlords. And they could potentially lose money by not selling the house now. Or not: dumping millions of houses on the market right now wouldn't be prudent, anyway.

• It would be a retreat from the idea that all Americans, regardless of their finances, should be home owners.

Currently as of 8/8/2010, there are 43,560 homes for sale in the phoenix metro area, up 26% since June 1, 2010. We shall see this number reach 55000 and by this year’s end and if no cure possibly 100,000 by end of 2012. There are 17,232 homes in short sale that number is increasing by the minute.

Homes in more desirable area are renting faster. Most desirable rentals are in Surprise, Goodyear, Litchfield Park, North side of Glendale, South part of Peoria,North side of Avondale. Scottsdale, Gilbert, Chandler, Tempe, as well as some parts of Mesa.

The factors affecting rent increases are as follows:

(1) Location, (2) number of bedrooms (4 to 5 bedrooms), (3) amenities, and (4) school district. There is ONLY 3,609 single-family homes in the market today … consisting of 1,803 three-bed rooms, 1,040 four-bed rooms, and 232 five-bed rooms. We are quickly running low on 4/5 bed room homes.

Over a year ago, under $1,000 rentals were very popular. Now, if we get a $2000 to $3000 rental it is gone within hours. We have never seen so many successful business people losing their homes and renting as in the past few months. We shall see a huge drop in luxury home prices valley wide soon.

If you are an investor, it is a good time for picking in certain areas. Stay away from short sales as 70% of them will be bank owned soon. Since there are so many short sales at unreasonably low prices, REOs (bank owned properties) are staying in the market longer and you can get them at a good discount.

Coming October, November, December, there will be thousands of renters in the market. If you start buying now, your house will be ready for rent by then.
If you are planning to rent, don’t wait until the last minute to find a home. It is going to get very difficult to find what you want and if so, you will pay a lot more for it. If you have the financial ability and your house is in the process of a short sale try to rent by the end of October



This is only my opinion based on changes I see in the inventory, requests for showing and application coming to my office. As renters and Investors, you are to do your own due diligent.

Renters in Foreclosure: What Are Their Rights?

Renters in Foreclosure: What Are Their Rights?
Short Sale Seller's Advisory. please copy paste the link below into your address bar. http://www.aaronline.com/documents/ssseller_advisory.pdf

Federal legislation signed in May 2009 gives important rights to tenants whose landlords have lost their properties through foreclosure.

Renters and tenants are now being affected by foreclosures almost as often as homeowners. The mortgage industry crisis that started in 2006 has resulted in thousands -- no, make that millions -- of foreclosed homes. Most of the occupants are the homeowners themselves, who must scramble to find alternate housing with very little notice. They're being joined by scores of renters who discover, often with no warning, that their rented house or apartment is now owned by a bank, which wants them out.

Who Are the Renters?
Renters who lose their homes to foreclosures don't fit a single profile. Many of them live in smaller buildings, condos, and single-family homes. They're located in cities and surrounding suburbs, in low-income and upscale neighborhoods. In short, foreclosed homes are everywhere, and they're rented by people with widely varying incomes, including some with "Section 8" (federal housing assistance) vouchers.

Who Are the Defaulting Owners?
The typical foreclosed home may have originally been owner-occupied, but more often it's owned by investors and speculators who were hoping to profit from the rents. Caught between the slump in housing values and the rise of mortgage interest rates, these owners could not feasibly sell or extract enough rent to cover their monthly costs. In droves, they lost their investments. For example, in Minneapolis and its surrounding suburbs, 38% of the 2006 foreclosures involved rental properties; in Minneapolis alone, 65% were rentals.

Who Are the New Landlords?
When an owner defaults on a mortgage, the mortgage holder, often a bank, either becomes the new owner or sells the property at a public sale. If the bank becomes the owner, it may pay a servicing company to handle the property. But don't expect close attention -- these companies are focused on financial matters, not mundane things like maintenance.

Some renters find themselves with a new owner even before the foreclosure. Lawyers in Massachusetts, for example, contend that many new rental property owners are investment trusts that specialize in purchasing troubled loans directly from banks, then foreclosing, evicting, and selling.

New Owners Means No Maintenance
Many tenants have no idea that their building has been taken at foreclosure. They continue to pay rent to the former owner, who often pockets the money but is hardly inclined to maintain the building it no longer owns. In the meantime, the new owners simply refuse to be landlords, never making repairs or even paying utility bills. Because the banks are stuck with increasing numbers of foreclosed properties that they can't sell, they remain non-landlords for some time, making life impossible for their tenants until those tenants are evicted.

Renters in Foreclosed Properties No Longer Lose Their Leases
Before May 20, 2009, most renters lost their leases upon foreclosure. The rule in most states was that if the mortgage was recorded before the lease was signed, a foreclosure wiped out the lease (this rule is known as "first in time, first in right"). Because most leases last no longer than a year, it was all too common for the mortgage to predate the lease and destroy it upon foreclosure.

These rules changed dramatically on May 20, 2009, when President Obama signed the "Protecting Tenants at Foreclosure Act of 2009." This legislation provided that leases would survive a foreclosure -- meaning the tenant could stay at least until the end of the lease, and that month-to-month tenants would be entitled to 90 days' notice before having to move out (this notice period is longer than any state's non-foreclosure notice period, a real boon to tenants).

An exception was carved out for the buyer who intends to live on the property -- this buyer may terminate a lease with 90 days' notice. Importantly, the law provides that any state legislation that is more generous to tenants will not be preempted by the federal law. These protections apply to Section 8 tenants, too.

Importantly, tenants who live in cities with rent control "just cause" eviction protection are also protected from terminations at the hands of an acquiring bank or new owner. These tenants can rely on their ordinance's list of allowable, or "just causes," for termination. Because a change of ownership, without more, does not justify a termination, the fact that the change occurred through foreclosure will not justify a termination.

Does It Make Sense to Evict Tenants?
New owners may want to terminate existing tenants because they believe that vacant properties are easier to sell. Common sense suggests otherwise. In many situations a building full of stable, rent-paying tenants will be more valuable (and command a higher price) than an empty building. Emptied buildings are also prone to vandalism and other deterioration -- after all, no one is on site to monitor their condition. When entire neighborhoods become a wasteland of empty foreclosed multifamily buildings, their value drops even further. It's hard to understand why new owners choose to pay lawyers to start eviction procedures instead of paying a modest fee to a management company to collect rent and manage the property while they wait to sell.

"Cash for Keys"
To encourage tenants to leave quickly and save on the court costs associated with an eviction, banks offer tenants a cash payout in exchange for their rapid departure. Thinking that they have little choice, many tenants -- even Section 8, protected tenants -- take the deal. It doesn't help them much as they join the swelling ranks of newly displaced tenants (and former homeowners) who are competing to find an affordable new rental.

What Can a Foreclosed-Upon Tenant Do?
Thanks to the 2009 federal legislation, most tenants with leases will keep their leases, and month-to-month tenants will have at least 90 days to relocate. Tenants with leases have no legal recourse against their former landlords, because they are in the same position vis a vis the new owner as they were with the old: The lease survives and ends as it would had there been no foreclosure. Similarly, month-to-month tenants always know that they can be terminated with proper notice, and 90 days is longer than any state's termination period.

However, a lease-holding tenant whose rental has been bought by a buyer who want to move in to the property ends up less fortunate than before the new law -- he may lose his lease with 90 days' notice, a result that probably would not have happened had the owner simply sold the property to a buyer who intended to occupy the property. (Normally, the new owner has to wait until the lease ends, absent a lease clause providing for termination upon sale, though such clauses may not be legal in all situations.)

Suing in Small Claims Court
A lease-holding tenant who has to move out so that new owners may move in might consider suing their former landlord in small claims court. Here's how it works.

After signing a lease, the landlord is legally bound to deliver the rental for the entire lease term. In legalese, this duty is known as the "covenant of quiet enjoyment." A landlord who defaults on a mortgage, which sets in motion the loss of the lease, violates this covenant, and the tenant can sue for the damages it causes.

Small claims court is a perfect place to bring such a lawsuit. The tenant can sue the original landlord for moving and apartment-searching costs, application fees, and the difference, if any, between the new rent for a comparable rental and the rent under the old lease. Though the former owner is probably not flush with money, the awards in these cases won't be very much, and the court judgment and award will stay on the books for many years. A persistent tenant can probably collect what's owed eventually.

For more information on suing a landlord in small claims court, see Everybody's Guide to Small Claims Court or Everybody's Guide to Small Claims Court in California, by Ralph Warner (Nolo).

by: Janet Portman, Attorney

In foreclosure crisis, demand for family homes in Phoenix rises

Arizona Republic
CATHERINE REAGOR

People looking for family-size houses to rent in Phoenix-area neighborhoods have far fewer choices.

Since September, the number of available rental homes in metropolitan Phoenix has dropped by 40 percent, and probably even more than that when it comes to three- to four-bedroom homes in desirable neighborhoods.

The sharp drop is another ripple effect of the foreclosure crisis.
At first, foreclosures increased the number of houses in the rental market. And people who lost homes to foreclosure or short sales, or who just walked away from underwater mortgages, found they could rent similar-size houses, often in the same neighborhood, for less than their mortgage payment.

In many of the region's newer neighborhoods, even tenants with bad credit could negotiate lower rents and how long they wanted to stay.

The sharp drop is another ripple effect of the foreclosure crisis.
At first, foreclosures increased the number of houses in the rental market. And people who lost homes to foreclosure or short sales, or who just walked away from underwater mortgages, found they could rent similar-size houses, often in the same neighborhood, for less than their mortgage payment .

In many of the region's newer neighborhoods, even tenants with bad credit could negotiate lower rents and how long they wanted to stay.

But in the past few months, as more of those former owners became renters, demand for those three- to four-bedroom rental homes climbed. And as lenders foreclose on more homes but are slow to resell them, the number of available houses has dropped. When houses do come on the rental market, rents are rising and landlords of family-size homes are receiving multiple offers and filling houses in days.
"The demand for single-family rentals is clearly outstripping the supply, causing an unprecedented fall in the inventory of available rentals," said metro Phoenix housing analyst Mike Orr, who publishes the Cromford Report. "The trend shows no sign of stopping."

Orr said many Phoenix-area apartment complexes still are having a tough time attracting tenants, but rental agencies managing homes have waiting lists.

Rental search
Melissa Flores is a mother of three who lost her Avondale home to foreclosure in January. Ever since then, she has been looking for a house near her children's elementary school. Flores has made offers on more than a dozen three-bedroom homes in Avondale and Surprise. But each time she lost out to other renters who were either willing to pay more or had better credit records.
"I knew people who lost homes and rented houses blocks from their old home," she said. "I thought at least I could keep my kids close to their school and friends."
Eight months ago, according to Orr, there were 5,460 rental houses listed on the Arizona Regional Multiple Listing Service. Now, there are about 3,100. Not all metro Phoenix rentals are listed on the MLS, but market watchers say rental activity on the Realtor-run site is representative of the overall market.
"The rental market is really tight for decent-sized homes now," said HomeSmart real-estate agent
Brett Barry.
Barry recently searched north Phoenix for a family who lost a home in the area to foreclosure. There were only four houses available with monthly rents that the family could afford. Six months ago, Barry said, the family would have been able to choose from at least 20 rentals in the area.

The rental market isn't nearly as competitive for small houses or condominiums, market watchers say.
Dave Zundel, co-owner of Phoenix rental-management firm HomeLovers, said many investors immediately opt to buy lower-end homes, thinking those houses will draw the most renters.
In fact, he said, the upper- to middle-income type of home currently is considered the rock-solid investment for landlords.
"We don't have enough of those homes available for rent now," Zundel said.

Forecast
Metro Phoenix foreclosures and short sales hit a record in March. But the number of rentals available for the displaced homeowners from those deals isn't climbing at the same pace.
Flores heard that more three-bedroom homes may soon be up for rent in her old neighborhood as investors like the one who bought her home turn houses into rentals.
A year ago, investors were buying a few thousand homes each month and turning them into rentals. But now, lenders are holding on to more of their foreclosure homes as they work to catch up on a backlog of delinquent mortgages. So, the number of houses in the pipeline to possibly become rentals has dropped.
What had only recently become a pattern among displaced homeowners - renting in their old neighborhood - is now far less of an option. And even when houses come on the rental market, rents are now running close to or above comparable mortgage rates.
"If the rental inventory continues to fall in this way," Orr said, "it is very likely that average rents for homes will start to rise in the not-too-distant future, something that hasn't happened for a very long time."

RENTS ARE GOING UP IN PHOENIX, ARIZONA.

By: Payam Raouf
Designated Broker
Arizona property Management and Investments
www.AzEzRentals.com
888-777-6664 EXT 110

Hang on to your seats folks….put on your seat belts and sit tight. Rents are going up.

I do feel kind of bad for some tenants but it is time for homeowners to see some positive cash flow or at least not to go as deep into their pockets to pay their mortgages each month.

If you have a desirable home, you are in the drivers seat to pick and choose your tenants!

Most desirable homes:
Desirable SCHOOL DISTRICTS Such as: Surprise, Peoria, Litchfield, Goodyear, Glendale, Scottsdale, Gilbert, Chandler, Mesa and a few others depending on their zip codes.
2400 to 3000 sq ft
4 to 5 bedrooms + loft ( preferable one bedroom/full bath down stairs)
Nice curb appeal and landscaped in the back
Upgrades and all appliances included
POOL a big plus.( $150 to $200 added value)

I see these homes going $400 or $500 over asking prices. We are seeing more lawyers, doctors, successful business people and even high ranking military generals renting now and betting on these homes driving rents through the roof. Homes renting for $2400 today rented for $1700 last year if that!

If you have a similar house in a not as much desirable school district, rents have gone up slightly maybe by $50 to $100 per month.

On the flip side, we are seeing tenants in lower end rentals (under $800, 3 bed rooms, far out places) moving back into cheaper condos or two families moving into a bigger house (5 bed rooms) together.

Condos are still suffering....but not for too long. I see a turn around soon.

Last month I was astounded by the number of calls I got from investors wanting to buy 20, 30 homes in Glendale. Looks like the frenzy is back…..BUT, let me warn you, stay away from multifamily (under 20 units and less than 70% 2 bed rooms) and small cheap old homes in run down areas….THEY DON’T RENT AS WELL....AND MAY TAKE YOU DOWN WITH THEM.

As I have said again and again, your best buying opportunity is 4 to 5 bed room,(2400-3000 sq ft) homes in good school districts between $130,000 to $170,000 (built after 1991 in established areas or 2000 and newer in semi established neighborhoods). You get the biggest bang for your buck. They rent faster and for a lot more, better tenants and higher appreciation. Instead of buying thirty, $40,000 to $50,000 homes buy ten $150,000 homes. IT IS YOUR BEST BET, in my humble opinion.

DO NOT SELL, SHORT SALE OR FORECLOSE ON YOUR HOME YET! THIS IS THE LOWEST POINT OF THE MARKET. WAIT IF YOU CAN. BUT IF YOU HAVE TO, LET US HELP YOU. WE SELL IT WITH OUR TENANTS IN PLACE TO OTHER INVESTORS.

We have extended most of our leases and it seems going forward they renew again. THIS IS NOT A GOOD TIME TO SELL, IT IS A GOOD TIME TO BUY AND AVERAGE OUT YOUR LOSSES IF YOU BOUGHT AT THE HIGH.

WE ARE IN THE FRONT LINE OF THIS__(whtaever it is!)__. WE SEE WHAT IS RENTING FOR MORE OR NOT AT ALL. WE SEE GOOD BUYS ALL DAY LONG. IT IS TIME TO GET BACK INTO THE WATER, IF YOU ASK ME. PLAY IT SAFE AND GOOD LUCK.

Arizona Rental and Investment Market Condition March 2010.

Houston, we have a problem!
by: Payam Raouf, Associate Broker

There is no rim or reason what the market will do these days. You put a house for rent for $1200, it rents for $1500. You think you can get $1500 for this other one for sure, it brings $1200.

A house in El Mirage brings multiple offers and goes for $10,000 plus over the asking price, A similar one in a much better neighborhood in Surprise, sells for $10,000 less!

Oh, before I forget, I am approaching 50, Big banks are now renting their foreclosed inventory. Bank of America has been in it for a while, Chase is to follow and I heard Freddie Mac is taking applications from Property Management Companies.

In the rental market we see larger homes 2000 to 3000 sq ft, with extra amenities and preferably a pool in desirable neighborhoods flying off the shelves for few hundred more than the actual market price. Furnished rentals with two or three bed rooms are renting quickly as well. On the opposite end, the less expensive inventory need a lot more marketing to rent. We are talking about the 3 and 4 bed room homes in the outskirt of Phoenix. Condos only if they are in good neighborhoods and have tons of amenities, other wise it is a very tough market. Small cheap apartments, forget about it! You have to get really creative on those to rent.

First time home buyers are leaning more towards new homes in good neighborhoods where prices have gone down substantially like Stetson Valley, North Phoenix and Surprise.

As the result investors are now focusing more on the $130,000 to $200,000 price range in more established neighborhoods with better school districts, staying away from the small 3 bedroom homes, condos and apartments. The rule of thumb is, you should get 1% rent of your purchase price per month. For example: If you pay $150,000 for a property, you should get $1500 a month for it to make sense.

We also see a lot of buyers from the East Coast and Canada buying homes here now to move into when they retire. Prices went up by approximately 3 to 5 percent from November 2009 to February 2010. It seems they are going side ways in March.

My recommendation is:
if you are a seller, wait if you can.
If you are a qualified first time home buyer, get on it today and close before April 31, 2010.
If you are an investor, take it slowly, do not rush. find the right property. You a have 90 day window till the dust settles. BACK TO , LOCATION, LOCATION, LOCATION.

If you are a tenant,
Find the right property that fits your life style for the next few years. Ask your Realtor to check the foreclosure status of the property and secure a long term lease as the rents are going up.

Los Angeles and Phoenix posted the largest price increases in December 2009.

Home prices rise 0.3 percent in December, the 7th monthly gain

On Tuesday February 23, 2010, 9:28 am EST

MIAMI (AP) -- Home prices rose for the seventh straight month in December, a sign of price stability as the U.S. housing market continues its bumpy road to recovery.

The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday rose 0.3percent from November to December, to a seasonally adjusted reading of 145.87. The index was off 3.1 percent from December last year, nearly matching analysts' estimates that it would fall by 3.2 percent.

Only five of 20 cities in the index showed declines from November to December. The index is now up more than 3 percent from its bottom in May, but still 30 percent below its May 2006 peak.

Los Angeles and Phoenix posted the largest price increases. The worst performer was Chicago with a 0.6 percent decline.

Rising prices are a key to the nation's economic recovery because they make homeowners feel wealthier and more comfortable to spend money. Consumer spending accounts for more than two-thirds of all economic activity.

Price increases also help rebuild equity for homeowners who currently owe more on their mortgages than their properties are worth. Roughly one in three homeowners with a mortgage are now in that position, according to Moody's Economy.com.

The housing market is seeking stability as it bounces back from a four-year recession. Sales of previously occupied homes fell almost 17 percent in December, the largest monthly drop in 40-years of record-keeping, the National Association of Realtors said. Data for January will be released Friday, with analysts forecasting a 1 percent rise.

Sales of newly built homes are expected to rise 5.3 percent in January, after declining sharply a month earlier. The Commerce Department will release new data on Wednesday.

On a quarterly basis, U.S. home prices fell 2.5 percent compared with the fourth quarter of 2008.

The Case-Shiller indexes measure home price increases and decreases relative to prices in January 2000. The base reading is 100; so a reading of 150 would mean that home prices increased 50 percent since the beginning of the index.

Significant drop in pre-foreclosures posted in January, raising hopes for positive trend

Correct, the numbers right now are, "follow the bouncing ball" and will continue to change in either direction for the next eight to ten months. By Q4 2012 we will begin full recovery mode. This for now will be the normal trend, but indicators show we have hit a soft market bottom that will build a bumpy base for the next 18-24 months. Payam


Feb. 9, 2010 04:37 PM
by Catherine Reagor
The Arizona Republic .

January's significant drop in pre-foreclosures is the indicator many metropolitan Phoenix housing-market watchers have been anxiously looking for during the past several months.

For the first time since November 2008, the monthly tally of Valley homeowners to fall behind on their mortgages and face foreclosure is below 7,000. Actual foreclosures dropped as well, although their decline wasn't as dramatic.

Last month, there were 6,762 pre-foreclosures, or notice-of-trustee-sale filings, against Phoenix-area homeowners, according to the real-estate data firm Information Market. That is a 14 percent drop from the 7,879 pre-foreclosures filed by lenders in December. Pre-foreclosures hit a record 10,689 in March.

Metro Phoenix foreclosures, or trustee sales, dipped to 4,452 during January. That's down from the 5,244 homeowners who lost houses to foreclosure in December.

Monthly foreclosures have been hovering between 3,800 and 5,300 during most of the past 18 months, except in April, when they fell to 3,100. That drop was due mostly to a short-term federal moratorium on foreclosures.

Last month's drop in foreclosures could signal more successful loan modifications. The drop in pre-foreclosures could signal that more homeowners were able to make their payments or that lenders are being more proactive and working with struggling homeowners before they fall behind on their payments. February's foreclosure activity could cement or reverse either trend.

Loan legislation

A bill has been introduced to prohibit excessive fees on mortgages and the issuance of certain types of high-cost home loans in Arizona.

Senate Bill 1288, introduced by Sen. John Nelson, R-Glendale, calls for limiting negative-amortization mortgages as well as balloon payments and pre-payment penalties on most other mortgages. The Arizona attorney general backs the legislation, which is aimed at preventing another foreclosure crisis in the state.

Key to economic recovery: Curbing rate of foreclosures

Key to economic recovery: Curbing rate of foreclosures
By Catherine Reagor - Jan. 24, 2010 12:00 AM
The Arizona Republic


Before renewing efforts to build a new economic model, Arizona needs to first fix the battered foundation of its devastated growth-reliant housing economy.

That means bringing down foreclosure rates, which continue to drive down home values. Unstable home values undercut the larger economy by discouraging potential new residents and businesses. And Arizona homeowners, builders and investors with money tied up in the housing market are virtually paralyzed until values stabilize.

There are concrete ways to help the housing market recover through combined efforts from government and business. A stable housing market could pave the way for future growth that is more sustainable. Immediate steps include more help for struggling homeowners, greater use of federal money for neighborhood stabilization, diversification of Arizona's mighty home-building machine with a focus on different kinds of residential development other than fringe suburbs.

Metropolitan Phoenix has been hit harder by the national housing crash than any other part of the country because of the area's dependence on real estate.

• Home prices plummeted more than 50 percent in two years. Foreclosures hit a record 55,000 last year.

• Home building is down 85 percent since 2005.

• More than 200,000 construction jobs have disappeared since the home-building peak; unemployment is now 9.1 percent.

• The area's population has fallen since 2007, the first such decline since the Great Depression.

Fallout from the housing-market crash has contributed to an anticipated state budget deficit of $3.2 billion for fiscal 2011. Phoenix's battered housing sector must be stabilized before the region's overall economy can be mended. And to prevent a repeat of Arizona's painful boom-and-bust scenario, the area's housing-dependent economic model must be overhauled.

Along with new tactics, this will require more cooperation between government and business.

Collaboration can increase the impact of federal housing money intended to shore up battered neighborhoods and retool development that values a range of new housing.

For example, Arizona's influential real-estate industry groups, including the homebuilders, could direct some of their resources and lobbying efforts to help consumers. Arizona's real-estate groups and businesses have the power, money and member expertise to do a lot to stem foreclosures, revitalize neighborhoods and help the housing industry evolve.

There will be pain felt by those reliant on the old growth model. But if the housing industry could work with government to pool resources, that would help more homeowners, save and create jobs, stabilize the economy and position Arizona for future growth.

"Arizona's problems are not just cyclical, like markets. They're structural," said John Graham, president of developer Sunbelt Holdings and the Urban Land Institute Arizona, a growth think tank. "Fast growth cycles are a thing of the past. We need to adjust and plan for slower and more sustainable growth."

Here are some immediate ways to stabilize the housing market.


Slow foreclosures

The first task is to curb foreclosures. Arizona continues to be one of the top three states in foreclosure rate.

Research shows that keeping more people in their homes stabilizes families, neighborhoods and the economy. National foreclosure-prevention programs hosted by big non-profits and lenders in the past year have not been as successful as many hoped. Government and business leaders, particularly those affiliated with lenders, have the power to push for more home-loan modifications backed by the federal government.

Arizona's budget deficit means the Arizona Housing Department is dealing with huge budget cuts and smaller staff when there is a need for more financial counseling for homeowners.

Housing non-profits receive federal funding for each homeowner they assist. Struggling homeowners are directed to these non-profits through Arizona's foreclosure hotline. However, the number of homeowners calling the help line isn't keeping pace with the rise in foreclosures, suggesting that many struggling homeowners don't know about the free help. Fewer calls mean Arizona won't receive all its federal funding. Housing counselors, real-estate agents and attorneys working on foreclosures say most struggling homeowners don't know about free help. Arizona's business community has the ability to spread the word.

Struggling homeowners also need more time. Other states have placed moratoriums on many foreclosures because government and housing advocates found that homeowners asking for help or in the process of receiving loan modifications were still foreclosed on.

Loan modifications for metropolitan Phoenix homeowners continue to lag and fail. A growing number of homeowners in the middle of negotiating with their lenders still lose homes to foreclosure because of problems with the process.

A foreclosure-moratorium program in Arizona, along with a private/public partnership group to review pending foreclosures, could substantially reduce foreclosures.


Better regulation

Weak regulation of Arizona's lending and real-estate industries led to poorly conceived mortgages that contribute to the state's foreclosure problem.

Not every industry that plays a big role in the sale of a home is even regulated. Confidence and stability in the system could improve if all segments of the real-estate industry were regulated equally.

During the boom, more than 10,000 Arizona loan officers operated with no regulations; they weren't even screened for criminal backgrounds. Bad mortgages, illegal mortgages and mortgage fraud perpetrated or assisted by unscrupulous loan officers became too common.

Even existing safeguards are weak. Arizona real-estate and lending regulators face huge budget cuts like other state agencies. The state Appraisal Board has no full-time inspectors. Budgets for investigations done by the Arizona Department of Financial Institutions and the Arizona Department of Real Estate have been slashed.

A bill to license loan originators passed in Arizona two years ago and is supposed to become effective this summer. However, the state agency charged with enforcing the law doesn't have the funds to administer the criminal-background checks.

Arizona's real-estate regulation could be improved if state agencies had investigators who were paid through increased licensing fees or fines collected for violations.

A group of Arizona appraisers are now pushing for new regulations in their profession. There is strong support from others in Arizona's real-estate industry for better regulation. However, if there is no money for more regulation and enforcement of current laws, industry leaders could help with more self-regulation.

Recently, a former Scottsdale real-estate executive was sentenced to six years in prison and ordered to pay $6 million in restitution to his firm. He was charged with embezzling $11 million through phony real-estate deals from his former employer. The executive's employer conducted its own internal investigation and handed the case over to the Arizona attorney general.

Empty homes

Phoenix's record number of empty homes presents other opportunities for stabilizing the housing economy.

Vacant properties often mean blight and crime for neighborhoods and drag down home values. Many empty homes today are foreclosure properties, abandoned by owners and neglected by lenders. Others are empty rentals. Some are unsold new homes.

Federal funds are available to rehabilitate, sell and utilize more than 80,000 empty homes across the Phoenix area. Doing so would create jobs and help stabilize neighborhoods and home values.

Arizona will soon receive $118 million in federal funding to help neighborhoods hit hard by foreclosures, which follows $121 million from last year. The money is aimed at people willing to take on foreclosure properties as their primary residences. But those prospective homeowners, often stretched for cash, are now in competition with investors.

Arizona could take steps to curb housing speculation and support more homeowners willing to help build neighborhoods. Lenders, especially government-owned Fannie Mae, could give such people preferential treatment.

Cities and non-profit housing groups also could convert abandoned homes into affordable rentals for people who have lost homes to foreclosure or into group homes for the elderly and handicapped. Such projects would allow local government, non-profits and builders to tap federal funding designed to provide different types of housing.

Industry overhaul

Metropolitan Phoenix needs more new residents to stabilize its housing industry.

A more diversified housing stock - including more apartments, affordable housing and mixed-use projects that reuse foreclosure homes in established areas - would offer alternatives to more acres of single-family homes in ever more distant suburbs. Again, federal money is there to help.

The building industry can reshape itself and metro Phoenix's growth pattern by shifting the long-standing focus on edge developments to include a greater variety of housing to attract and retain a greater variety of people.

Such a shift in focus could include, for example, reusing homes and vacant land in foreclosure and would provide construction jobs and help struggling neighborhoods and people by providing more affordable housing.

There are national grants and federal funding to help the building industry change its focus. The Arizona State University School of Construction and ASU's Stardust Center for affordable housing can both help find funding and provide training and design services to help the building industry evolve. Both entities are already working on innovative plans for different types of housing developments. They just need more builders and lenders willing to take them on.

Arizona cities can help by expediting building permits for these new types of projects. In the past, it's been easier to get plans approved for basic single-family homes built in expanding suburbs.

No quick fix

The housing industry can't rely on Arizona's old model for growth. No one in Arizona can rely on annual 50 percent home price run-ups again.

Many housing-industry leaders are working to overhaul their operations to meet current market reality.

The head of one prominent Arizona homebuilder has said his firm will never pay a high price for a huge chunk of land on Phoenix's fringes where there is no other development because it's no longer what the region needs, homebuyers want, or a money-making move.

Estimates now are that it will take more than five years for metro Phoenix's home values to climb back toward their highs of 2006. But recovery won't begin until more jobs are created, foreclosures slow and the building industry regroups.

How to Profit from the Biggest Housing Bust
Since the Great Depression


I remember when $7 trillion was a big number. That was the “wealth” Americans lost — peak to trough — in the dot.com bust in the early 2000s. Apparently, we were just warming up…

According to the Federal Reserve’s Flow of Funds, we just set a new record for wealth destruction as household net worth shrank by $12.7 trillion since 2007. That’s more than the annual economic output of any country in the world, except ours. And it comes close.

So what to make of another bust? Why, a bargain hunting extravaganza, of course!


“Buy at the point of maximum pessimism,” famous value investor Sir John Templeton once said. And he made quite a few hundred million for himself doing just that. I think the point of maximum pessimism would be about now and for the next year or two. Certainly, housing is priced for the end of the world. If they’re right, it’s a moot point. The world ends, and you don’t have to pay off the mortgage.

But if they’re wrong and this is just another chapter in our manic-depressive history, now is a good time to buy. But don’t just take my layman’s psychology for it. Take a good look at the numbers.


Almost Free Real Estate
Real estate is so cheap in some parts of the country right now, it’s almost free. Nationwide, prices for existing homes are down 20% since 2006. That’s according to the
National Association of Realtors, a massive, entirely biased and shameless lobbying group and the biggest bubble boosters since Alan Greenspan. So their numbers are probably padded. But even if you take them at face value, a 20% fall is HUGE in a country where they long bragged real estate had never fallen nationwide…not by a single percent.

Add to that the fact that most people in 2006, were buying with 10% down, 5% down, 3% or zero down and getting 3% back to buy the property (103% financing) you can see how many people from the peak years are automatically underwater. They owe more than the house is worth. And in the worst markets around the country it’s absolutely brutal.


From Bad to Best


Former boom markets now are the biggest busts and in many cases offer the best values. The time to buy these markets wasn’t when everyone and their aunt had a real estate license and the

shoe shine boy was talking “flips.” The time to buy is now, when no one wants to know nuthin’
about real estate.


That’s the case in South Florida, California, Nevada, and Arizona to name a few of the worst hit
— and best value — markets today.


In 2007, the median value of a house in Los Angeles was $593,600. Today it’s $311,100. That’s a
47% fall. In Las Vegas, the median has plunged 52%, from $297,700 to $141,800. And in Cape
Coral, Florida, from $252,100 to $84,000, a 69% crash! Here is a look at some of the hardest hit…

Busted: America’s Hardest Hit Housing Markets


Metropolitan Area 2007 2008.II 2009.II 1 Yr
Change Change from
07
U.S. 217.9 206.4 174.1 -16%
NE 288.1 272.3 246.0 -10%
MW 161.4 160.7 146.8 -9%
SO 178.8 176.9 158.6 -10%
WE 342.5 289.7 212.6 -27%
Akron, OH 119.3 106.5 88.0 -17% -26%
Cape Coral-Fort Myers, FL 252.1 178.1 84.0 -53% -67%
Chicago-Naperville-Joliet, IL 276.6 257.6 204.3 -21% -26%
Deltona-Daytona Beach- Ormond Beach, FL 192.3 173.4 127.2 -27% -34%
Grand Rapids, MI 129.4 112.5 86.5 -23% -33%
Lansing-E.Lansing, MI 126.8 108.4 81.2 -25% -36%
Las Vegas-Paradise, NV 297.7 235.3 141.8 -40% -52%
Los Angeles-Long Beach- Santa Ana, CA 593.6 418.9 311.1 -26% -48%
Miami-Fort Lauderdale-Miami
Beach, FL 365.5 310.2 207.4 -33% -43%
Ocala, FL 164.6 147.6 110.2 -25% -33%
Orlando, FL 261.3 223.5 149.2 -33% -43%
Palm Bay-Melbourne- Titusville, FL 183.6 148.0 104.1 -30% -43%
Phoenix-Mesa-Scottsdale, AZ 257.4 205.1 131.1 -36% -49%
Providence-New Bedford-Fall
River, RI-MA 286.5 269.2 215.7 -20% -25%




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eno-Sparks, NV 3 21.4 274.4 192.1 -30% -40%
Riverside-San Bernardino- Ontario, CA 379.5 265.2 161.5 -39% -57%
Sacramento--Arden-Arcade-- Roseville, CA 342.8 229.5 177.5 -23% -48%
Saginaw-Saginaw Township
North, MI 82.1 80.3 55.7 -31% -32%
San Diego-Carlsbad-San
Marcos, CA 588.7 434.9 347.1 -20% -41%
San Francisco-Oakland- Fremont, CA 804.8 684.9 472.9 -31% -41%
San Jose-Sunnyvale-Santa
Clara, CA 836.8 755.0 500.0 -34% -40%
Sarasota-Bradenton-Venice, FL 310.9 266.4 175.8 -34% -43%
Tampa-St.Petersburg- Clearwater, FL 214.9 180.8 140.9 -22% -34%
Tucson, AZ 244.8 215.9 174.1 -19% -29%
Washington-Arlington- Alexandria, DC-VA-MD-WV 430.8 371.1 319.2 -14% -26%
Worcester, MA 274.6 247.3 220.3 -11% -20%


Key Reasons for Taking a Hard Look at the Hardest Hit Residential Real
Estate Markets


It’s not just the fact that houses have fallen so hard so fast that makes them an excellent value in many areas. There are two other key reasons:

1. Many houses are selling below replacement value

2. Many houses are selling at unprecedented cash-flow prices

On top of that, you have a few compelling secondary reasons to buy now. These are…

• Interest rates are extremely low.

• The prospects for a resurgence of inflation over the next five to 10 years are good.

These are secondary reasons because even without them, the primary reasons make housing in many parts of the country an excellent investment right now. What’s more, the low interest rates may not last. And inflation may never take hold again with a vengeance. That’s unlikely but a possibility. Even without these boosters, however, houses in many parts of the country should
do well in coming years because of their phenomenal discount to replacement cost and the



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significant cash flow they offer.


Let’s look at replacement costs first.


Houses in Many Parts of the Country Are Selling for Less than Replacement Value

Many homes are selling at prices below replacement value. For instance, take an
1,100 square foot house in a working class neighborhood not far from where I live. This home sold for $150,000 at the peak and now the bank is ready to unload it for
$50,000. The mark-down from the former high is impressive. But the discount to replacement value is the key. That (and
the cash flow we’ll cover in a moment) is
what gives you a great margin of safety.



Careful with the Condos!


Condos have also suffered mightily. In Miami, Fort Myers and Las Vegas they’re down over
60% from their peaks. In Sacramento, over 55%. But we’re covering single family homes in this report. There are amazing opportunities in single condos, but you have to know how to research the condo association and make sure you’re not buying into a mostly vacant complex or one in serious financial trouble…so that you don’t end up buying a maintenance fee that is about to skyrocket! But that’s a house of a different color, as they say. So, for now, we are honing in on single-family homes because there is great value to be found in this segment and they have many advantages for first-time investors.


For instance, if we use a construction price of $125 a square foot, it would cost $137,500 to build the house brand new. Granted the current house is 50 years old, but the electric was recently updated and it’s solid CBS construction (concrete block and stucco) and sits on a nice fifth
of an acre corner lot. You could put a new roof on the house, install new windows and doors, completely renovate the kitchen and two baths, put in new floors, paint inside and out and put in new landscaping and fencing — all for less than $50,000.


Making an 1100 Square Foot House Like New*

Roof 1200 sf ($500/square*) $6,000
12 New windows $2,400
3 New exterior doors $1,200
500 sf of new wood floors $3,000
600 sf of new tile floors $1,800
New central AC $4,500
Exterior Painting $2,000
Interior Painting $1,500
Landscaping $1,500
Fencing $1,500
Lighting $2,000
Miscellaneous $5,000
Renovate two bathrooms $7,000
Renovate kitchen $10,000
Total $49,400
*In roofing a square is 100 square feet. So 1,100 square feet is equivalent to 11 squares. For this 1,100 square foot house we posit
1,200 square feet to accommodate for the overhang of eaves and some waste. The $500/square estimate is on the high side for a new shingle roof, including labor and materials. Depending on the condition of the roof and the kind of shingles you use, it’s possible you could do it for considerably less. 4

*All prices include labor and materials and are medium-high estimates.


The house would be like new once again for a total cost of about $50,000 less than it would cost to build it from scratch. And that doesn’t count the value of the land!

Now, that doesn’t mean you do all these repairs on every property you rehab. Nor would you necessarily spend this much. Even if you did all this work, you may spend considerably less if you’re experienced or a good shopper. It simply goes to show how houses are selling at prices
far below their intrinsic value when measured by their replacement cost. There is no limit to how high things can sell for in a bubble. But in a bust, there comes a point where you see you can
pick up assets for far less than what they’re likely to be worth in the long term. This is one of those times.


Houses Are Selling at Great Cash Flow Prices


One of the great things about real estate is that you can buy it with mostly borrowed money and then have your tenants pay off the loan. But only if you buy at a good cash flow price. If a house pulls in $1,500 in rent a month and you pay $450,000 for it, you will not cash flow no matter how high an occupancy rate you run or how low you keep your expenses. That’s because you paid too much as a multiple of rent.

The term is Gross Rent Multiplier (GRM). It’s the price you pay for the house divided by its gross annual potential rent. In the above example the gross annual rent was $18,000. Divide the price of the house by that rent and you get 25. That’s the GRM you paid.

And that’s way too high if you want a cash-flow property!


Instead, if you want to cash flow and are putting 20% down, you should pay no more than ten times rent. In markets with low to reasonable property taxes and insurance, you should cash flow a little at that ratio. But if you have higher levels of taxes and insurance (like in South Florida), with a GRM of 10, you may just break even. To be more comfortable, buy at a GRM of eight or better. From six and below, you’ll typically cash-flow like an ATM!

And these GRMs are available today in many markets. In some markets, even lower. To see the GRMs we’ll use HUD’s fair market rents for a three bedroom property in various markets and compare them against the average home price in that area. Today, these markets have also
experienced falling rents, but not nearly as quickly as property prices have fallen. So their GRMs have come down, often very sharply. And that means that many markets that didn’t come close to cash flowing a few years ago now cash-flow like rivers.












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Many Markets Are Turning into Cash Cows

Metropolitan Area Median Home Value Monthly
Rent* Annualized
Rent GRM**
Akron, OH $88,000 $969 $11,628 7.6
Cape Coral-Fort Myers, FL $84,000 $1,398 $16,776 5.0
Chicago-Naperville-Joliet, IL $204,300 $1,240 $14,880 13.7
Deltona-Daytona Beach-Ormond Beach, FL 127,200 $1,226 $14,712 8.6
Grand Rapids, MI $86,500 $956 $11,472 7.5
Lansing-E.Lansing, MI $81,200 $963 $11,556 7.0
Las Vegas-Paradise, NV $141,800 $1,478 $17,736 8.0
Los Angeles-Long Beach-Santa Ana, CA $311,100 $1,907 $22,884 13.6
Miami-Fort Lauderdale-Miami Beach, FL $207,400 $1,542 $18,504 11.2
Ocala, FL $110,200 $1,040 $12,480 8.8
Orlando, FL $149,200 $1,317 $15,804 9.4
Palm Bay-Melbourne-Titusville, FL $104,100 $1,234 $14,808 7.0
Phoenix-Mesa-Scottsdale, AZ $131,100 $1,338 $16,056 8.2
Providence-New Bedford-Fall River, RI-MA $215,700 $1,151 $13,812 15.6
Reno-Sparks, NV $192,100 $1,488 $17,856 10.8
Riverside-San Bernardino-Ontario, CA $161,500 $1,559 $18,708 8.6
Sacramento--Arden-Arcade--Roseville, CA $177,500 $1,499 $17,988 9.9
Saginaw-Saginaw Township North, MI $55,700 $815 $9,780 5.7
San Diego-Carlsbad-San Marcos, CA $347,100 $1,883 $22,596 15.4
San Francisco-Oakland-Fremont, CA $472,900 $2,350 $28,200 16.8
San Jose-Sunnyvale-Santa Clara, CA $500,000 $2,068 $24,816 20.1
Sarasota-Bradenton-Venice, FL $175,800 $1,465 $17,580 10.0
Tampa-St.Petersburg-Clearwater, FL $140,900 $1,215 $14,580 9.7
Tucson, AZ $174,100 $1,174 $14,088 12.4
Washington-Arlington-Alexandria, DC-VA-MD-WV $319,200 $1,745 $20,940 15.2
Worcester, MA $220,300 $1,185 $14,220 15.5

* Fair Market Rent per HUD 2010 tables for 3 bedroom rental properties
** Gross Rent Multiplier = Price/(Gross Annual Rents)


To get an idea of how dramatic the change is, consider this. In 2006, Los Angeles was trading at
a GRM of 30.5. That was impossible to cash flow. Now it’s just 13.6. And if you’re a sharp buyer




6

in that market focusing on foreclosures or bank owned properties you can now begin to find
properties at 10 times rent or below.


Similarly, Cape Coral reached a GRM of 24 in 2006, Las Vegas was at 21, and Riverside, CA was at 30.5! None made sense on a cash flow basis. Now they’re all in cash-flow territory and Cape Coral is at an unbelievable level — trading at just five times rent! At those kinds of prices, you can get incredible yields. You can then put yourself in line for serious capital gains down the road. Take a look:

Cape Coral Cash Cows

Purchase Price (Median Price Q209)


$84,000
Repairs Reserves and Closing Costs $16,000
Total Investment $100,000
Cash $25,000
Loan $75,000

Monthly
Annual
Rent (FMR rent for 3BR House 2010) $1,398 $16,776
Vacancy and collection losses (10%) $140 $1,678
Net Rents $1,258 $15,098
Property Taxes (2%) $140 $1,680
Insurance $42 $500
Maintenance $125 $1,500
Lawn/snow removal $75 $900
Licenses/fees $15 $180
Miscellaneous $50 $600
Total Expenses $447 $5,360

Net Operating Income
$812
$9,738

Mortgage payment (7%, 30 years)
$508
$6,093

Cash flow
$304
$3,645

Cash Yield (annual net cash flow divided by $25,000 cash investment)

14.6%

That’s a killer yield. But when you add the appreciation you can see over the years, plus added equity you’ll gain in amortization (if you’re holding it for the long term), you can get some very nice total returns.





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Specifically, even if the market recovers in very moderate fashion over the next decade you could make three to four times your money.

As an example, we’ll look at a market not quite as cheap as Cape Coral. We’ll look at one trading at, say, seven times rent. And since you’re a diligent researcher and selective investor, you end up doing a bit better than the average. You buy at six times rent.

To put numbers to it, we’ll say the median priced home is now $105,000, and it rents for $1,250 a month (or $15,000 annualized for a GRM of 7). But you’re a sharp buyer and get a little better deal, and pick up a bank-owned property or foreclosure for $90,000.

You’re going to put down 20% ($18,000) and put aside $10,000 for closing costs, reserves and some light fix up. So your total cash investment is $28,000. The mortgage on your property is
$72,000 (80% of the purchase price). Let’s say you have good credit so you get an interest rate of
6% on a 30-year fixed rate loan. So your mortgage payment is going to be $432 a month.


(If you have lousy credit and no cash, you can still invest in real estate. Obviously, it takes more work but it is entirely doable. You just have to learn another skill: bringing investors together. That can mean equity investors or debt investors or both. We may cover that in other reports, but for now we’re running the numbers the simplest way.
If you put together your own financing through private parties, the same ideas apply. The one key difference is you may pay a couple of percent more in interest. But if you’re buying right, that’s OK. You can still do well.)

Here’s how the numbers might look…


An Example of Double Digit Yields
When Buying at Six Times Rent

Purchase Price $90,000
Down Payment $18,000
Loan $72,000


Gross Potential Rent
Monthly
$1,250
Annual
$15,000
Vacancy & Collection Losses (10%) $125 $1,500
Net Rents $1,125 $13,500
Expenses
Taxes (2%)

$150

$1,800
Insurance $38 $450
Lawn Maintenance/Snow Removal $75 $900
Repairs & Maintenance $150 $1,800
Licenses $10 $125
Advertising $10 $120




8


iscellaneous $25 $300
Total Expenses $458 $5,495

Mortgage Payment
$432
$5,184

Net Cash Flow
$235
$2,821

Total Initial Cash Investment (Down Payment +
$10,000 for closing costs, reserves & initial repairs)

$28,000

Cash on Cash Yield (annual net cash flow divided by initial cash investment)

10.1%

We don’t have as quite a good yield as we had in Cape Coral, but it’s still very good. Even
after conservatively budgeting for reserves and initial repairs at the purchase and budgeting for vacancy and maintenance in the rental period, you end up with a 10% yield on your money!


A Strong Cash-flow Property Pays You a Strong Yield Now But Also Lets You
Hold It through a Recovery and Benefit from Leveraged Appreciation


Now let’s see what happens when you sell. Let’s say this is for retirement and you sell it in
10 years. We’ll also suppose real estate in the area appreciates by just 3% a year — about the long-term inflation rate. (With the government printing money like confetti, it’s very possible housing will appreciate at a much higher rate once the market bottoms. But we’ll stick with a 3% projection for this illustration.)

Since your house was worth $105,000 when you bought it (you got a discount, remember), we’ll start with that number and compound it at 3% a year for 10 years. (We’re going to round to the nearest thousand to keep things simple.) At the end of that time, your house is now worth
$141,000. The balance on your mortgage has fallen to $60,000. Let’s assume you pay $10,000 in commissions and closing costs when you sell. In that case you’ve turned an initial $28,000 into
$71,000 in net equity after 10 years! Plus you picked up over $28,000 in net rental income in that time. So you turned $28,000 into over $99,000 in 10 years.

$141,000 Sale Price minus $60,000 in mortgage balance minus $10,000 in commissions and closing costs = $71,000

$28,000 in net rental income + $71,000 in net equity = $99,000


That’s the power of leverage on a well managed income-producing investment.

Now imagine you happened to buy in an area that grows in popularity. It might be a formerly down-at-the-heels downtown that has been revitalized, or a neighborhood that becomes




9

increasingly popular because of its schools. In that case, you might very realistically see 5%
annual appreciation because you had an eye for “location, location, location.”


Now your house would be worth $171,000. You net equity would be $101,000. Add in the net rents and you’ve turned $28,000 into $129,000 in 10 years. Now let’s say you do just three of these puppies and you’ve turned a portfolio of about $100,000 into $400,000 in 10 years.

That’s about a 16.5% compounded annual return — even if the stock market goes nowhere.


Investing in Houses Can Be Fairly Tax Efficient


Plus, you’d do pretty well on taxes. The cash flow would likely be tax-free or nearly tax-free. That’s because you get to use depreciation (a non-cash charge) to reduce your taxable income on the house. And when you sell the house, your gains are taxed at the lower long-term capital
gains rate. Also you can do things like a 1031 Exchange that could defer your capital gains taxes
indefinitely.


Last but not least, you could do all this in your Self-directed IRA for even greater tax savings and to put money “locked” in your IRA to better use than you may feel you’re getting with stocks currently.

But can you do even better? Absolutely.


Going from Individual Investor to General Partner


When you learn how to make money for yourself this way, you can begin to make money for others. Then you can bring private investors into your deal. Once you learn how to use good professional property management as well, there is no limit to the amount of deals you can do.

You can have investors bring most of the down payment and other investors furnish the debt financing. The equity investors get the benefit of leverage without personally being on the note themselves and without the work and expertise required to find and negotiate a good deal, close it, get the property “performing” (producing income near its capacity) and eventually liquidate the investment. All they do is write you a check. Their liability is limited to the amount on that check and their returns can be excellent.

Your debt investors meanwhile can get an interest rate much higher than from banks or investment- grade bonds or dividend yielding stocks. And they get it with the security of good collateral.


From Single Family Homes to Small Multi-Families, Large Apartment
Buildings, Office Parks, Public Storage Facilities and More


Real estate offers many different categories in which you can invest. And each category has sub categories. For instance, there is residential real estate. This includes single-family homes as well




10

as small residential properties (from duplexes to four unit). These are all financed by the same
types of commercial banks. When a property has more than four units, it falls into the commercial category, involving different types of lenders, different requirements and terms for financing and different rules on disclosure, investor protection etc. Then, of course, you also have large apartment complexes as well as condos and co-ops. And that’s just a quick overview of residential.

You can also look into various types of retail: single store, strip mall, large mall, shopping center, or “anchored” shopping center (with a national name like Target or Home Depot drawing traffic for all the other tenants). Then you’ve got office buildings and office parks. You have warehouses and even warehouse condos. You have trailer parks (providing huge cash yields, often north of
20%) where residents own their trailers and others where they rent the land and the trailer from you. Then there’s industrial, specialty (like gas stations), public storage spaces (probably the greatest dollars per square foot property investment you’ll find when done right).

On top of the types of property, there are dozens of major strategies: from straight out cash purchases to leveraged deals, from lease options to leasebacks, sale-backs, triple net investing, rehabbing, repositioning, land-banking, and conversions (from apartment to condos or vice versa), just to name a few.

All these property types and strategies can offer great opportunities. But they all have different challenges and require very specific knowledge. We’ve focused on single-family houses and renting them out for three to 10 years in this report. We’ve done that as an introduction to real estate but also because — even if you’re an experienced investor in commercial real estate — there are such compelling deals on single family houses today, that you may seriously want to consider picking up at least one or two even if you’re working full time on bigger property deals.

Also, if you haven’t done real estate before, single-family homes offer a pretty straightforward way to cut your teeth and make some money. When you buy in a bombed-out market, as we have today, with the intent of renting your houses out for three to 10 years, you can keep your risk
very low while profiting from net cash flow, amortization (the reduction of the loan balance) and
leveraged appreciation.


That’s the kind of real estate I did initially — from single-family homes to 4 unit properties.
Only after I had success with these and my shares of ups and downs, did I feel confident to invest
in value markets outside of my state. This helped me make money when Florida was a bubble and offered no more values. It also gave me a bit more confidence for when I finally made the move up to larger apartment buildings.

But for experienced and new investors alike, residential real estate offers some unique advantages:

• Residential real estate has fallen the farthest in many parts of the country, offering the best values.
• If you’re investing for the very long term, say 10 to 20 years, just three or four investments in single family homes could produce enough wealth for you to retire with a significant net worth…and a steady retirement income.




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• You can manage your own rental homes. If you have up to three or four houses, it
doesn’t have to be difficult or time-consuming. Plus, the skills you’ll learn with hands-on management of your initial modest portfolio can come in handy later if you expand to bigger properties. You may end up with 50 to 500 units one day and the principles you learned managing your first few houses will still apply to larger properties and make it easier for you to “manage your managers.”
• Tenants pay the utilities. With many multi-unit properties, even small ones, some of the utilities may be paid for by the landlord…especially water and heat. Granted, you charge a bit higher rent in those cases but the tenants aren’t going to be as cost-conscious when using electricity or water if they never see the bill and especially if they never pay the bill. With single-family homes, you usually won’t pay any utilities.
• Houses are relatively easy to rent. There is a large market of people for clean, safe and affordable rentals in the single-family home area. It’s not like you’re trying to rent out retail space during a recession. People gotta live somewhere. Of course, you have to be sensitive to local economic conditions and adjust your rents and deposit requirements to remain
competitive in the market, but as long as you do that, you should always be able to maintain a high occupancy.
• Houses are relatively easy to sell. Right now, nothing is easy to sell. But we’re buying during economic crisis to sell later, when the economy is growing again. And single-family homes are the largest segment of the real estate market. When the time comes to sell, you may find a lot more potential buyers than if you were unloading a trailer park or storage facility.
• Interest rates are very low today (if you know how to get the money). Interest rates right now are dirt-cheap. And even if you can’t qualify for a bank loan to buy an investment property… if banks in your area simply aren’t lending on investment properties…low interest rates also mean you can get good terms from private lenders. So where you might have paid a private lender 10% to 12% during the boom, today you may find one who is thrilled to finance your deal at 7.5% — especially when he’s getting less than one percent on his savings at the bank.

So if you’re just getting started in real estate or want to keep things simple, give some thought to single family-homes. When you learn how to buy right, adding just one, two or three of these to your portfolio can result in extraordinary profits down the road.

If you want to keep your risk low while pursuing those profits, here are a few good guidelines:


A Success Check List

• Focus on one or two target markets. (You’re more likely to find excellent deals when you thoroughly research one or two areas.)
• Buy cash flow only. (Run the numbers like we did and make sure you budget for vacancy and maintenance. Also have ample reserves on hand when making the investment.)
• Do your research so that you can buy at or below market value. (Go online to your local property tax assessor’s website or work with a real estate agent so you know comparable values very well in the market you’re buying.)