Good news for Goodyear residents!
Macerich company announced that they are going to start construction this year on a high end regional mall in Goodyear, AZ. The mall is scheduled for completion by 2014.
Interestingly, they didn't mention in this article the exact location but I'd be willing to bet we're going to see this go up on the north side of the I-10 between Bullard and Estrella Parkway. How could I possibly know that you might ask? Very simple - I checked out the city of Goodyear website. Looks suspiciously like the same project that was delayed in 2008 and 2009.
This is great news and further illustration that the market is turning a corner. This should mean more people traveling to Goodyear, more money spent in Goodyear, more jobs and an increased demand for housing. Just another in a series of indications to me that we are rapidly turning the corner and will soon start working down the excess inventory in this market - when that happens we may actually start to see price increases.
Friday, February 11, 2011
Tuesday, February 8, 2011
Phoenix Area Real Estate Market
I've been noticing a trend in Phoenix area real estate - prices keep going down!
I'll admit I'm not shocked but I am a little surprised that the market hasn't started to turn the corner yet. I was looking in the Palm Valley area today at houses and looked at a few properties which are listed on the MLS that would make fantastic rental properties. One property was a 4/2 and the others were 3/2's. The most expensive was listed at $105,000 - this in an area with a fantastic school district, great shopping and dining nearby, close to the freeway system and right near Luke Air Force Base.
The last property I rented out in that area of town had renters calling me the day I put up the sign in the yard - I ended up renting it out within 2 weeks to a great family that is taking great care of the house - and paying on time! (which is always a large plus in my book). The cash flow on the house is nicely positive even on a 15 year amort loan and that area of town also tends to draw quality family renters who are looking to get into the school district for their kids and settle down.
So going back to the properties I looked at today - and the couple I will investigate further later this week. If we were to pay market price for a property in this neighborhood (which, of course, we wouldn't) then we are looking at prices of a little over $100k for a 4/2 and $89k for a 3/2 & about 1,600 square. Using the 3/2 as an example I would legitimately expect to receive $1,200/month in rent on a property like that if it were fixed up nicely to where a family would want to move into it - less fixed up you could rent it out for $1,000 in your sleep. The 3/2's should be at least $1,100 - at minimum.
So, for this area of town (paying market prices), assuming you pay cash, then your annual yield would be ($1,200*12)/$89,000 = ~16.2% annually. Are your CD's or bank interest paying you that? The stock market has been up but do you realistically expect to make 16.2% on your money? If you finance this purchase and take advantage of the sub 5% interest rates that are out there now then after your down payment you end up with this cash flow:
Down payment = 25% * 89,000 = $22,250
Assumed fix up cost (Just a guess - I haven't actually seen inside yet) = $10,000
Total cost up front - $32,250
Monthly mortgage payment on the remaining $66,750 balance, assuming a 30 year amortized loan at 5% interest, compounded monthly = $358.33
Average taxes + insurance = $150
So, monthly cash flow = $1,200 - (358.33+150) = $691.67 monthly cash flow
Yield = ($691.67*12)/$32,250 = 25.7%
Oh, and by the way if financed that doesn't include the fact that the renter is paying off your mortgage. It also doesn't take into account any appreciation - which its anyone's guess as to when the market will start posting increases but given Phoenix's history of boom and bust I wouldn't at all be surprised to see another strong market back in the valley of the sun - if not within 5 years, at least within 10.
I'll admit I'm not shocked but I am a little surprised that the market hasn't started to turn the corner yet. I was looking in the Palm Valley area today at houses and looked at a few properties which are listed on the MLS that would make fantastic rental properties. One property was a 4/2 and the others were 3/2's. The most expensive was listed at $105,000 - this in an area with a fantastic school district, great shopping and dining nearby, close to the freeway system and right near Luke Air Force Base.
The last property I rented out in that area of town had renters calling me the day I put up the sign in the yard - I ended up renting it out within 2 weeks to a great family that is taking great care of the house - and paying on time! (which is always a large plus in my book). The cash flow on the house is nicely positive even on a 15 year amort loan and that area of town also tends to draw quality family renters who are looking to get into the school district for their kids and settle down.
So going back to the properties I looked at today - and the couple I will investigate further later this week. If we were to pay market price for a property in this neighborhood (which, of course, we wouldn't) then we are looking at prices of a little over $100k for a 4/2 and $89k for a 3/2 & about 1,600 square. Using the 3/2 as an example I would legitimately expect to receive $1,200/month in rent on a property like that if it were fixed up nicely to where a family would want to move into it - less fixed up you could rent it out for $1,000 in your sleep. The 3/2's should be at least $1,100 - at minimum.
So, for this area of town (paying market prices), assuming you pay cash, then your annual yield would be ($1,200*12)/$89,000 = ~16.2% annually. Are your CD's or bank interest paying you that? The stock market has been up but do you realistically expect to make 16.2% on your money? If you finance this purchase and take advantage of the sub 5% interest rates that are out there now then after your down payment you end up with this cash flow:
Down payment = 25% * 89,000 = $22,250
Assumed fix up cost (Just a guess - I haven't actually seen inside yet) = $10,000
Total cost up front - $32,250
Monthly mortgage payment on the remaining $66,750 balance, assuming a 30 year amortized loan at 5% interest, compounded monthly = $358.33
Average taxes + insurance = $150
So, monthly cash flow = $1,200 - (358.33+150) = $691.67 monthly cash flow
Yield = ($691.67*12)/$32,250 = 25.7%
Oh, and by the way if financed that doesn't include the fact that the renter is paying off your mortgage. It also doesn't take into account any appreciation - which its anyone's guess as to when the market will start posting increases but given Phoenix's history of boom and bust I wouldn't at all be surprised to see another strong market back in the valley of the sun - if not within 5 years, at least within 10.
Tuesday, January 25, 2011
Tax Lien Investing
Last time we discussed short sales. Briefly, today I want to discuss tax liens with a future discussion regarding tax deeds.
A tax lien is a claim attached to any piece of real or personal property for the satisfaction of some debt or duty. Pretty confusing huh! What it means is that someone didn’t pay their property taxes and now the government is after them! As usual that isn’t a good thing.
What’s bad for the neglectful tax-payer is good for the tax lien investor. Here’s why: These tax lien certificates are sold by the local counties to investors. What do the real estate investors do with them? Well, they hold onto them until either one of two things happen. First thing that can happen is that the negligent homeowner pays the county the back taxes along with fees and interest. The second thing that can happen is that the homeowner doesn’t pay the back taxes and the owner of the tax lien forecloses and takes the property free and clear.
Did you get that? Free and clear, meaning that even if there was a mortgage it is now history and you have a house for the price of one year’s worth of back taxes. As you can probably guess, that doesn’t happen all that often. As the bank understands this rule they will typically step in if the homeowner doesn’t pay.
That leaves scenario B. In this case the homeowner pays back taxes, fees and interest. The interest rate varies from state to state (even county to county) and often the investor has the opportunity to bid on the interest amount that they will receive when purchasing the tax lien. However, typically, the lien returns a high rate of interest. In Arizona the rate is 16% (although that rate can be bid down by competing investors). Meaning that if you know what you are doing – or you hire someone who knows what they are doing, it is pretty easy to return virtual risk free double digit returns on your money through tax liens. Additionally, the more you participate the more likely it is that you will hit a home run of obtaining a house simply by purchasing a tax lien at your local county auction.
I suppose I should qualify the above statement that the investment is virtually risk free. It is, of course, not risk free. There are always risks in any investment. The big difference in tax lien investing is that, contrary to the stock market, the investor controls the vast majority of the risk by choosing the correct type of property and following the county procedures. In future posts I will discuss some of the specific ways to avoid risk in this investment niche.
Friday, January 21, 2011
Short Sales
Following up on yesterdays introduction, I'd like to discuss a hot real estate niche going on right now - short sales.
A short sale occurs when a bank agrees to allow a homeowner to sell their house for less than is owed yet still consider the mortgage paid off. This is a great solution for everybody involved and here's why: The homeowner gets out of their upside down mortgage and get to start new without the blemish of a foreclosure on their record. The bank saves itself the hassle and cost of the foreclosure and auction process. The bank also, importantly, no longer need to carry reserves against the defaulted mortgage - enabling the banks to lend higher amounts of money for the same amount of cash it has on hand.
The community is also a big winner in a short sale. When a person who can't pay for their mortgage is replaced by someone who can pay for their mortgage the result is a more stable household. More stable households create more stable neighborhoods. Stable neighborhoods have less crime and create a higher quality of life for the people in them. Naturally, potential home-buyers will be willing to pay more for a property in a stable neighborhood than an instable neighborhood. Related to this is an interesting statistic mentioned in the New York Times that half of all foreclosed homes are ransacked by either former owners or vandals.
Lastly, short sales are very lucrative for the investor. In a short sale it is possible to create your own market with a seller (the bank) who also happens to be very motivated due to the reasons mentioned above. Additionally, there is (if done right) no competition from other investors, which means there can't be any bidding war. The deal is between the bank and the seller and if they agree with your rationale - or even if they think you aren't too far off they will go for it.
A short sale occurs when a bank agrees to allow a homeowner to sell their house for less than is owed yet still consider the mortgage paid off. This is a great solution for everybody involved and here's why: The homeowner gets out of their upside down mortgage and get to start new without the blemish of a foreclosure on their record. The bank saves itself the hassle and cost of the foreclosure and auction process. The bank also, importantly, no longer need to carry reserves against the defaulted mortgage - enabling the banks to lend higher amounts of money for the same amount of cash it has on hand.
The community is also a big winner in a short sale. When a person who can't pay for their mortgage is replaced by someone who can pay for their mortgage the result is a more stable household. More stable households create more stable neighborhoods. Stable neighborhoods have less crime and create a higher quality of life for the people in them. Naturally, potential home-buyers will be willing to pay more for a property in a stable neighborhood than an instable neighborhood. Related to this is an interesting statistic mentioned in the New York Times that half of all foreclosed homes are ransacked by either former owners or vandals.
Lastly, short sales are very lucrative for the investor. In a short sale it is possible to create your own market with a seller (the bank) who also happens to be very motivated due to the reasons mentioned above. Additionally, there is (if done right) no competition from other investors, which means there can't be any bidding war. The deal is between the bank and the seller and if they agree with your rationale - or even if they think you aren't too far off they will go for it.
Thursday, January 20, 2011
Introduction
Hello everyone, glad to be here! This blog is aimed at shedding some light on an underappreciated and misunderstood investment class - distressed real estate. Even with the recent attention due to the housing meltdown and subsequent recession it is amazing how few people take advantage of the opportunity to make outsized returns for much less risk than the stock market. I believe this is mostly due to lack of education (which I will humbly attempt to remedy) as well as a bad public image of so called "vulture investors".
We'll go into detail why being a vulture investor is a good thing not only because it can be extremely lucrative for you personally (there are worse things in the world) but also beneficial for your business clients and even the community you live in. The following posts will discuss the different ways to get involved in investing in distressed real estate and how this asset class fits in with your overall investment strategy.
We'll go into detail why being a vulture investor is a good thing not only because it can be extremely lucrative for you personally (there are worse things in the world) but also beneficial for your business clients and even the community you live in. The following posts will discuss the different ways to get involved in investing in distressed real estate and how this asset class fits in with your overall investment strategy.
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