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When it comes to real estate, the news is mostly noise.

The Arizona Republic has taken to calling a bottom to the Phoenix real estate market about three times a month.

Like this: A certain subset of high-end homes are selling for more than expected, so the sour market must be over. New home builders are making brass-band noises by press release, so the drought must be ending. The number of homes listed as Sale Pending is rising, so happy days must be here again.

All of this is false, alas. We track the broader market, month-by-month, and allowing for silly tax-credit tricks, the long-term trend of the Phoenix real estate market has been downward since December of 2005.

Here’s the big picture, minus the hype:

Those are bread-and-butter suburban tract homes, so your mileage may vary — slightly. But with the exception of niche products — high-demand Scottsdale condominiums and some age-restricted housing — that’s a pretty clear picture of the real estate market as a whole in the Valley of the Sun.

Here are the past 13 months under a microscope:

I’ve been saying for years that no one should overpay in this market, but you can see for yourself that tax credits make people do foolish things. But what’s most interesting to me is that the gap between listed price and sold price is growing.

In other words, this market likes hard bargainers.

The bottom line? It’s a great time to be a buyer or an investor, it’s a lousy time to be a seller, and we are a long, long way from living in a healthy real estate market.

You can track our numbers as we record them here: The Market Basket of Homes.

Better yet, you can see what you can get for your money — or for your house — by giving us a call or making a showing or listing appointment. Drop me an email or phone me at 602-740-7531 and let’s figure out how to take best advantage of this real estate market — as it really is.

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Practical examples of how we cherry-pick profitable rental home investments in the near-suburbs of Phoenix.

Phoenix handyman Mark Deermer and I took a look at five relatively inexpensive homes in Surprise, a northwest suburb of Phoenix, that could work well as rentals properties.

Our findings — with photos, links to MLS listings and projected financials — are linked here: Rental home investment possibilities in Surprise, Arizona.

Here is one of the properties we saw, as an example of the kinds of things we’re taking into account:

17410 West Lisbon Lane, Surprise, AZ 85388

17410 West Lisbon Lane, Surprise, AZ 85388

List price: $79,900. 3 bedrooms, 2.5 baths. 1,578 square feet. Courtesy of: RE/MAX Professionals. Google map. Schools: Elementary, Junior High, High School. Property tax record. MLS listing. Nearby homes for sale.

Estimated repair costs: $7515.

Estimated rent: $850.

Initial offer: $75,000.

I don’t hate offering less than that, but getting an offer accepted on a lender-owned home is always a game of double-think. The longer a property has languished — which usually means the worse its condition — the more flexible the bank will be on price.

Handyman Mark Deermer is touring these houses with me. His repair estimates take into account everything we see — stipulating that unseen problems may turn up when we do the home and wood inspections. But his estimate is the cost to turn any candidate home into a turn-key rental — a home you will be proud to own and your tenants will be proud to maintain.

When I project rents, I’m working from recent closed leases in the MLS for that size and style of home in that subdivision. I deliberately understate the numbers, because I want any variation to come as a happy surprise.

Also, I am hand-selecting the properties we look at. I eliminate a lot of towns and subdivisions because the tenant pool is not as deep as I want. I rarely even consider a home with a poor western exposure, since this will increase the air conditioning costs for the tenant — which will induce the tenant to rent someone else’s house instead. I tend to favor easy access to schools and shopping. And even when we visit a house that meets all these criteria, I may eliminate it if I don’t like the floorplan — or just the feel of the home.

This is the lay of the land: Phoenix has always been a soft rental market, but the homes I pick tend to rent quickly to premium tenants, they tend to stay rented, they tend to suffer little vacancy between tenants, and they should sell quickly and at a premium price to owner-occupants on the way out.

We’re doing everything we can to maximize the profit potential of the homes we sell. If you click through to this weblog post and follow its links, you can find out a lot more about Bloodhound Realty’s rental property investment philosophy. But the bottom line is the bottom line: You’re investing in rental homes to make money. We’re cherry-picking (and cherry-polishing!) just the right houses to make sure you do.

There are 30,000 Realtors in Metropolitan Phoenix. Why should you work with us when you’re ready to invest your heard-earned dollars? Because we’ve thought this problem through, and we’ve arrived at what we think is an optimal solution to maximize your profits and minimize your headaches. Prices are low, interest rates are low, and, if you get just the right house and serve it up just right to the marketplace, there is money to be made in suburban Phoenix. Drop me an email or phone me at 602-740-7531 and let’s talk about making some of that money for you and your family.

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Buying a Phoenix-area rental home? It all comes down to the math.

Phoenix handyman Mark Deermer and I have been prowling potential rental homes in the western suburbs of Phoenix. I’m looking for all of my usual stuff — all the factors that make the Metropolitan Phoenix rental homes we sell rent quickly and stay rented. And Mark is going through the homes to get a quick estimate of the cost to refurbish the homes, bringing them into rent-ready condition.

This is an easy world to live in right now — for buyers, at least. The quantity of available homes is rising, and the quality of those homes seems to be going up, too.

Here are six properties we’ve seen lately.

This all about strategy: We start with homes that might work and that are not insanely overpriced. Working from a projected rent, we know what the maximum entry cost should be. Mark’s refurb cost is subtracted from that gross number, which yields the ideal purchase price. We make the offer on that basis. If we get the house, we get it. If not, we move on. But if we do get the property under contract, we know that it will be profitable from the first tenant.

Ready to make your move? Send me an email or phone me at 602-740-7531 and I’ll help you buy a Phoenix-area rental home like one of these.

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Just in time for Independence Day, a real estate consumer’s Declaration of Independence.

My friend and colleague Al Lorenz, who sells real estate and develops real property in Lake Chelan Washington wrote and posted this Real Estate Declaration of Independence.

Al and I are in complete agreement about these principles, so I’m delighted to share them with you:

Real Estate Declaration of Independence

We, the people who buy and sell real estate, hold these truths to be obvious:

  • We the people believe that information on real estate for sale should be readily accessible without surrendering our private information. We reject having to register on a web site in order to view listings in an area. We value our time and will contact a real estate professional when we are good and ready for their services.
  • We the people reject all policies of the National Association of Realtors that are not in the best interest of the real estate buying and selling public. Limiting our access to information, restricting our ability to a free and open market through regulation and limiting our market choices are all examples of policies we reject that are designed to line Realtors pockets at the expense of the public.
  • We the people reject “Dual Agency,” where a real estate agent has an inherent conflict of interest with his agency and fiduciary duties by attempting to represent both the buyer and seller in order to earn a larger commission on our transaction. If the agent is truly delivering value, both parties of a transaction have an equal right to that value without a conflict of interest and each party deserves their own agent in the transaction.
  • We the people reject the practice of real estate agents trying to “Buy the Listing” by telling a potential seller an above market price in an attempt to secure a listing. This practice costs sellers time and money while their home sits on the market as the agent waits for the seller to cut the price to where it should have been to start.
  • We the people reject the practice of real estate MLS systems that limit a home seller’s exposure to potential buyers in an attempt to control access to a market. A listing agent’s responsibility is to market a property to the best of their ability and limiting the exposure of our home costs us money.

We the people are independent in a country that still allows us to make market choices. We the people demand better service and will exercise our freedom of choice and only choose Real Estate Professionals who deliver better value.

In Arizona, a real estate licensee has a fiduciary duty to his client. That means that, when we decide to work together, I am obliged to put your interests ahead of all others, including my own. Too often, and much too deservedly, Realtors are perceived as being self-dealing, self-serving and self-absorbed. If you keep this Real Estate Declaration of Independence in mind, you’ll be better prepared to avoid that kind of agent.

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My kind of rental home investment in Avondale’s Coldwater Springs

I’ve been watching this house for months. I wanted to snag it for one of my investors when it was a short sale, but the bank foreclosed on it before I could get an offer in play.

I took pictures of the home when I was in it then. Since it was relisted as a lender-owned home, I’ve been back in to see how it’s holding up.

The home is the Lavender floorplan by Fulton Homes, three bedrooms and two baths in 1524 square feet. It’s a greatroom floorplan, so the common spaces are abundant. There is no space wasted on hallways, and the home feels open and bright everywhere.

Even better, it’s in Coldwater Springs, a subdivision I have loved since it was built. The Coldwater Springs Golf Course threads through the community, and the Collier School, grades K-8, is right in the middle of everything — a short bike trip from this home.

The home is listed at $87,500. Handyman Mark Deermer estimates that it will take around $8,000 to make the property rent-ready. Total entry cost would be $95,500. With anticipated rents of at least $950 a month, that puts this home at a Gross Rent Multiplier of 100 months, right where I want to be.

And that’s just one house. In the weeks since the tax-credit lapsed, inventories have come back strong. These kinds of houses — premium homes attractive to premium tenants — are being offered at breathtaking prices, with plenty of room for investors to show ample positive cash-flow. Meanwhile, lender Connie Moss can do investor loans at 5.75% or better with 25% down.

I talk to a lot of folks who say they want to invest in rental homes in Metropolitan Phoenix. Many follow through, but some people seem to sit on the sidelines, waiting for someone to pull them along. This I can’t do. I am very good at identifying properties that will rent profitably and stay rented. Mark Deermer can refurbish them so they are irresistible to tenants. But if you want to get in on a house like this, you need to assert yourself.

Shoot me an email or phone me at 602-740-7531 and I’ll help you line up a rental home like this one.

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Arizona unemployment rate falls; 19,500 jobs added

From the Arizona Republic:

Arizona’s job picture brightened considerably with an increase of 19,500 jobs in April, the largest number of new hires in the month of April since 2005, the Arizona Department of Commerce reported Thursday.

The state’s unemployment rate fell to 9.5 percent in April from 9.6 percent in March and remained below the national rate of 9.9 percent.

The overall number of non-farm jobs was still below the level a year earlier, but by only 1.6 percent. The over-the-year job losses have been shrinking steadily since August.

Many of the new hires were at leisure and hospitality businesses — which include hotels, resorts, restaurants and bars — and at retailers, temporary-service agencies and the U.S. Census Bureau, said Rick Van Sickle, a department analyst.

For the second month in a row, the leisure and hospitality sector had the highest gains. It added 5,000 jobs in April.

“There’s an indicator of some confidence,” Van Sickle said. “It looks like people are starting to spend discretionary money, at least last month.”

Unfortunately, hospitality businesses are the most vulnerable to travel boycotts announced by cities and groups objecting to Arizona’s new immigration law that takes effect July 29.

The law makes it a state crime to be in the country illegally. It states that an officer engaged in a lawful stop, detention or arrest shall, when practicable, ask about a person’s legal status when reasonable suspicion exists that the person is in the U.S. illegally.

Van Sickle said the department would not be able to accurately track the effects of the law because the job data it collects is not that detailed and the number of hospitality workers typically falls as hot weather approaches.

“There’s boycotts. There’s buycotts (efforts to get people to buy Arizona products to protest boycotts). There’s counter boycotts. There’s hot weather coming. There’s all those factors that are going to come into play,” he said.

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How do new home builders compete when resale homes are selling for less than half of their replacement cost?

KBHomes has an answer: Build cheaper homes. You can get a better home for $90,000, but you can’t get a newer one…

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Buy and hold investors in Phoenix-area rental homes want to know: Is now the time to buy?

One of my rental home investors asks:

How are things looking one week past the expiration of the home buyer credit? Time to plan a trip?

My answer: I should track this number daily, instead of relying on memory. These numbers are approximate, but reflective of reality. This is from the BargainBot search many of my investors are subscribed to:

October 2008 — ~1,500 listings
October 2009 — ~350 listings — this was the first tax credit
January 2010 — ~650 listings — somewhat replenished
May 4, 2010 — ~420 listings — second round of tax credit
Today — 492 listings — replenishing

I’m watching particularly for houses I would want to buy for investors, since these are the ones that were picked over the most by tax credit shoppers.

It’s not my style to say, “No, don’t spend any money!” But it remains that you’ll do better if you wait for the inventory to replenish.

May 21? May 28? The big jump this week is not so much new listings but contracts that failed — usually because the contracted price was above the appraised value. We want for there to be more good houses than qualified buyers.

That’s where I’m at for now.

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A more active kind of real estate investment: Fixing and flipping distressed homes for fun and profit.

Handyman Mark Deermer and I have been planning for this for a while: We’re going to ride the Phoenix real estate market back up by fixing and flipping some of the (many, many) distressed homes we work with. We’ve fixed up quite a few homes for buy-and-hold investors, and this is the logical next step in our praxis.

As with buying rental homes, it’s a matter of property selection before anything else. The right home, in turn-key condition, will sell at a substantial premium over its distress-sale price. By buying the right MLS-listed and court-house-steps properties, we can net out significant returns after all expenses.

Buying right is everything, of course. If we overpay on the way in, we’ll have trouble extricating ourselves on the way out. We’re doing this now because the market in Greater Phoenix has reached a point where the math works fairly consistently. Houses that will flip profitably are still not common, but we’re to the point where they’re one among hundreds, rather than one among thousands.

The second step in the process is handling the refurbishing wisely and well — and quickly. Our goal is to get our properties back on the market within four days of taking possession of them. And we won’t be doing wish-and-a-promise fix-ups. Every house we do will have all new interior paint, all new flooring, all new window treatments and all new kitchen appliances. We want to give our buyers that model-home feeling — because they’ll pay more for homes that are white-glove clean and move-in ready.

And the third step is marketing, a process we get better at with every passing day. The homes we’ll be flipping will be completely refurbished, but they will also be staged for sale, with the kind of tasteful decorator touches that make people feel at home. We’ll build a marketing web site for each home, showing off what we’ve done with before and after pictures, and documenting the remodeling — both to defend the sales price and to assist the appraiser in seeing our justification for the sales price.

We’ll be pricing aggressively to the market, as well, thus to turn the money over more quickly. Our goal is to go from sold to sold in two months or less — with each investor’s money turning over six or more times a year.

Do you have stars in your eyes? The profit per home will not be huge. But because the money is turning over so rapidly, the annualized return-on-investment could be very substantial.

Why am I writing this? Because we need money to make this work. I’m going to be the marketing partner in the partnerships we’re putting together. Mark is going to be the work partner. What we need are finance partners.

The kind of houses we’re going to be working with are going to require around $100,000 in capital each. That will pay the acquisition costs plus the cost of refurbishing the home. Everything else — closing costs and unpaid liens — can be paid out of the resale proceeds at Close of Escrow. But each Limited Liability Corporation we put together is going to want $100,000 in seed capital. This can come from one or more finance partners, and the seed capital will be restored to the LLC after each house is sold, before any profits are disbursed.

Here’s the way to figure this: Even if the investor’s ROI is only 5% per flip, if we can turn that money over six times in a year, that’s a 30% annualized return. That’s good money by anyone’s standards — and the returns only stand to improve when the Phoenix real estate market finally gets back to an upward trajectory.

But what about down markets? God help us, it could happen. But this is why we’re working to sell the properties so quickly — and at aggressive prices — to get our money in and out before we can lose too much to declining values.

I’m not blowing smoke up anyone’s nose. We’ve been working on this problem for a year-and-a-half, all to make the numbers work. I’ll be documenting out projects here, so you can see what we’re up to.

Meanwhile, if you want to get in on this opportunity, speak up. We’re going to put together up to twenty of these partnerships, flipping as many as ten homes a month. This is a lot more aggressive than buy-and-hold investing — and a lot more risky, of course. But we’re offering the potential for truly astounding annualized returns. If you want to get involved in real estate on the supply side, here’s your chance.

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What’s the real estate price trend for bread-and-butter homes in Metropolitan Phoenix? Prices are up and down — but mostly flat…

That chart illustrates sales prices for the past 13 months, as reflected in BloodhoundRealty’s Market Basket of Homes. What we’re looking at are suburban stucco and tile tract homes, the houses that drive the fat middle of the bell curve in the Metropolitan Phoenix real estate market.

That line looks awful spiky doesn’t it? That’s just the drama of charting software. What you’re really seeing is a market that is essentially flat. Prices go up. Price come back down. A home that would have sold for $122,000 in March of 2009 will have sold in March of 2010 for — wait for it — $121,000.

That’s right. For the past year, the Arizona Republic and half the faculty at ASU has been bellowing that the market has turned. It has. Slightly downward. And now that the home buyer tax credit is about to expire, it seem plausible that the near term trend will be still further downward.

Prices will probably decline gradually, mind you, and investors have clearly thrown a floor under our market. I would be surprised to see dramatic drops in values, but the segment of the chart documenting events from August through December of 2009 illustrates the impact of the tax credit. Without it, I expect this chart to grow even flatter in the months ahead.

Means what? Jump. Interest rates are still low, and cash is still king. Inventories will grow — nudging prices downward — and the quality of the available homes is gradually getting better. If you have the means to buy a home in Phoenix now, this may be the perfect storm. If we’re at the bottom, we’re going to be here for a while. But if you can afford to wait out the market, you can buy a whole lot of home for your money.

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For rental home investors in metropolitan Phoenix, the perfect storm is almost upon us.

I have a lot of investor clients, folks who want to buy rental homes in greater Phoenix — to buy and hold them as long-term investments. Early last fall and again late this spring I have advised many of them to sit tight, to wait the market out.

What are we waiting for?

The final lapsing of the first-time home-buyers’ tax credit. We can be quietly delighted for all the nice folks who were able to get into houses because of the tax credit. But it remains that those sweet people were driving up home prices, making it difficult for investors to latch onto better-quality rental homes.

All that changes this week. The tax credit lapses on April 30th, so we should start to see a significant increase in available properties. Still better, it will be easier to negotiate deals with sellers, and prices should be more attractive.

The first round of the tax credit, last summer and fall, had a much more profound impact on the real estate market. For the kind of stucco and tile suburban homes I like to buy for investors, prices last fall looked like this:

September 2009: +3.15%
October 2009: +2.14%
November 2009: +2.22%
December 2009: -8.03%

That’s a $10,371 drop in average sales prices from November to December. Demand from first-timers has been lighter in this second installment of the tax-credit, but inventories of the homes I’m most interested in for investors have declined by 20% from the start of the year. More significantly, it’s the choice homes that are being cherry-picked, the ones that need the least work to make them rent-ready.

All of which means that we are on the cusp of a perfect storm for real estate investors: Good homes at very attractive prices. Money is still every cheap, if you need a mortgage, and rents are holding firm. There is no appreciation in sight, of course, but positive cash flow is easy from the first tenant.

I’ve written a guide about how out-of-state investors can make good money investing in Phoenix-area rental homes. If you want to discuss this in detail, you can phone me – Greg Swann – at 602-740-7531 or shoot me an email.

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Rental home investment possibility in Goodyear, Arizona: 15814 West Papago Street, Goodyear, AZ 85338

Short sale, very aggressively priced against the comps. The downside is that it might need more work than it’s worth.

Needs window treatments, paint, landscaping, repairs.

For more details, click here.

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Channel 15 News: “Arizona real estate being snapped up by Canadian buyers?”

Further notice on Canadian real estate investors buying real property in Metropolitan Phoenix, this time from Channel 15, ABC-TV News in Phoenix:

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Rental home investment possibility in Goodyear, Arizona: 15262 West Taylor Street, Goodyear, AZ 85338

A short sale offered at a deep discount on the comps. No telling if that price will sail with the bank, but there’s no commitment until the lender gives full approval.

Nice overall, needs carpet, paint, landscaping.

For more details, click here.

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Got Loonies? Barrack Obama is the best American president Canadian real estate investors have ever seen!

The Canadian Loonie is trading at parity with the once-robust American dollar.

If you’re a Canadian real estate investor interested in buying rental homes in Metropolitan Phoenix, it would be hard to pick a better time to make your move.

Depending on your point of view, the Barrack Obama administration has been either great or lousy for Americans. But there is no doubt that Obamas’s “creative” management of the American economy has been a huge benefit to Canadians and other foreign investors.

Even if you’re buying with dollars, don’t let that stop you. Bargains abound, and the prospects for the greater Phoenix real estate market are sunny — not to pun. I shop every day for premium value in potential rental homes in the Phoenix metropolitan area. If you would like to explore your opportunities, shoot me an email or give me a call at 602-740-7531.

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