Archive for May, 2009

How Phoenix real estate investors can make their rental homes more appealing to tenants

This from my Arizona Republic real estate column (permanent link):

I work a lot with investors, and I’ve written in the past about the factors I think are important when buying a rental home in the Phoenix real estate market.

I want for the homes I choose to be in built-out neighborhoods in built-out communities with ready access to schools, churches, entertainment, shopping and transportation. More than anything else, I want for there to be plenty of good-paying jobs nearby.

But even taking account of all that, tenants seem to be getting thin on the ground. Is there a shortage of tenants? To the contrary. Folks who have just lost their homes to foreclosure need to rent for a couple of years to get back on their feet.

There’s no shortage of tenants, but we’re seeing a sudden surplus of landlords. Out of state investors are snapping up Valley tract homes at bargain prices and posting their “For Rent” signs in the front yard.

Are these homes necessarily good rental candidates? Probably not. Will they rent? At a low-enough price they will. And landlords are feeling price pressure for the first time in years, all across the Valley.

What is missing, as is so often the case in real estate, is intelligent marketing. There is a huge supply of tenants in Metropolitan Phoenix who would love to live in suburban single-family rental homes. Where are they? In apartments.

Any why are they in apartments? Because apartment communities market very intelligently to tenants. Can an ordinary landlord compete against a $99 move-in special? Probably not. But here is an offer for appealing to apartment renters that makes sense to me.

Instead of a 12-month lease at $900 a month, offer 24-months at $950 — with two months rent-free. You might go for the second and twenty-fourth months, but I think making both Decembers rent-free could be a killer proposition.

The tenant pays more per month, but less over the 24 months. The landlord gives up $700, but nets a faster lease-up on a longer lease. Everybody wins — and that’s the power of marketing applied to real estate.

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Foreclosures are bringing unscrupulous practices back to the Phoenix real estate market

This from my Arizona Republic real estate column (permanent link):

There was a time, just a few years ago, when the residential real estate industry in Phoenix worked like a well-oiled machine.

We were all using the same court-tested paperwork — all the same way and all according to the same standards of care. Realtors knew what to expect of each other, and our arbitration systems made sure we could trust each other.

No more. We’re back to the days of wild west real estate, where every critical detail is negotiated verbally and where every promise is as sound as a three dollar coin.

It’s not the banks who are at fault, at least not directly. Every purchase contract for a bank-owned home will be rewritten by the bank, but lenders are keeping their promises, even their verbal promises, on foreclosed homes.

Short sales are another matter entirely. Many agents handling short sales are scrupulously honest, letting buyers know exactly where they stand and keeping everyone up to speed.

But there are agents who treat short sale listings as an undisclosed silent auction, submitting every offer to the lender and not informing buyers they are being pitted against each other.

So you wait six weeks to six months for a response from the bank, only to learn that the property will be sold to someone else. The upshot is that short sales are not a viable option for anyone who needs to move by a specific date.

That’s a worst case scenario, but in this little mini-boom we’re going through, we are once again seeing some of the worst practices from the boom years.

For example, the bidding wars you’ve read about are carried out by means of the Multiple Counter Offer form. Each buyer is invited to make a better offer, without knowing what the other offers are, without knowing how many there are, and without knowing if the other buyers are even still in the game.

I can’t imagine a situation less fair to buyers. This is the kind of opacity we can expect efficient market systems (read: the internet) to fix going forward.

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The $8,000 first-time home-buyers tax credit gets even juicier

This from my Arizona Republic real estate column (permanent link):

The $8,000 first-time home-buyers tax credit just keeps getting sweeter and sweeter.

First, it’s a true tax credit, not a deduction. In other words, if you would have gotten a $3,000 tax refund next April, with the tax credit you’ll get $11,000.

Even better, a first-time home-buyer is someone who has not owned a home in the past three years.

To get the full $8,000, the purchase price of your home must be at least $80,000. But it turns out that $80,000 is a sweet spot in the Phoenix real estate market right now. In many West Valley communities, $80,000 will buy you a very nice house.

But here’s the icing on the cake: As of this week, The Federal Housing Authority may allow borrowers to use the $8,000 for their down payment.

The lender would offer that money through a second note, and you’ll pay it back when you get your tax refund.

Take a moment to reflect on the implications. That’s right, after nearly five long months of stern fiscal responsibility, we’re right back to doing nothing-down home loans.

The tax credit can be no more than ten percent of the purchase price, but an FHA loan requires only 3.5% down payment. How much house can you buy with $8,000 down? How about $228,500?

The sellers will throw in the closing costs — gleefully — so you could buy a great big Phoenix homestead for no money out-of-pocket.

Make your payments on time and you’ll be living the American Dream — in a home that might have sold for $500,000 in December of 2005.

But don’t dawdle. The $8,000 tax credit ends on November 30th — which means your loan must be completely closed by then. Allowing 45 days for underwriting and another 30 days to find the home of your dreams, you should start your home search no later than mid-September. If you want for the kids to be in their new schools in August, you should probably start looking now.

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The goal of the BloodhoundBlog Unchained training conference is to push the bums out of the real estate business

This from my Arizona Republic real estate column (permanent link):

We publish a national real estate industry weblog called BloodhoundBlog.com. There are 42 contributors from all over the country, each one an expert in his or her own right. Together we talk about real estate marketing and technology, lending and investment. If you want to know what Realtors and lenders really think, BloodhoundBlog is your keyhole into the industry.

The blog is all about the wired world of real estate, how the participatory internet is changing age-old paradigms of real property and mortgage marketing. When we started three years ago, the Web 2.0 idea of online interaction was still very new. By now, it’s hard to remember a time when these technologies were not ubiquitous.

BloodhoundBlog’s mission is to help Realtors and lenders keep pace with internet tools. In service of that objective, we produce an annual conference called BloodhoundBlog Unchained. Real estate professionals come from all over the country to learn how to market their services in what amounts to a post-marketing marketplace.

This year’s conference ran last week from Tuesday to Friday. We encamped in a hotel near Skyharbor Airport and worked all but continuously for 72 hours. Our world is changing so fast that we felt we had to work that hard, just to learn everything we need to know.

What’s all this to you? BloodhoundBlog is all about promoting excellence in every conceivable way. We do everything we can think of to train Realtors and lenders to provide a better-quality experience by every means attainable.

My objective, expressed baldly, is to chase the bums out of our business. Licensing purports to do this, but it has not. Trade organizations like the National Association of Realtors should do this, but they don’t. But if we can educate consumers to demand better service, better information, better representation, then the bums and the crooks will go get jobs. That’s the way free markets work, when they’re working properly.

Meanwhile, real estate professionals are just catching on to the idea that consumers can see everything we do. Drop in on BloodhoundBlog and keep an eye on us.

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Reflecting (very) briefly on the Phoenix real estate market: “I got my job through the New York Times”

Last Tuesday, while racing around doing real estate work and preparing for BloodhoundBlog Unchained, I was interviewed by the New York Times about the Phoenix real estate market.

I’ve been interviewed a zillion times before, and it’s cool and fun and it means absolutely nothing. I got picked because of this article, from my column in the Arizona Republic. I spoke to the reporter for 45 minutes on the phone, and about twelve of my words made it into the newspaper.

Okayfine. That’s the way it works. I’m just waxed fruit in these tableaux and I know it.

But here’s the cool part: Yesterday I got a call from a potential client about the article. Never happened before. Real estate investor from Canada looking to balance his risk by picking up some lender-owned homes in Phoenix.

As a marketing strategy, talking to reporters is probably less productive than handing out business cards in the supermarket parking lot, but serendipity is where you find it.

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Are you looking for a flinty-eyed steward to protect the value of real estate? Whatever you do, don’t turn to a banker!

This from my Arizona Republic real estate column (permanent link):

If there’s one thing we can say we’ve learned from the housing bust, it’s this: The worst conceivable stewards of financial assets are bankers.

At every step of the real estate market’s retrenchment, the bankers have been right there, on the spot, ready to make precisely the wrong decision — days, weeks or even months late.

Can’t make your payments? Put the home up for sale. Will the bank honor an offer short of the amount owed? Maybe. Maybe in six weeks, maybe in six months. Will the buyer still be there when the bank finally responds? With prices declining by thousands of dollars a month?

So the bank has to foreclose on the home — at an imputed value far lower than it could have had from the short sale. And then it must list that home for sale at a still lower price.

But don’t waste your time looking for evidence of prudence or even simple greed in a lender-owned listing. The home will be filthy, with fixtures and smoke alarms missing. The kitchen range will have been stolen, thus to assure that the home is not accidentally sold to an FHA or VA buyer.

If the bank inadvertently approves a purchase contract for the home, it will do everything it can to avoid recouping even a tiny fraction of its losses. First the bank will attempt to savage the deal by completely rewriting the contract. And everyone involved in the process will be insanely overworked, so that even the simplest question will occasion a two- to five-day delay.

Absolutely nothing will be done to address even deal-killing defects. But because the decision chain is so convoluted, negotiations over problems will drag on for weeks or even months. That way, when the deal falls apart, as many do, the bank will be able to relist the house at an even lower price.

I wish I were making this up. I want to deride bankers as being clowns, but that’s unfair to the clowns. They produce wealth, rather than destroying it — and they dress better for work, too.

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