Has the bottom hit? (Phoenix, Mesa: appliances, houses, unemployment)

[Captain Bill]

Originally Posted by markas214

...My quote was as a reply to Bill's regarding this being a time of opportunity. In my opinion it is not as far as real estate.

I certainly understand why you would think that this is not a good opportunity to invest in real estate. And for anyone who does not understand RE investing in a declining market, I would certainly not recommend it.

Investing in a declining market brings plenty of opportunity because of the ability to negotiate excellent prices where there is sufficient spread to fix up a run down property and put it back on the market quickly and sell it at a discount to the current retail value.

It takes knowledge to know what one needs to pay, how much it costs to fix up, how much it will sell for, and the ability to get it marketed and sold in a short time frame.

And when the right property comes along, the experienced investor will keep that property as a rental for cash flow, and in my opinion, can expect to do well in capital gains appreciation over a period of 10 years.

I purchased one home to keep last year, and have a tenant with a 2 year lease. Now I have a second proepty to keep and I'm beginning to rehab it to rent. I hope to buy at least two each year to keep.

Our major focus is a mixture of buying and rehabbing, and buying to wholesale properties to other rehabbers. We have done 10 of those projects in the past 8 months, and this year our goal is 24 projects.

One cannot just go out and try to negotiate a low price on a property and expect to make a profit on it. There are many factors to examine before making a decision to buy an investment property. The first is to know the current market value in it's current condition, and the after repair market value. One must accurately estimate the cost of repairs, and the type of repairs and upgrades that will sell the house; plus know all of the costs involved, including commissions, escrow fees, and holding costs.

Then they need to know what spread they will need in order to cover all those costs and have a profit.

It takes a lot of hard work, and just as Warren Buffet may occassionally have a deal go sour, the real estate investor will also experience that. We had to lower the price of one of our properties to get it sold quickly to prevent a loss because we went into the property with the end sale price point over $300k, knowing that the sales were slow in that range. We decided that rather than hold onto it for another 3 months trying to get our forecasted profit, to sell it at a number that was $5k over break even point.

We knew going in that we would have that break even option. We learned our lesson and now stick to an end user price point under $200k.

[azjack]

"I have a very positive cash flow - and the rental rates are going up"

Great. Except rising unemployment, softening demand, and overall economic contraction do not lead to higher rents. Corporate apartment complexes are heavily discounting their rates, and single family rental rates face even stiffer competition. So, you must be the exception.

Are some of these places in Pinal County? Good luck with that.

[azjack]

"I thought rent tracks to income and employment rate..."

Correct.

"You mean to tell me AZ unemployment rate is higher than 7%"

I did not mention 7%. But yes, I believe that it is higher than that.

"and will go much higher? or Are employers asking employees to take a 10-20% pay cut?"

Yes, the unemployment rate will rise over the next few years.

I am not sure what you mean by "are employers asking employees" about a pay reduction. Hours are reduced in many businesses, there are layoffs in both the public and private sectors, and state furloughs. Stores and other businesses are closing regularly.

I would say pay cuts range from 0% to 100%, and they are not optional.

[azjack]

"Do you share the Jacks' schadenfreude at the millions of people worldwide who are suffering in this recession? Loss of jobs, incomes, homes, dreams in this country, maybe starvation and death in others?"

Give me a break. Malfeasance by NAR types, flippers, mortgage brokers (brokers make you broker), and ordinary everyday greedheads helped create an asset bubble that would inevitably cost the economy and nation a great deal. I warned people starting five years ago and the four people whom I personally know (for sure) listened to this advice collectively avoided about $700,000 in losses. That will not save their jobs or their neighborhoods, but it places them in stronger positions.

Now that most of this inevitable result has come to pass, I am supposed to pretend that it is not happening or that some federal subsidies will re-start a bubble. The faster the severely underwater debtors default, the sooner this mess will be resolved. It will take years, but I prefer that it not take a decade or more.

[Howard Roark]

Your not kidding! If I stay in Phoenix this Fall I will be enjoying 25% lower monthly rent at the same apartment.

Why buy when renting gets cheaper and cheaper? My investments that are not in stocks will keep me afloat without a job for many years should I lose my job. Not working will mean time enough for working out and enjoying the fine ladies in this city.

Originally Posted by azjack

Great. Except rising unemployment, softening demand, and overall economic contraction do not lead to higher rents. Corporate apartment complexes are heavily discounting their rates, and single family rental rates face even stiffer competition. So, you must be the exception.

Are some of these places in Pinal County? Good luck with that.

[MN-Born-n-Raised]

Question... I'm looking to buy a winter home in AZ to live in myself. I won't have the cash till early summer. I'm thinking Litchfield Park, Avondale, or Goodyear (North of 10). I am staring at the 3000 sq foot homes that seem to be hovering around $200K with the features and lot size that I want.

I'm 44. I am not in a hurry as I do have a home in MN and plan to keep it. I've read that some "experts" think it has another 20% to go. All I can say is that is terrible news for a lot of families. At the same token, I don't want to buy it now if it is expected to drop some more. My gut says there is unfortunately more to go. Personally, I trust the opinions of the street smart investors over the "experts".

How would a person check on the map or an area of overdue taxes?? I'd expect and assume that there are ways to assume if an area is in trouble.

Any and all opinions are welcome. If people have a good handle of that specific area I would welcome it.

Thanks for listening...

Steve

[azjack]

"At the same token, I don't want to buy it now if it is expected to drop some more. My gut says there is unfortunately more to go. Personally, I trust the opinions of the street smart investors over the "experts". "

I live about ten minutes from Litchfield Park and my bearish view on AZ housing is apparent from my posts. If the $200K is a big part of your net worth, which it would be for 98% of the population, then I would put it off for at least a year and then re-assess.

"How would a person check on the map or an area of overdue taxes?? I'd expect and assume that there are ways to assume if an area is in trouble."

You can check on every individual property at maricopa.gov Go to the assessor's section with the address and there is a link to the taxes page for each house. I am not aware of any unpaid tax map, but it may exist somewhere. Maybe the annual list of tax liens for sale has that kind of map, but I never checked.

[Captain Bill]

Originally Posted by smarty

Don't worry... if you fail as an RE investor.... Obama may be there to help you. But, if you fail as an stock investor.... Sorry... you're shxt out of luck.

I don't think Obama helps out failed real estate investors. They only help out the primary residence of the owner. If an owner can afford the mortgage payments they won't help. There are a lot of rules to the assistance programs.

And he wouldn't be there to help me anyway because I pay cash for the properties I buy.

The so called "investors" during the last run up, were not investors. They were speculators.

They knew nothing about investing. They bought houses speculating that they would increase in value without the buyers having to do anything. Just buy it, let it increase in value, and sell it. That is not investing. That is speculating. It's the greed factor, and it is a fact of life that exists throughout the country.

The true investor of today is providing a service to the community. S/he weighs the risks and rewards, and buys run down property to fix them up and sell at a profit. The community benefits by having the blighted neighbor house being transformed into a livable unit that blends in with the community.

Yesterday people were buying houses so they could increase in value without doing any work, and make money.

Today, many people are sitting on the sidelines hoping prices will go down further so they can (hopefully) buy at the bottom. I see that strategy as sort of the same situation as the bubble buyers, but only in reverse.

Both the speculators and the bottom hunters are looking to profit from the situation that exists.

Is there anything wrong with either strategy? No. Given that this is a capitalist society and people have the opportunity to create their own wealth, or their own losses, in any way they choose, there is nothing wrong with either strategy.

One chooses his/her strategy, and takes their chances.

Neither strategy is without consequense.

The bubble strategy that was actually created by the mortgage brokers, bankers and wall street, created BBB grade mortgage investment packages that were sold BBB but with AAA promises, and were performing as AAA for awhile. As a consequense, it all fell apart when the assets stopped performing.

Now during the decline the people who are not buying because they are wanting the prices to fall further, can be said to be causing more damage to the economy because the economy is housing driven.

While the bubble buyers and bottom watchers both have a dramatic effect on the markiet, they are only using the strategy they think works best for them, and are entitled to that.

If there is blame to be placed, I feel it is on the mortgage industry, the banking industry, and wall street, and the people who sold those BBB grade mortgage backed securities, who all knew the risks involved. However, they were making millions, and some were making billions of dollars doing this.

Unfortunately, they were ahead of the game and Greenspan didn't realize what was happening until it was too late.

[Captain Bill]

Here are some of the debt relief provisions: They may not be all inclusive, and may have been revised.

• No income limitation. Everyone is eligible.
• No more than $2,000,000 of mortgage debt is eligible for the exclusion. $1,000,000 for married filing separate return.
• Relief applies ONLY to individuals PRINCIPAL RESIDENCE.
• Forgiven mortgage debt must have been secured by that residence
• No relief is available for cash-outs, whether the cash out takes the form of a refinanced first mortgage, 2nd mortgage, HELOC, or other.
• Eligible debt is what is called "acquisition indebtedness". This is used to acquire, construct or rehibilitate a residence (primary residence)

[Ponderosa]

Originally Posted by Captain Bill

Here are some of the debt relief provisions: They may not be all inclusive, and may have been revised.

• No more than $2,000,000 of mortgage debt is eligible for the exclusion. $1,000,000 for married filing separate return.
  

Dang, I'm out.