There’s always something to howl about.

Every Day Is A Good Day To Invest In Phoenix Real Estate

Every day is a great day to buy a single family home, even in Phoenix. That ought to rile up the analytical types here. Of course, that same principle applies to the stock market, as well.

I started my career as a “Financial Consultant” but was mentored by some fellas who preferred to be called “Customer’s Man” (title preserved with apologies to the fairer gender). My tutors would buy me a scotch in Suburban Station, then ride the R5-Paoli Local home with me. I’d receive a 70-minute lesson about how and when to buy stocks for clients. The first lesson was that every day was a good day to own a good company.

Of course, the part I’m leaving out is that price and underlying quality were important factors in the investment decision- fundamentals rule when it comes to long-term investing. These Customer’s Men weren’t the Bud Fox-type on Wall Street, churning clients’ accounts, they were more like the character Hal Holbrook played (Stick to the fundamentals. That’s how IBM and Hilton were built. Good things, sometimes, take time).

The same principle can be applied to real estate. Greg Swann did his best Hal Holbrook impression with this article in the Arizona Republic. The fundamentals are fabulous for Maricopa County real estate. Three people move into Maricopa County for every two people that leave every year; that’s a growing population. The local economy is diversifying with small businesses leading the way. An expanding economic base and a growing population make for an attractive situation for landlords.

Are the long-term prospects for Phoenix real estate good? The fundamentals would have you believe that they are. Lawrence Yun predicted a 50% rise in Phoenix housing prices in a five year period; I commented that it may take ten years. Still, 50% over ten years is a helluva return, when leveraged four to one. Invest $100,000 in Phoenix real estate today, and you could conceivably receive a triple in your original investment, ten years from now. That could be a 15% annual return- not too shabby.

Is now the right time to buy Phoenix real estate? My title suggests that every day is a good day to buy Phoenix real estate- if the price is right. Some Maricopa County properties are selling for their 2002 prices and are as much as 40% off of their high.

Robert Kerr suggests that Greg’s call is far too early:

If so, at just 2 years from peak to trough, this would be one of the shortest duration downturns I’ve ever seen.

Robert may be wrong about cycles. Cycles are compressed and volatility is increased when market information becomes more readily available to market participants. When pricing was available only in books, held under lock and key, buyers and sellers couldn’t access the data. Today, market pricing is found in Google search. Registered users get updates more quickly than the professionals do. As less experienced investors get into the game, the emotions of greed and fear tend to influence investment decisions rather than analytical thinking.

Barry Cunningham provides solid market fundamentals supporting Robert’s statement:

1 Million more foreclosures set to come in late 2008 and early 2009. Large number of foreclosure properties already taken back by the bank and not as of yet on the market…bottom? I think wishful thinking.

What Barry says may be true. The prognostications of foreclosures, however, have always been inaccurate. Few saw the tidal wave of foreclosures, these past 12 months, in 2004. It is possible that the tsunami we expect in 2009 may be a winter storm- pounding but hardly as damaging as Barry suggests.

I don’t care about either of those issues if I can buy the property correctly. Bill Gross and Warren Buffett will tell you that it’s wiser to be early rather than late in identifying an investment trend. If I can buy a Phoenix property that will be worth 50% more in ten years, and leverage it properly (with positive cash flow), I don’t care if the trough is in May, 2008 or December, 2009. I’m a long-term investor who recognizes that the absolute bottom of the market is impossible to call. I just want to own an appreciating asset with net zero carrying costs.

Greg sent me a list of some battered workhorses (battered in price). If an investor buys one of these, the question is no longer “Will the price drop in the next 3 years?” The question is “Can I get $800/month for rent?”

That’s positive cash-flow. That’s what removes the worry about market timing from the equation.