Archive for January, 2009

Looking to make changes in an older production home? Within limits, you can do just about anything you want

This is my column for this week from the Arizona Republic (permanent link).

Looking to make changes in an older production home? Within limits, you can do just about anything you want

We talked last week about how production homes are put together in the Phoenix area. Here’s why it matters:

Within limits, you can do just about anything you want to do within your home.

What limits? Whether it is block-construction or wood-frame, the exterior walls of your home are the load-bearing walls. Without expert advice — which includes plans and permits — you should not remove or adapt exterior walls.

You will almost always have a shear wall running through the center of the home, parallel with the peak of the roof. The shear wall prevents lateral motion on the roof. It should only be adapted with the advice of a structural engineer.

Water, sewage and sometimes gas lines are contained within wet walls, and these should only be altered with expert advice.

What’s left? Interior walls. These consist of wood framing covered by drywall. Power lines will run along at about 18 inches above the floor, and cable and telephone lines may have been dropped in from overhead.

That’s it. An interior wall is a drywall curtain dropped in to separate one room from another. Working with appropriate care, you can move or remove interior walls at will.

This can be a big help in older homes. Floorplans from the fifties and sixties can seem byzantine and dark to modern eyes. By blowing open the rooms, you can open up the sight lines and improve the fenestration.

Older homes also lack anything that we might think of as a master suite. The master bedroom will be small, with a small three-quarter bath. You may have to work around wet walls and the shear wall, but it is often relatively simple to combine two bedrooms into a mater suite: Master bedroom, a more-expansive Master Bathroom, a walk-in closet, even a sitting room.

Here’s one more that can be common in older homes: The ducting, especially in hallways, will result in very low ceiling heights. This can all be ripped out and thrown overhead into the truss, resulting in a much more open feel to the home.

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Rental homes in greater Phoenix are so cash-flow positive they even leap the Fannie/Freddie hurdle

I had an investor put Phoenix rental homes to the FannieMae/FredddieMac test — cash-flow positive with one hand tied behind your back — and our properties passed with flying colors.

Rental homes in metropolitan Phoenix are so cheap, by now, that many investors are simply paying cash to buy them. But suppose you need to qualify for a loan?

Fannie and Freddie will want a 25% down-payment, which is not a bad idea in any case. But the loan underwriter will probably also want documentation that the home will still be cash-flow positive even at 75% of the prevailing market rent.

And guess what? Phoenix qualifies with flying colors.

Just to demonstrate this fact, I looked at seven homes in Coldwater Springs, a golf-course community in suburban Avondale, AZ. This is a premium subdivision, both for rental homes and for resale homes.

Click through to the web site I built for these homes. Nothing is concealed and everything is revealed. These homes are lender-owned, and each of them needs work, but none of them needs much. Figure from $1,000 to $5,000 to bring them into turn-key condition. Another benefit to visiting that site is that you will see the kind of work-product I deliver to out-of-town investors.

A rental property in Coldwater Springs should rent for $950 to $1150, depending on the size of the home. And the community is so avidly sought by homeowners, a former rental should sell at a premium price to owner-occupants on the way out.

You can click here for a cost break-down on a typical Coldwater Springs rental. No smoke and mirrors, no blue-sky assumptions, just the straight dope.

And take note: These homes represent the high end of Phoenix-area lender-owned homes. You can spend a lot less than this for homes in other neighborhoods. They’ll rent for less, but their overall financial performance could be as good or even better.

This is a perfect storm for rental home investors in greater Phoenix: Premium homes going for fire-sale prices at historic low interest rates. I represented tenants for two years and investors since then. I understand what tenants like and what they hate. I can help you find premium rentals that will stay rented to premium tenants and will command premium prices on resale.

But no opportunity is perfect. It may be quite a while before the Phoenix real estate market recovers. But these homes should easily self-amortize while you wait for positive appreciation to resume. Email me or pick up the phone and dial 602-740-7531 to discuss how to proceed. (Outside of Arizona? Dial 1-800-508-5430.)

I’ve been doing this for a long time, and I can handle as much of the process as you need by remote-control. I have relationships with everyone from property managers to handymen, and my investors have been very successful at keeping their properties rented. I’d love to talk about how I can help you achieve similar results.

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A pocket history of production home-building in the Phoenix-area

This is my column for this week from the Arizona Republic (permanent link).

A pocket history of production home-building in the Phoenix-area

Production building of homes in the Valley of the Sun began in 1938. Before then, homes were one-off affairs, each one built like a tailored suit. If you tour these old homes, you can see builders playing with the techniques that would lead to production building.

The big breakthrough was the concrete slab foundation. Older homes in the Phoenix area are constructed on built-up foundations, just like homes back east. But because Phoenix doesn’t suffer hard freezes in the Winter, it was possible to pour a slab, then build the house atop it.

The benefit? If you could grade the land to a level plane, you could use the same plans over and over again. Starting in 1938, production homes — you might call them subdivision or tract homes — began to spring up all over the Valley.

Two-bedrooms, one-bath at 900 square feet was a common footprint. The move-up model was three-bedrooms, one-bath at 1,100 square feet. An evaporative cooler on the roof and a wall heater in the hallway between the living room and the bedrooms. The walls were plaster at first, but this soon gave way to drywall.

These building techniques were perfected just in time. The end of World War Two was the beginning of the huge and on-going growth surge in the Valley, and production builders could not put up tract homes fast enough.

There was a mason’s strike in Phoenix in the mid-seventies, with the result that builders switched from block-construction to wood-framing.

“Stick” houses were even cheaper to build, and wood-frame roof trusses made possible the kind of soaring vaulting and unimpeded sight-lines we expect in modern homes. Generally speaking, the interior walls in a production home can be moved or removed at will.

People can be hypercritical of the sameness of production home construction, but it was of a piece with twentieth-century mass manufacturing. Because builders learned how to contain costs and build efficiently, it was suddenly possible for ordinary people to be able to buy brand-new homes.

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Doing the right kinds of repairs and remodeling to your home is the key to maintaining its resale value

This is my column for this week from the Arizona Republic (permanent link).

Doing the right kinds of repairs and remodeling to your home is the key to maintaining its resale value

Cleaning, painting and doing small repairs around the house are just about unlimited virtues for homeowners.

They’re a matter of necessity for people who hope to sell their homes. Only the best-prepared homes are selling at premium prices right now, with the rest going at or near the lender-owned price.

But even if you’re not selling, staying on top of the little things promotes your enjoyment of the home, and it helps to sustain its resale value. At a minimum, regular maintenance will help you catch small problems before the become big, expensive problems.

But if doing little jobs matters a lot, what about doing big jobs? Should you redo the kitchen and bathrooms while the market is low? Should you convert the carport into a garage and the patio into a family room? Should you add on a brand new master suite?

The definitive answer to all these questions is: Maybe.

Remember that the Phoenix real estate market may be down for years to come. It’s possible you won’t see a return on your investment for quite a while.

On the other hand, if you know you’re going to be in the home for the next five years, and if a new kitchen will substantially improve your enjoyment of the home, it might be worth doing.

Labor can be very cheap right now, and money is easy to obtain if you have equity in your home. But you have to resist the urge to over-improve for your neighborhood. Brazilian Blue Marble is gorgeous, but it probably won’t be worth more than Corian or Formica countertops on resale.

Serious additions are a bigger question. If you know you’re going to be in the home for five years, you’re probably okay. If the addition makes sense — if you live in a neighborhood of two bedroom homes, adding a master suite makes great sense — then go ahead.

Build with permits and follow the building codes, though. The worst thing you can do is spend money and time on supposed improvements that actually reduce the resale value of the home.

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If selling is not a viable option, you need to fall in love with your house all over again

This is my column for this week from the Arizona Republic (permanent link).

If selling is not a viable option, you need to fall in love with your house all over again

The foreclosure market dominates the news, but it remains that good old-fashioned American homeowners occupy the overwhelming majority of Phoenix-area homes. That’s the good news.

And here’s some even better news: If you have significant equity in your home, you can probably refinance right now, reducing your monthly payment.

But here’s the bad news: Unless you absolutely have to, you probably won’t be moving for at least five years.

Don’t believe the number you see on that refi appraisal. At most, your house is worth the same amount as a comparable lender-owned home, plus the net cost to bring that home up to the livability of yours.

Swallow hard. You may have read in the paper that Americans lost $2 trillion in real estate equity in 2008. That’s a specious number. Money is the stuff you can fold up and spend. The equity in your home is unrealized money. You weren’t rich when your home was worth a lot, and you’re not poor now that it isn’t.

But what you are is stuck, practically speaking.

You don’t want to sell your house for what it can bring right now. If you do, you will lose money. But, refi or not, you’re making your payments.

If your home really was purely an investment, like a stock, it might be wise to dump it, take your lumps and move on.

But your home is not only where your heart is, it is very probably where most if not all of your savings are. You need to wait for the market to turn so you can sell at a profit.

So what should you do?

My advice: Paint.

Patch that stucco and paint it. Caulk the wood at the eaves and the trim and paint it. Clean out the house one room at a time and patch and paint the walls, repairing and painting the molding.

You’re stuck in your house for the next five years. It’s time to fall in love with it all over again. When there’s nothing you can do to improve the real estate market — paint.

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