Owning Real Estate learn to think like an accountant!

It is a difficult plan to build immediate cash flow  in ownership, it COSTS money,  most of the time when people buy real estate as investments they don’t realize the cost of becoming a landlord. Often the money you put into the property does not come back in your pocket- keep itemized records. Between taxes, insurance, utilities and maintenance, often the cash flow just isn’t there. Be aware increased taxes  and/or  the sale of the property , often brings more losses if not carefully planned.  So, at least get some appreciation in the property- buy at the right time, and timing IS everything for a little mom and pop rental business. At the end of the year there should be cash sitting in your rental account checkbook, that is a good time for repairs and capital withdrawal.

Understand your MARKET area. Tucson is volatile and goes soft  quickly. Over the years of owning  properties , especially after 10 years, (unless you have managed to PAY OFF THE MORTGAGE) the cash flow may get harder.  Large repairs begin to occur then. Thinking back over the years with my experience, I almost wonder if it would of been better to sell after ten years- moving into something newer and use my equity to buy more. The more units you have the more cash flow, balancing of vacancies is easier, and perhaps greater equity growth occurs,  however  more knowledge is needed.   Money floating, carry overs,  expensive repairs, and  income accounting  are extremely important in managing your own units. Try to calculate your return on money: if you spend $ 100,000 on a unit can you get a 5% net return? $5000.00 a year. That means after mortgage, utilities, taxes, and expenses. It was EASY with 3% interest rates, now it is way more difficult,  because of insurance and taxes.

Real estate appraisers take income, leases, and  management into account when looking at the value for a rental property. If you are under rented on your unit  your appraisal could be less. If the rental neighborhood property price is less,  your property is worth less, even if you have spent a lot in the property.  Usually a cost approach is how an appraiser evaluate the value of the property. All costs are evaluated in the cash flow.

Sometimes holding isn’t a good choice if the neighborhood is changing. What is the competition out there? Watch for neighborhood gentrification. Tucson has seen a great deal of change in different areas of the city. Competition is a killer  sometimes good, sometimes bad.  Areas  often change by zip code, where DO students now want to rent? retireres? young families, young professional?

Know your target  market and how to be a landlord.  Watch your cost on updates- keep them in line with the neighborhood, keep informed of the community,  hire people you trust to do repairs, run credit reports, have strong leases that protect you, be an active landlord- it is your job!  Never buy a property unless it can cash flow from the beginning.

Remember: What do you expect to get in return for your particular property?

Home Rentals go corporate!

Are you ready to compete with BIG business? Rentals have been taken over in America by corporations and they can compete.  The buying spree was a big bet that home ownership was trending downward and the rental market looked good for take over.Currently home ownership is at a five-decade LOW and will stay that way for awhile as rents continue to rise.  Investors are also wagering that many people no longer see home ownership as an essential part of the American dream- specially the mellinnials.  People are realizing houses are NOT necessarily the best way way to gain wealth.

For many years the rental home business was owned by mom and pop and small business investors, most of whom owned one or two properties.  Big investment firms concentrated on other types of property- that all changed in 2008 and the financial  crisis. Swaths of suburbia were sold on courthouse steps- big investors were there waiting too- with lots of cash to make quick deals. Big investors accumulated thousands of houses across the country, they built renovation companies, property management firms, and other companies that could be directly related to  the rental business. Bulk buying brought millions of properties back to life in good neighborhoods that could be affordable to buy, but easy to rent. Many companies now  offer an “aspirational living experience”. Change has quietly come to the rental market and few see it. It has become harder to manage small properties to compete with floating cash from big corporations.  Approximately 200,000 homes are corporate rentals since 2010, with the top market in the country for rentals being Atlanta with 24,075 probably more now. Phoenix is third with 13,300.  Tucson’s market has changed too , especially since money is still cheap, investors are STILL buying and the prices are softening in specific areas. Watch for signs, rental signs stay up year round. People start to place many ads in several locations, people stop putting money into their properties in certain areas. These are visable signs, rents go up at first like crazy, unreal – then a lull- then begin to drop unless you are in a community with a lot of jobs to support higher prices.  Average increase in rents is 3.5 % a year for tenants renewing and larger for new tenants.  It is always a cycle weather you realize it or not a 7 year housing cycle. Then absorption begins, we are not there yet in Tucson.

Think carefully about who is going to manage the properties and how much CASH FLOW really exists. You are in BIG business now.

Housing recovery a long way to NORMAL

A new year and maybe new hope, I stopped writing for so long because nothing has changed, but a new year brings new HOPE! ha maybe-Forecasts for home price gains of a couple percentage points this year seem possible. There is rising debate among real estate analysts on whether some recovery calls are getting overheated. Nationally the skeptics are barking, the rosy forecast for rising home prices is strickly local trends and cannot be considered a positive trend, moreover the stablization of the markets IS trending upward. That means the markets are improving, but not necessarily going to go up quickly.
Most likely the housing market will trend sideways or slightly up for a few years, as we get rid of all the foreclosures and consider the tough underwriting processes.
The National Association of Realtors forecast U.S. existing home sales to rise about 9% nationally, this year and the median price to lift 5%, on the heel of a 9.5% year over year increase. That means, the rise in median or midpoint price, can reflect either appreciation or change in the mix of sales toward higher priced properties and less forclosures. A recent poll taken by Zillow found consensus expectaions for about 2.3 % price increase, a big rise from the flat early quarters of 2012. However, 113 economists surveyed have various opinions of the housing markets for 2013- anywhere from 2.5% to 9.2%, averaging 3.9% in 2013 and 5% in 2014. Average time to recoup the losses from the housing bubble to be 12 years. Comparing perspectives into a normal time period of housing, from 1987- 2000, when the annual rise in housing prices would have been rise 3.6 % across 10 big cities. In todays stablizing housing environment, adjusted for inflation that would be 2.6% increase in value.
What could change the positive scenario? Additional regulations, foreclosures, boucing interest rates, and uncertainity with a divided government. Several well know housing economists(Karl Case, Robert Shiller,Anne Thompson,David Blitzer) have concluded while the recovery is plausible”we don not see any unambiguous indication in our data of a sharp upward turning point for demand in housing that some in the media have suggested.” Location is a key factor, Phoenix, sun belt,or Miami may trend upward with appreciation, with Tucson or smaller cities lagging a little behind a bigger city with similar location.
Bottom line be careful, it is a good time to buy, but realize appreciation may not be rapid. Buy and plan to stay, build equity and enjoy your purchase ,go back to old fashion values of ownership and pride. Be happy to own a home and pay down debit to build equity, not thinking of your house in trems of Money – as a open check book.
Most important point to make at this time, chose your realtor carefully make sure they know HOW much you can spend, do your buying homework, ask an appraiser to value the property if you are paying cash.
Don’t rush to buy, interest rates are slightly higher as I write this(Jan 2013), they will come back down(I hope) over the next couple weeks. Good luck!

Ok, ok, ok, it is time to buy!!

Lucky you, it is finally a good time to buy. If you HAVE cash, patience, and a super stable job- go ahead buy. Don’t necessarily listen to an agent,do your own homework. The best way to buy is to be educated and not rely on anyone to give you a false information. The market has flat lined, that means, you won’t get alot of appreciation, but you will get a good deal and know you are almost or, at the borttom of the market. Plain old ordinary people can make money timing the market, buying low and selling high, but it isn’t as easy as that. The market is still scared, buyers are scared and the economy still plays the largest part of the movement in the market.
Housing trends tend to be 7 years well we starting (offically) in 2008, California 2005, and other parts of the country followed a slightly different pattern, but the majority of the country is trending upward- Yea for us who waited it out…
That doesn’t mean housing is going up, however, it means we are stablizing and that alone is something new. The inflationary positive values upward should begin in 2015, (3% a year average).
Most people who are in the Real Estate industry realize interest has not been so low since the 60′s. We get to go back in time now for buyers- First time home buyers, people with great credit waiting to move up, people who have been renters ,waiting cash buyers, investors, and others who have been patient. The market is till tough to get a loan, so check with several banks and credit unions push hard to get a good loan. The laws have once again changed, and will change again in July.
Purchasing a home NOW offers the reassurance of buying low, chosing from a decent inventory, and buying at a low, low interest rate. Don’t get emotional involved, don’t get in a bidding war, and don’t think you lost something GREAT! There are alot of great homes out there. If you are flexible, certains areas are still lagging and or depressed area ( moving slowly). Be carefull when using zillow or other web sites for a basis on property values, they CAN NOT consider all options as would an appraiser, because they are NOT familiar with the specifics of the house. Appraisers consider views(how could zillow consider that????) interior finishes(not track upgrades necessary) lot orientation, fireplaces, neighboring communities, foreclosures in the areas, specifics from the part of town,(buses, shopping, rural) and specific distances from/ to the home. SO the appraiser gets the best information from his data, education, local market trends, and national/local effects of economies. The value of appraisers in the market will return once the economic values of real estate return to normal levels.
We still have shadow inventories,( houses to be put up for sale from the banks or homeowners), however the inventories are dropping to normal levels. Homes have traditonally given value to people who own their homes for many years, cash out and have some money for retirement, however with many values back to 2004 ,many retirees have no equity and will hold as long as possible- look for a long slow market improvement. With all negative considerations the market has improved just because of time , not any thing anyone has done(infact mostly the markets have improved JUST BECAUSE nothing goes down forever). Interesting fact, remember all markets are cyclical. Always do what others aren’t doing, run against the trend at the time!

Same old, same old….

It seems to me the great recession just keeps on giving, or should I say taking. Home repossessions will be topping 1 million, up from 804,000 in 2011. Total foreclosures fell 34% in 2011 national to 1.89 million, so we are still cleaning up inventories. Housing inventories are slowly going down , but only a few can really get credit to buy, are stable enough to purchase a house and or feel confident with the economy. The MEDIA will continue to report a very rosy picture, but the reality is still tepid, barely breathing. The houses that are selling are forclosures and distressed sales- don’t sell if you can help it. It still isn’t a good time. Things, the micro economies(house values) are improving, however the macro economies are NOT. The job markets are improving in certain areas, that weren’t affected to begin with, some house sales(pricing) are improving, however it is so diferent from area to area, Tucson is still considered declining overall. Watch out for the statistics from January because they are going to be ugly, it will be affecting all sorts of numbers- stocks, housing, and retail. Remember people buy when they feel confident. 2012 should be a better year, that means- stablization of prices generally speaking, however gas is going to affect people in a negative, way once again. That has a negative affect on how people feel about buying- it all runs together.
The greatest asset Tucson has is our weather – because boomers will come with money and THAT ALONE, is the future. It will grow our markets. At some point we WILL need more housing, apartments, inexpenisve first time homes, and single family residences. Yea, to the future of growth.
I have lived in Tucson my whole life and have watched the building cycles, this is an odd one- because of the continuation of negative influences. Prices won’t be increasing any time soon, but hopefully we will feel more confident. Several factors need to come together to make our market stronger. More lending flexibility(Frank Dodd regulations -government), lower cost of ownership(local taxes,government) , increase in educational values and a strongereducational system(local governement), and so it goes, there is a theme that we cannot readily fix. Several personal ideals come into play also, personal responsibility- (affording what you buy),being realistic about values going forward, and understaning what it takes to be a homeowner. Buying a homes is an investment with time and resources. Until these things are understood in the market the housing slump will not improve. It is slowly improving, but it could just continue this way until 2015 -flat. Then it becomes a TEN year business cycle, not a seven. Be involved understand real estate before you buy! Use a MAI appraiser to understand value before buying, or selling- real estate agents job is to SELL understand that fact- they don’t eat if they don’t sell!

Keep waiting!

The housing market in NOT going to improve anytime soon. With poor slow improving unemployment, foreclosures, bank regulations and financial constraints the housing market is doomed to death. Don’t buy anything unless you have money(cash) a really undeniably stable job and are going to stay for 5 years. The market has a long way to go to pull itself from sinking. It is no ones market! Keep in cash, keep debt low and be prepared for a rocky ride throughout next year. The election is the absolute pivital point of the housing market . Houses continue to go down, there is very little value that is stable in the stock market, and gold and gas are rising, this combination is only waiting for for one ounce of bad information to drop further. Foreclosures still out sell existing homes, and prices have been pushed lower, the good signs, inventory is dropping, interest is at record lows, and new homes are beginning to sell. Buyers with great credit are buying multiple houses, however rents are still weak in Tucson. There really is no good sign yet, keep waiting. You finally need to realize the house prices of 2005,2006, and 2007 are gone and will NOT return for twenty years. Be prepared to take a hit at some point.

What does a Real Estate Appraiser really do for ME?

An Appraiser protects your interest in your biggest assest and understands the local market trends! He is a person with a service to offer the community where he lives and cares about. There is so much controversy over how the housing market is failing I thought it would be good to bring some professional insight into the mix. The governement’s view point of housing lacks the knowledge of how the free market really works- and because now FEAR has controlled the buyers/ sellers in the market ,the competive edge of the market has changed- exactly like the stock market. A great point to remember, (when trying to make money) when eveyone runs away – you STAY. Now is a good time to buy, it is just conviencing the average buyer with money and good credit. This housing market however, is not going to turn around anytime soon. The govenment policies will have to change to really make a positive impact on sales. We will continue to improve slowly at best, otherwise flat and that means house prices will remain the same.
Now to explain WHY an appraiser is an important PERSON in the mix.
We are professionals (MAI, SRA, designated appraisers)that often study market trends nationally, understand and relate to values in time(estate properties), can review markets in particular stigmatized neighborhoods through documentations, and have specific collected data that most normal individuals can’t afford to use or have. For instance, how problems with Zillow affect your property; it can’t compare YOUR views, YOUR particular property assests, it can only clump information that is gathered on the computer and average that information together to get an average- therefore often it is severly incorrect. If banks use these number you won’t ever get a loan, some real estate agents use something called a CMA Comparative market analysis- this too has its faults. Real Estate agents look at the property from a SALES point of view , not a value- Two entirely different ways to understand property- often it is only about making the sale, being your FRIEND, working the area, and so on. Remember it is thier job and if they don’t make a sale, they don’t eat.. Appraisers have no interest in what the price of the property is only value. They care what it will sell for-in a specific time frame. So if an appraiser from Phoenix( out of the Tucson area ) comes into to appraise your home they only know to compare Phoenix prices, zillow or CMAs the lowest values…..they only have access to computer statistics, BAD news for you the seller! They really have no interest, they are salaried employes for a management company- they just do thier job, from a form. They are often from out of the area!
This is a big problem in the housing market now- many unqualified appraisers are coming through management companies (because they are cheap and ordered through an online management company from banks, they have minimum educations, qualifications and only do houses because the government gives them a format form. You get no extra choices for views, custom, neighborhood accommodations, and so on. If this continues we might as well all live in track homes because that is where the value is going. We all will have equal living arrangements. Ask your banking institution for an MAI or ask “Does all the money I pay go directly to the appraiser?” You will be shocked out of the $350.00 you pay the bank keeps most of it and gets the cheapest guy to simply write a report. Repeat, I said “write a report” not do an appraisal of your property.That IS not good for you or looking out for your interests. Be aware, be a wise consumer, protect your valuable assest, pay attention to governement rules and how they affect your assests. These are difficult times for homeowners and if mortage tax breaks go away we all are going to take another hit. Hang in there we are half way through 2011 and maybe the end of 2012 will be better! Realistically it looks like 2013 .

Who needs to own a house anyway?

We are now in a new era of extending declining house losses, way too much government intervention, and a new found realization that not everyone can buy a house. Going forward into the unforeseeable future many people will NOT be able to purchase a house. Many first time home buyers will be out of the market as of April 1st because of more financial reforms, others just won’t qualify because of lower credit scores and some won’t be able to buy because they have no way of saving a down payment because of increased cost of living. This is a sad moment in our history, NOTHING has improved in the real estate market since the downturn begin in 2007. Most business cycles have been seven years, it looks like the housing market may be ten, and really may not be considered starting until September 2008 ???? Yyks! Does that mean 2018? How long can a cycle last and what will cause the cycle of deflation in housing to change.
Well first and foremost, we need demand- and that just isn’t happening. We need money earned, jobs and stability in our economy. Do you see or feel any one of these factors occurring? This trend may stay for several years and only as families grow will more need for new houses occur, a new generation of buyers, jobs, and a different administration. A lot of outside factors are going to need to change before any price increases occur. A few areas have stabilized, but most markets are slow or declining. As the spring selling quarter begins we will all be holding our breath hoping for a small increase. No one, except homeowners seems to be worried or addressing this issue, many people are sitting thinking things will soon change and values will go back up to where they were a few years ago- sorry you have lost it, most, if not all your equity from 2005-2009. When prices do begin to go up it is usually very very slow 3% a year.
It may become to trend to rent, rental prices have stabilized and many people can’t afford the repairs, taxes or down payment. That is ok, especially if you own rentals, but beware now may not be the time to buy, especially if many local governments take away the mortgage income tax credit. There is going to be NO advantage to owning a home soon!

Tucson is slow to improve

December 2010, here we are at the end of the year and values still remain deflated, sales are difficult, and financing is hard to get. Nothing has really improved this year, we can only hope next year will improve.

The chances of price increases, value appreciation, or positive housing growth is going to be slow and difficult next year. It’s the economy!!

Over and over again I have to state this because people still won’t believe it, now believe it! Between high unemployment, slow consumer spending and general fear people are NOT buying or willing to part with money.

The US economy will remain sluggish and probably should grow by about 2.6% in 2011, that’s not enough to feel an improvement. According to the National Association for Business Economics the jobless rate will remain above 9% next year, at least the relapse of the recession is getting weaker. We will have another year of flat-lining in housing before any real growth to improve housing values. Still too many foreclosures are flooding the market.

Hang on, it may be tough again next year. At least the banks are now taking a longer time to release new foreclosures onto the market. This allows housing sales to occur that can lift the comparable sales by adding in stronger values. This pricing situation takes time to remove the weaker sales and will eventually solidify normal market pricing. The market has tightened and sales are occuring. The Tucson listing numbers have dropped dramatically. Tucson is slower to recover than other metropolitan areas, but at least its a great place to work and live, that is, if you have a job!

What can we expect now?

We are clearing out some of the back log in housing inventory, however things still look bleak. The July statistics are dismal at best. Only one positive sign is appearing, Tucson is beginning to move in the right direction! Pending contract increased by 47%, however new listings also increased by 23.65%. People must be getting tired of waiting to list their property, it still isn’t time to sell if you have been waiting, prices are still declining. High foreclosures, credit availability, high job losses, and track over building is pushing the prices down, but perhaps a base is beginning to form.

The average sales price for July 2010 is now $192,072. Tucson has returned to a 2004 price value. The last 3 years the prices in pockets of the city, have fluctuated up and down , but the downward pricing trend has been widespread.

Zip codes with stronger sales have been 85706, 85718, 85745, 85757, at least 30 units have sold in these areas over the past year. Tucson still has a large number of listings 6,668, coming off its highs of 10,387 in April of 2007. Home sales volume from July 2009 to July 2010 is down 39%, unit sales (the number of) is down 33% too.

I know these statistics look overwhelming depressed, however the number of houses on the market has slowly gone down, and that will eventually help to stabilize our market.

Tucson’s market is generally slower to recover than other metropolitan areas, accompanied by slow job growth, a slower pattern of growth, and harder regulations on credit. This takes times to improve these areas too, in fact several years. We are probably looking at 2012 until stabilization occurs in Tucson ‘s real estate markets across the city.

This winter with newcomers, visitors and hopefully a stronger national economy our local economy may continue to improve, but all signs lead to a very, very slow recovery and a difficult time ahead for real estate in Tucson!

Remember to call Jeffrey Patch 520 326-6066, Tucson Real Estate Appraisal Inc. The ONLY Tucson Real Estate appraisal team that has worked in this market for 40 continuous years.

He is an MAI., SRA, licensed real estate appraiser in the state of Arizona for 30 years. Call him today with your questions or to order a report.