The REAL price and value of owning a rental!

A lot of people in 2005, 2006, 2007 bought rentals and thought it was the way to get rich fast. Realtors were fast talkers, everyone thought it was easy money. Now people are struggling to pay their first mortgage, and their second, their rental mortgage and second home, ouch! The reality is it takes many years to really accumulate money and wealth from rentals. It is a balancing act most people don’t understand.
First the high cost of the loan, depreciation, taxes, interest, insurance, utilities and then the dreaded turnover. If you don’t accumulate reserves early you will never be able to balance the cash in and out.
Rentals are meant for people that understand how money really works. It costs money to make money, or it takes careful budgeting and allowances to manage the property. It takes a specific type of personality to collect the rents each month, call tenants, check the property, understand needed and timely repairs. Besides the Arizona Landlord laws, a lot of legal issues can occur with a poorly managed rental.
For an average $200,000 property you need to understand what CASH FLOW really is…After paying the mortgage, insurance, taxes, and maybe utilities you better have money left over. Money in case the tenant splits and leaves the house a mess: $130.00 cleaning, couple new blinds, a little paint here and there,new refrigerator, landscaping, maybe carpet, seasonal maintenance, water and utilities. Wow, you could be out $3000.00 and now your paying the mortgage until ( say a month and a half) a new tenant comes along you trust! Out $4200.00.
-repairs and two payments. Fortunately, rents are stable and have gone up , but so has utilities, taxes, insurance. That may mean no extra money in your pocket. Don’t ever buy a property without cash flow, check all the continued costs, don’t assume the previous rents are now current rents. Make calls yourself, call
talk to a real estate accountant, understand the real costs. After owning a rental 10 years and stocks ten years you are more likely to have made MORE money in a stock fund than owning a piece of property- dollar for dollar rentals eat money. Make a big down payment, (or pay cash), make the tenants pay all costs, water, gas, electric, get a big security deposit (one and a half rents as allowed). Write a careful lease that requires some small repairs be done by the tenants. Screen your tenants carefully.
There are good reasons to own property- It’s a negative bond- pay down your mortgage- you earn money, it gives you leverage, it could be back up emergency funds(if you have equity),it makes inflation your friend, you profit from falling interest rates, it can build wealth, building equity builds financial security.
Building equity in property takes buying the property at the right time! Timing IS everything in this market!

Appraisal new technologies

Tucson doesn’t create enough good jobs, have a stable influx of new people, or have friendly policies for new business, therefore the housing market is extremely volatile. We rode the wave of increased prices last year as everyone believed the housing market was improving, and indeed several areas of the country saw great gains- however Tucson has remained sluggish and probably will until 2016. The price increase in 2013 has flattened this year and only lower priced homes continue to be in a sellers market range. Still a few investors are buying, but that has slowed also.
Current credit liabilities and banking requirements with loans, documentations, house pricing, have increased the pressure of more accurate valuations. Appraisers have made adjustments to the changing increase of market data using advanced analytics and influencing technology, both having a significant influence on how the appraisers come up with value. The seemingly endless information, facts, figures, numbers, and charts is leading regulators to hold banks to a higher standard thus turning down more individuals for loans. In return they are holding appraisers to more stringent requirements and increased usage of mobile technology for market analysis. Big data is one of the five biggest trends redefining the valuation process. Augmented reality,a virtual layer of data with geographic specificity, will facilitate market analysis. These new technologies will be enhanced by experienced appraisers in your area who understand the value of mega data, and the changing economics of YOUR community. Be aware poor appraisals have become part of the problem in house price devaluation/ fluctuation, banking standards, and government policies, nobody is really winning here. Low values of homes keep people from moving, relocating, fixing up their home, or feeling positive about the economy.
It is a complicated time to buy, buy only if you anticipate staying 5 years. Realize a 3% increase in home values will be the norm. We are finishing up a 7 year downturn in the business/builder cycle, perhaps the model will return in a positive upturn-

Home Price increase loses Momentum

Home price increases are slowing down across the United States. They have been inching up over the last year, but the increase of just 0.2% in the first quarter of this year , from the last quarter of 2013 is slow. Compared with a year earlier the S&P/Case-Shiller Home Price Index report, national home prices were up 10.3%.
Smaller increases in home values, means less wealth, less spending, and dulling of the consumer confidence. Stalled home prices limit choices for 1st time home buyers, less upward mobility and less choices with new home builders.
The index covering 10 major cities increased 12.6% last year ending in March. While the 20 city index advanced 12.4% yearly, better than the 11.8% expected by economists. That is a slow down from February’s 12.9%. This is trending down slowly, but trending DOWN.
Annual price increases for two composites have slowed down in the last FOUR months. The slowdown reflects weaker demand- the reports noted mortgage rates have risen, Fed’s lending standards are a problem, student loan debt is too high,( not allowing first time home buyers to enter the market). The market is in unstable ground when small influences began to affect demand. This could be a slower year don’t expect a lot of appreciation of value.
Tucson runs a course that is different than national trends- we are a lagging city. Tucson can be as much as two years behind other markets- jobs come first to revive our market. Currently values are at 2004 levels.

Sales are up and stable but…..

The areas within Tucson can lag behind other states , cities and even area to area within the Tucson greater area. Know and review your value, comparables sales, and sales data within your 1 mile range. Remember to compare similar age, square footage, lot views, building materials, updates and so on. The market is narrow right now and buyers can be picky unless you are under $249,999. It is slowly improving, lower range is stable $120,000 and upper $1,000,000.00. Slowly Tucson will improve in different price ranges, locations, and out lying areas, but beware. We are still hanging on- depending on interest rate fluctuations , job creation within Tucson and upward mobility. Yes, we are improving building is beginning to occur, things are selling, improvements can add value to your house, but don’t expect great returns or inflationary pricing just yet, 3% a year is standard here.
Be happy if your house sells, the bank doesn’t call your line of equity due, or you have money to do improvements. Sit tight for two more years, it may be a better time to sell , but remember if your house goes up so does everything else.