Please Contact Payam Raouf at 888-777-6664 ext 111 to purchase investment properties in Phoenix Metro Area.
Why 2011 May Be the End of the Housing Crash
by Simon Constable
Monday, February 28, 2011
The Wall Street Journal
There might finally be some good news this year about the nation's dismal housing market. Or, at least, the bad news could stop.
Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006.
For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets.
But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn't necessarily mean owning a home.
First, let's recap the economic signs a bottom is close.
Houses Are a Good Deal
Housing is the most affordable it has been in decades, according to analysts at Moody's Analytics. They don't just look at house prices. They also look at incomes.
Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years' pay, although that varies nationally.
At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in "real terms" than they were typically during the period 1989 through 2003.
The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months.
In the end, it will be affordability that will drive people to buy homes.
"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.
It is definitely bullish. But what about timing?
"Housing prices will probably bottom in 2011," says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.
Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that's small. Consider this: In some markets, home prices have fallen by half or more since 2006.
For instance, in once-hot Miami you can snap up an average house for under $166,000, according to recent data from the National Association of Realtors. That's down from $371,000 in 2006. Another 5% drop would take it to $158,000.
Investors Stepping Up
Here's another sign the market is nearing a bottom: Investors have started to buy up houses and condos, in some instances paying entirely in cash. That's a far cry from the heady bubble days when borrowed money seemed the key to riches. The bubble-era speculators who got burned tended to buy at the peak and borrowed heavily to do so. When the crash came, they quickly saw their wealth erased.
Take Miami again. Last year, more than half of all transactions were made entirely in cash, according to a recent report in The Wall Street Journal. That compares with 13% of deals in the last quarter of 2006, the height of the bubble. Similarly, in Phoenix 42% of sales in 2010 went to all-cash buyers, up threefold since 2008.
It's a sign that these investors are betting on a rebound. Investors buying at current prices are looking for deals, or so-called bottom fishing. They typically like to pay entirely in cash (or with a relatively small loan) to speed up transactions. That can be vital for an investor wishing to lock in a deal fast.
If this is a turn in the market, then it might make sense to go out and buy a home. But, warns Pimco's Mr. Simon, "buy in areas you really know."
Plan to Stay Put
Buy and hold. While the good news is that the worst of the housing crash might be over, the bad news is that the fast gains of the glory days of 2005 and 2006 won't be back any time soon. So to cover the costs of buying and selling, and what could be a prolonged recovery, plan to own for more than 10 years, explains Jack Ablin, chief investment officer at Chicago-based Harris Bank.
Also remember that borrowing money to buy a house can still be risky. If you pay for a $100,000 property with $20,000 cash and borrow the rest, a dip in the value of $20,000 would leave you with zero equity. On top of that, you'd have to pay to maintain and repair the property, something not necessary when renting.
Monday, February 28, 2011
Sunday, February 20, 2011
Should You Rent Out Your House or Sell It?
Contact Payam Raouf, Owner and Associate Broker of Arizona Property Management and Investments for a free consultation at 623-776-5774. Thank you.
Real Estate by Aleksandra Todorova (Author Archive)
Should You Rent Out Your House or Sell It?
In most cases, moving means selling one's home. After all, it's usually a necessary step in affording a new home.
But for various reasons some people choose to rent out their homes instead. In some instances, people know that they'll be leaving only for a year or two — perhaps while they pursue a graduate degree or take on a specific project at work. Sometimes the would-be seller simply can't sell at a price deemed acceptable, so he or she chooses to hang on until the market picks up. Or, if property values are rising, an owner may want to wait to be able to ask for a higher price later.
Whatever the reason, it's important to have a healthy grasp of the financial issues at play when weighing this decision. Here's what you need to consider.
The Tax Issues When You Sell
As you probably know, Uncle Sam provides a generous tax break for those who've lived in their home for at least two of the past five years. Married couples who file jointly can earn up to $500,000 in capital gains tax-free, while singles can enjoy $250,000 in tax-free gains. (For more on this, including exceptions to this rule, click here.)
Good news: Those who are planning on renting out their home for just a year or two will still be eligible for these breaks (provided they've lived in their home for at least two of the past five years). Should they sell more than three years later, however, they forgo the tax exemption, meaning their gain would be taxed as a capital gain.
Consequently, for those whose renting plans would turn a tax-free gain into a taxable one, it is probably wise to sell. The rule of thumb is if you have a large gain on your personal residence, you don't want to rent it out. There is an exception, however: If you're willing to move back into the house and live there for two years before you sell, you'll requalify for the exemption.
The Tax Issues When You Rent Out
Becoming a landlord also offers some handsome tax perks. While rental income is taxed as ordinary income, your tax bill could easily be eliminated thanks to the numerous deductions on expenses and depreciation. There is, however, one major exception: If you eventually sell the house and qualify for the capital-gains tax exemption discussed earlier, you'll be taxed on the amount you depreciate, which could make renting out your home considerably less attractive.
Let's talk expenses first. You can deduct pretty much any out-of-pocket expenses related to owning and managing the property. This includes your mortgage interest payments and property taxes (same as if this were your primary residence). It also includes other expenses, like advertising or broker fees, the costs of repairs to the property, maintenance expenses such as cleaning services, utilities and management company fees, the cost of fire and liability insurance, and even travel and local transportation expenses incurred for the maintenance of the property and collection of rent.
Then there's the "phantom deduction" called depreciation. Just divide the fair market value of the property at the time you start renting it out (excluding the cost of land) by its recovery period — which is 27.5 years for residential rental property. Bingo! There's your annual depreciation. For example, if the home is worth $550,000, you divide that by 27.5 and get a $20,000 annual deduction. If you have another $10,000 in out-of-pocket expenses, which are also deductible, you can get $30,000 in rent tax-free.
Improvements can't be deducted, but you recover their cost by depreciation. The good news is, you typically depreciate the cost of any appliances, carpeting, furniture or plumbing over only five years. So if you buy a new $1,000 dishwasher for your rental, you can deduct $200 a year from your rental income for five years. (This is pretty complicated stuff, so be sure to talk with a CPA before you file your returns.)
Renting Out
Pros
• Keep property as it appreciates
• Tax-breaks could offset income tax on rent
• Rent income covers mortgage, taxes and insurance payments
Cons
• Possible damages to property
• Could be taxed on the whole profit if you sell
• Potential legal or financial problems with tenants
Selling
Pros
· Likely tax-free capital gain
· Frees up equity that could be invested or rolled into new home
· Simplicity: Only one house to maintain
Cons
· Could be priced out of market if you want to return
· Lose potential property appreciation
· Could have to sell at a bad time for real-estate market in your area
Can You Afford to Rent?
For many homeowners, renting out a home is simply not a viable option; they need to sell in order to raise the capital necessary to buy their next home. And owning two homes requires deep cash reserves. Consider, for example, that there may be periods in which you have no renter or when a tenant may skip one or two months of rent. You have to figure out whether you will be able to make mortgage payments anyway.
There's also the risk that a tenant could damage your property or cause problems that lead to an expensive eviction process. Frighteningly, an eviction could cost you several thousands of dollars, or more, and could last as long as 18 months, during which time the tenant is likely to refuse to pay rent. So you need to be financially prepared for the worst.Is the House Likely to Appreciate?
If you expect prices in your area to soar markedly over a three-year time span, you may want to rent it out. But keep in mind that, historically speaking, real estate tends to appreciate at the rate of inflation (roughly 3% annually), so even when property values are in an upswing, that doesn't mean they'll continue to be.Look at the house as an investment, and think of it as part of your overall portfolio. Ask yourself: Am I diversified enough? If the majority of your net worth would be tied up in your two houses, you need more diversification, and you could be better off selling the house and investing the profit.Is It a Hot Rental Market or a Hot Sales Market?
Sometimes the market is better for sellers than for landlords. Call your local board of Realtors or a real estate agent and have them appraise the house; get the numbers for the rental and the numbers for the sale. Generally speaking, it will make sense to rent the house out only if it's in a relatively stable market and the income from rent will cover your mortgage and other related expenses.Do You Ever Plan to Come Back to the Same Area?
If you want to return to the same area years from now, you could be priced out of the market if you sell your house. It would therefore make sense to rent it out.Strangers in Your Home
Consider how comfortable you are with tenants living in your home. If you have a deep personal connection with the property, you may see it as an invasion of your space. If you set out to rent it, you must be prepared to handle the process in a businesslike manner.
Are You Cut Out to Be a Landlord?
Becoming a landlord isn't for the faint of heart. What happens if a pipe breaks and you're out of state on vacation? Being an absentee landlord is impossibly difficult unless you have someone to oversee the property. If you're willing to part with 10% of the monthly rent, you could hire a property-management company to do it. Depending on your agreement, it could take care of everything related to the property — from putting it on the market and screening your tenants to collecting rent, maintaining the property and even taking care of your mortgage.
Should you decide to seek the services of a management company, go through your local chapter of the National Association for Residential Property Managers, which represents managers of single-family homes, or through your state's or city's apartment owners association if you own an apartment.
Contact Payam Raouf, Owner and Associate Broker of Arizona Property Management and Investments for a free consultation at 623-776-5774. Thank you.
Real Estate by Aleksandra Todorova (Author Archive)
Should You Rent Out Your House or Sell It?
In most cases, moving means selling one's home. After all, it's usually a necessary step in affording a new home.
But for various reasons some people choose to rent out their homes instead. In some instances, people know that they'll be leaving only for a year or two — perhaps while they pursue a graduate degree or take on a specific project at work. Sometimes the would-be seller simply can't sell at a price deemed acceptable, so he or she chooses to hang on until the market picks up. Or, if property values are rising, an owner may want to wait to be able to ask for a higher price later.
Whatever the reason, it's important to have a healthy grasp of the financial issues at play when weighing this decision. Here's what you need to consider.
The Tax Issues When You Sell
As you probably know, Uncle Sam provides a generous tax break for those who've lived in their home for at least two of the past five years. Married couples who file jointly can earn up to $500,000 in capital gains tax-free, while singles can enjoy $250,000 in tax-free gains. (For more on this, including exceptions to this rule, click here.)
Good news: Those who are planning on renting out their home for just a year or two will still be eligible for these breaks (provided they've lived in their home for at least two of the past five years). Should they sell more than three years later, however, they forgo the tax exemption, meaning their gain would be taxed as a capital gain.
Consequently, for those whose renting plans would turn a tax-free gain into a taxable one, it is probably wise to sell. The rule of thumb is if you have a large gain on your personal residence, you don't want to rent it out. There is an exception, however: If you're willing to move back into the house and live there for two years before you sell, you'll requalify for the exemption.
The Tax Issues When You Rent Out
Becoming a landlord also offers some handsome tax perks. While rental income is taxed as ordinary income, your tax bill could easily be eliminated thanks to the numerous deductions on expenses and depreciation. There is, however, one major exception: If you eventually sell the house and qualify for the capital-gains tax exemption discussed earlier, you'll be taxed on the amount you depreciate, which could make renting out your home considerably less attractive.
Let's talk expenses first. You can deduct pretty much any out-of-pocket expenses related to owning and managing the property. This includes your mortgage interest payments and property taxes (same as if this were your primary residence). It also includes other expenses, like advertising or broker fees, the costs of repairs to the property, maintenance expenses such as cleaning services, utilities and management company fees, the cost of fire and liability insurance, and even travel and local transportation expenses incurred for the maintenance of the property and collection of rent.
Then there's the "phantom deduction" called depreciation. Just divide the fair market value of the property at the time you start renting it out (excluding the cost of land) by its recovery period — which is 27.5 years for residential rental property. Bingo! There's your annual depreciation. For example, if the home is worth $550,000, you divide that by 27.5 and get a $20,000 annual deduction. If you have another $10,000 in out-of-pocket expenses, which are also deductible, you can get $30,000 in rent tax-free.
Improvements can't be deducted, but you recover their cost by depreciation. The good news is, you typically depreciate the cost of any appliances, carpeting, furniture or plumbing over only five years. So if you buy a new $1,000 dishwasher for your rental, you can deduct $200 a year from your rental income for five years. (This is pretty complicated stuff, so be sure to talk with a CPA before you file your returns.)
Renting Out
Pros
• Keep property as it appreciates
• Tax-breaks could offset income tax on rent
• Rent income covers mortgage, taxes and insurance payments
Cons
• Possible damages to property
• Could be taxed on the whole profit if you sell
• Potential legal or financial problems with tenants
Selling
Pros
· Likely tax-free capital gain
· Frees up equity that could be invested or rolled into new home
· Simplicity: Only one house to maintain
Cons
· Could be priced out of market if you want to return
· Lose potential property appreciation
· Could have to sell at a bad time for real-estate market in your area
Can You Afford to Rent?
For many homeowners, renting out a home is simply not a viable option; they need to sell in order to raise the capital necessary to buy their next home. And owning two homes requires deep cash reserves. Consider, for example, that there may be periods in which you have no renter or when a tenant may skip one or two months of rent. You have to figure out whether you will be able to make mortgage payments anyway.
There's also the risk that a tenant could damage your property or cause problems that lead to an expensive eviction process. Frighteningly, an eviction could cost you several thousands of dollars, or more, and could last as long as 18 months, during which time the tenant is likely to refuse to pay rent. So you need to be financially prepared for the worst.Is the House Likely to Appreciate?
If you expect prices in your area to soar markedly over a three-year time span, you may want to rent it out. But keep in mind that, historically speaking, real estate tends to appreciate at the rate of inflation (roughly 3% annually), so even when property values are in an upswing, that doesn't mean they'll continue to be.Look at the house as an investment, and think of it as part of your overall portfolio. Ask yourself: Am I diversified enough? If the majority of your net worth would be tied up in your two houses, you need more diversification, and you could be better off selling the house and investing the profit.Is It a Hot Rental Market or a Hot Sales Market?
Sometimes the market is better for sellers than for landlords. Call your local board of Realtors or a real estate agent and have them appraise the house; get the numbers for the rental and the numbers for the sale. Generally speaking, it will make sense to rent the house out only if it's in a relatively stable market and the income from rent will cover your mortgage and other related expenses.Do You Ever Plan to Come Back to the Same Area?
If you want to return to the same area years from now, you could be priced out of the market if you sell your house. It would therefore make sense to rent it out.Strangers in Your Home
Consider how comfortable you are with tenants living in your home. If you have a deep personal connection with the property, you may see it as an invasion of your space. If you set out to rent it, you must be prepared to handle the process in a businesslike manner.
Are You Cut Out to Be a Landlord?
Becoming a landlord isn't for the faint of heart. What happens if a pipe breaks and you're out of state on vacation? Being an absentee landlord is impossibly difficult unless you have someone to oversee the property. If you're willing to part with 10% of the monthly rent, you could hire a property-management company to do it. Depending on your agreement, it could take care of everything related to the property — from putting it on the market and screening your tenants to collecting rent, maintaining the property and even taking care of your mortgage.
Should you decide to seek the services of a management company, go through your local chapter of the National Association for Residential Property Managers, which represents managers of single-family homes, or through your state's or city's apartment owners association if you own an apartment.
Contact Payam Raouf, Owner and Associate Broker of Arizona Property Management and Investments for a free consultation at 623-776-5774. Thank you.
Saturday, February 5, 2011
Former homeowners flooding rental market.
Cheaper to buy than to rent in 72% of largest U.S. cities
Trulia: Former homeowners flooding rental market
BY INMAN NEWS, MONDAY, JANUARY 24, 2011.
Inman News™
Despite the rising number of renters across the country, it is cheaper to buy a home rather than rent one in 72 percent of the 50 largest cities in the U.S., according to an index released by real estate search and marketing site Trulia.
"Since the start of the 'Great Recession,' many former homeowners have flooded the rental market. Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets," said Pete Flint, CEO and co-founder of Trulia, in a statement.
"Though necessary for achieving true economic recovery, stricter bank lending practices have also further aggravated the struggling housing market in the short term. Even highly qualified homebuyers face intense scrutiny on their income, savings, existing debt and credit history before they can get a mortgage loan."
Trulia's rent vs. buy index compares the median list price with the median rent on two-bedroom apartments, condominiums and townhomes listed on Trulia.com as of Jan. 10, 2011.
A price-to-rent ratio of 1 to 15 means that it's much cheaper to buy than to rent in a particular city. A ratio between 16 and 20 means that it's more expensive to rent than to buy, but, depending on the family's situation, buying could "make financial sense," the site said. Any ratio above 20 indicates that owning is much more costly than renting in a city.
In 36 out of 50 of the country's most populous cities, buying a two-bedroom home is less expensive than renting one. These cities include many areas that have been hit hard by foreclosures, such as Las Vegas, Phoenix and Fresno, Calif.
Top 10 cities to buy vs. rent:
Rank City State Price to Rent Ratio
1. Miami Fla. 6
2. Las Vegas Nev. 6
3. Arlington Texas 7
4. Mesa Ariz. 8
5. Phoenix Ariz. 8
6. Jacksonville Fla. 8
7. Sacramento Calif. 10
8. San Antonio Texas 11
9. Fresno Calif. 11
10. El Paso Texas 11
Source: Trulia
In 10 cities, renting is cheaper, but buying might make more financial sense, according to Trulia. These cities include Los Angeles, Boston, and Fort Worth, Texas.
The index considers the total cost of homeownership compared to the total cost of renting. Calculations for the total cost of homeownership include mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase, homeowner’s association dues, and private mortgage insurance. The homeownership cost calculation also includes tax advantages from mortgage interest, property tax and closing-cost deductions.
Calculations for total rental cost include rent and renters insurance.
The total cost of homeownership was highest, compared to the cost to rent, in New York; Seattle; Kansas City, Mo.; and San Francisco.
Top 10 cities to rent vs. buy:
Rank City State Price:Rent Ratio
1. New York N.Y. 31
2. Seattle Wash. 24
3. Kansas City Mo. 21
4. San Francisco Calif. 21
5. Memphis Tenn. 20
6. Los Angeles Calif. 20
7. Fort Worth Texas 19
8. Oakland Calif. 18
9. Portland Ore. 18
10. Albuquerque N.M. 18
Source: Trulia
"Although owning a home is relatively more affordable in most cities, market conditions have caused an interesting demographic swap between traditional renters and buyers," said Tara-Nicholle Nelson, consumer educator for Trulia, in a statement. Nelson is also an Inman news columnist.
"For example, lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of longtime homeowners are finding themselves tenants -- some by choice and others by necessity."
Through newly acquired startup Movity, Trulia created interactive maps comparing each city's population, projected job growth, and unemployment and foreclosure rates.
Trulia: Former homeowners flooding rental market
BY INMAN NEWS, MONDAY, JANUARY 24, 2011.
Inman News™
Despite the rising number of renters across the country, it is cheaper to buy a home rather than rent one in 72 percent of the 50 largest cities in the U.S., according to an index released by real estate search and marketing site Trulia.
"Since the start of the 'Great Recession,' many former homeowners have flooded the rental market. Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets," said Pete Flint, CEO and co-founder of Trulia, in a statement.
"Though necessary for achieving true economic recovery, stricter bank lending practices have also further aggravated the struggling housing market in the short term. Even highly qualified homebuyers face intense scrutiny on their income, savings, existing debt and credit history before they can get a mortgage loan."
Trulia's rent vs. buy index compares the median list price with the median rent on two-bedroom apartments, condominiums and townhomes listed on Trulia.com as of Jan. 10, 2011.
A price-to-rent ratio of 1 to 15 means that it's much cheaper to buy than to rent in a particular city. A ratio between 16 and 20 means that it's more expensive to rent than to buy, but, depending on the family's situation, buying could "make financial sense," the site said. Any ratio above 20 indicates that owning is much more costly than renting in a city.
In 36 out of 50 of the country's most populous cities, buying a two-bedroom home is less expensive than renting one. These cities include many areas that have been hit hard by foreclosures, such as Las Vegas, Phoenix and Fresno, Calif.
Top 10 cities to buy vs. rent:
Rank City State Price to Rent Ratio
1. Miami Fla. 6
2. Las Vegas Nev. 6
3. Arlington Texas 7
4. Mesa Ariz. 8
5. Phoenix Ariz. 8
6. Jacksonville Fla. 8
7. Sacramento Calif. 10
8. San Antonio Texas 11
9. Fresno Calif. 11
10. El Paso Texas 11
Source: Trulia
In 10 cities, renting is cheaper, but buying might make more financial sense, according to Trulia. These cities include Los Angeles, Boston, and Fort Worth, Texas.
The index considers the total cost of homeownership compared to the total cost of renting. Calculations for the total cost of homeownership include mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase, homeowner’s association dues, and private mortgage insurance. The homeownership cost calculation also includes tax advantages from mortgage interest, property tax and closing-cost deductions.
Calculations for total rental cost include rent and renters insurance.
The total cost of homeownership was highest, compared to the cost to rent, in New York; Seattle; Kansas City, Mo.; and San Francisco.
Top 10 cities to rent vs. buy:
Rank City State Price:Rent Ratio
1. New York N.Y. 31
2. Seattle Wash. 24
3. Kansas City Mo. 21
4. San Francisco Calif. 21
5. Memphis Tenn. 20
6. Los Angeles Calif. 20
7. Fort Worth Texas 19
8. Oakland Calif. 18
9. Portland Ore. 18
10. Albuquerque N.M. 18
Source: Trulia
"Although owning a home is relatively more affordable in most cities, market conditions have caused an interesting demographic swap between traditional renters and buyers," said Tara-Nicholle Nelson, consumer educator for Trulia, in a statement. Nelson is also an Inman news columnist.
"For example, lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of longtime homeowners are finding themselves tenants -- some by choice and others by necessity."
Through newly acquired startup Movity, Trulia created interactive maps comparing each city's population, projected job growth, and unemployment and foreclosure rates.
Sunday, January 30, 2011
Investors…..STOP! It is not making sense anymore!
Investors…..STOP! It is not making sense anymore!
What is left on the REO market is literally undesirable and they are overpriced by 10 to 15 percent. Once in a blue moon, you may come across one (a fresh inventory) that you should pay 5% less for.
Here are some suggestions:Single Family Homes, 1995 or newer, 2ooo sq ft or larger, 4 bed rooms, 2 baths, 2 car garage.
Northwest Valley: Surprise, Glendale and Peoria: Stay under 135. Ask for 8% to 10% discount.
El Mirage, Waddell and Youngtown: Stay under 100k. Ask for 10% to 15% Discount
Sun City: don’t make much of an investment. Their HOA fees are too high.
South West Valley:
Avondale, Good year, Litchfield Park: Stay under 130k Ask for 8% to 10% discount.
Buckeye, Laveen and Tolleson. Stay Away for now
North East Valley: Scottsdale: Stay under 175K. Ask for 8% to 10% discount.
North Phoenix and Anthem: Stay under 150K. Ask for 10% to 12% discount.
Cave Creek, Fountain Hills, Paradise Valley, Rio Verde. Prices will continue to fall 20% or more.
South East Valley: Ahwatukee, Chandler, Gilbert, Tempe and Mesa: Stay under 165k. 5% to 10% Discount.
Queen Creek, Collage, Casa Grande, Maricopa, Gold Canyon, Florance and Apcahe Junction. Not right now. They still have ways to go down.
We are talking about single family income producing properties here… If you want to buy one to live in, it is good time to buy anywhere.
For more information call Payam Raouf 623-435-6633 ext 111 or info@azezrentals.com.
What is left on the REO market is literally undesirable and they are overpriced by 10 to 15 percent. Once in a blue moon, you may come across one (a fresh inventory) that you should pay 5% less for.
Here are some suggestions:Single Family Homes, 1995 or newer, 2ooo sq ft or larger, 4 bed rooms, 2 baths, 2 car garage.
Northwest Valley: Surprise, Glendale and Peoria: Stay under 135. Ask for 8% to 10% discount.
El Mirage, Waddell and Youngtown: Stay under 100k. Ask for 10% to 15% Discount
Sun City: don’t make much of an investment. Their HOA fees are too high.
South West Valley:
Avondale, Good year, Litchfield Park: Stay under 130k Ask for 8% to 10% discount.
Buckeye, Laveen and Tolleson. Stay Away for now
North East Valley: Scottsdale: Stay under 175K. Ask for 8% to 10% discount.
North Phoenix and Anthem: Stay under 150K. Ask for 10% to 12% discount.
Cave Creek, Fountain Hills, Paradise Valley, Rio Verde. Prices will continue to fall 20% or more.
South East Valley: Ahwatukee, Chandler, Gilbert, Tempe and Mesa: Stay under 165k. 5% to 10% Discount.
Queen Creek, Collage, Casa Grande, Maricopa, Gold Canyon, Florance and Apcahe Junction. Not right now. They still have ways to go down.
We are talking about single family income producing properties here… If you want to buy one to live in, it is good time to buy anywhere.
For more information call Payam Raouf 623-435-6633 ext 111 or info@azezrentals.com.
Tuesday, December 21, 2010
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.
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.
Saturday, November 20, 2010
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.
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.
Monday, October 18, 2010
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."
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."
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