Update on Phoenix:
For the past year we have been putting the pieces in place and we are now scheduled to open our Phoenix office on April 1. We are anxious to get going in this new market as it presents many opportunities and challenges, especially in the current real estate climate. We were asked by many of our current clients to assist them with their Phoenix investments, but the process of starting from scratch in Arizona proved to be more lengthy then when we crossed state lines and expanded into Louisiana and Oklahoma. Thanks for your patience while we have diligently worked to get this going.
The last step before we open is an interview with the Arizona Department of Real Estate (ADRE) so we can finalize the process and activate our brokerage license. In addition to the red tape issues to overcome we have been working with local Realtors and NARPM members for over a year to better understand the Phoenix market. This task has been like trying to read the labels on a NASCAR racer right in front of your face at 200 mph. The Phoenix market has had one of the most severe years as it has come to grips with the extraordinary overbuilding and the collapse of the job growth. Certain micro-markets in Phoenix have gone from good to bad over the past year and many of these bad markets do not yet show any light at the end of the tunnel.
The good news is it appears the Phoenix price adjustments are enough to again make rent/value ratios attractive for investors who want to enter the market. The balancing fear is the lack of new jobs means your rental home could sit vacant for an extended period of time due to oversupply. Please do your research before buying! A vacant house will kill the ROI on any investment since the rent/value equation only matters if you actually have a paying tenant in the home. We are concerned there could be a lack of tenants at any price point in certain neighborhoods so you should re-renter the Phoenix market with caution. Explore Phoenix opportunities and be prepared to act on the proper situation, but please use caution.
Our experience with the oversupply in Dallas from 2003-2006 provides us with a unique set of tools to deal with the extreme vacancies now seen in Phoenix. Back in 2004 we struggled in DFW and came up with many creative solutions to solve the problem of marketing into an oversupply. This was going on at the same time as Phoenix was shooting off the charts and everyone was making money there without even trying. We are poised to tackle Phoenix with the same fervor and skills with which we conquered the DFW challenges, however, since the Phoenix market is more depressed then DFW was at it's worse you should re-enter Phoenix with caution.
If you have properties in Phoenix you would like us to manage or you know of someone who does, please contact Jamie Hampshire in Dallas (JHampshire@PrimeProp.com) and she will collect your information and get your paperwork ready so we can start taking care of you as soon as we can officially open our doors.
Update on Our Other Markets:
In the markets where we already serve clients, the vacancy rates are still at all time lows. Baton Rouge now has a less then 5% vacancy rate for the homes we manage. So, if you are a client and we suggest you raise rents, please follow our recommendations. Early on in this business I was told "Nobody ever moved over $20.00", and though you may be tempted to skip a small increase when we recommend it, please take the extra $240.00 for the next year. There are up years and down years, and it is important to take the up years when they are here.
Remember that Dallas, Tulsa, Oklahoma City and Austin were not hit by the frenzy of overbuilding that happened in California, Arizona and Florida. What you currently experience in those frenzy markets is not what is happening in our other markets. Our current inventory of unsold homes on market are within historical norms of a 3-6 month supply. Our markets significantly curtailed building two years ago. This was in spite of the fact that the DFW area added a net of over 90,000 jobs in 2008 so these two issues created a scarcity of nice rental homes as compared with the demand. Also, if you have any deferred maintenance, do it now when times are good, take advantage of the cash flow which is available.
Last item, after over 20 years in business we have adopted an official slogan for Prime Properties. Our new slogan, "We do it better!", encapsulates what we have always focused on. "We" means we are a team of experts working for you, the "it" is whatever we do and "better" is measured not only against our competitors, but also against how we did our job the years past and individual landlords who manage their own homes. We constantly review and revise our processes in order to be the best at whatever we do.
Thanks to all of our clients who have trusted us over the years, and if you ever feel we fail in our efforts to do things better please bring the issues directly to my attention.
Kevin Martin
KMartin@PrimeProp.com
Prime Properties - We do it better!
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Friday, February 27, 2009
Wednesday, February 18, 2009
Revised Fannie Mae Regulations Good for Investors
I just met with my mortgage specialist and he explained that Fannie Mae regulations have been revised to allow lower cost/conforming loans be made more available to qualified investors. This is good news for investors who want to take advantage of the soft sales market to add to their portfolio while housing prices are soft, mortgage rates are low and rents are still creeping up. Housing prices are soft, especially in the price point where we recommend investors buy, mortgage rates are low if you qualify for a conforming loan and we continue to push rents up as vacancy rates drop to a ten year low.
The problem for investors was the government would not allow conforming loans to investors who already had four houses. Sometime this included your primary residence meaning your carrying costs went up significantly if you had three or four investment properties and wanted to add additional investments. Now you can get a conforming loan with a 5%-6% interest rate for up to ten homes. The new criteria includes that the investor must include a 20%-25% down payment. Investors must now re-orient so they should be looking for a strong cash flow instead of hyper leverage. Please call us to assist you in locating a proper investment property. If you can put 20%-25% down on a $140,000 home we will look to place you in a home which will return 5%-10% each year on your down payment over a ten year period. This return is before the impact of appreciation or the principal retirement as your tenant pays the bills. Buy the house now, get cash flow now and cash out at the end of 15 years to realize the benefit of any appreciation and retirement of principal. Once you add the benefits of appreciation and retirement of principal you should be looking to receive a 10%-20% annualized return on your initial investment.
So, if you own less then 10 investment homes you should be looking to take advantage of this current opportunity. Let us know you are interested and we will assign an investor specialist to work with you. We will locate the house which is vetted with an eye towards performance as a rental property and provide funding resources who specialize closing loans for investors.
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The problem for investors was the government would not allow conforming loans to investors who already had four houses. Sometime this included your primary residence meaning your carrying costs went up significantly if you had three or four investment properties and wanted to add additional investments. Now you can get a conforming loan with a 5%-6% interest rate for up to ten homes. The new criteria includes that the investor must include a 20%-25% down payment. Investors must now re-orient so they should be looking for a strong cash flow instead of hyper leverage. Please call us to assist you in locating a proper investment property. If you can put 20%-25% down on a $140,000 home we will look to place you in a home which will return 5%-10% each year on your down payment over a ten year period. This return is before the impact of appreciation or the principal retirement as your tenant pays the bills. Buy the house now, get cash flow now and cash out at the end of 15 years to realize the benefit of any appreciation and retirement of principal. Once you add the benefits of appreciation and retirement of principal you should be looking to receive a 10%-20% annualized return on your initial investment.
So, if you own less then 10 investment homes you should be looking to take advantage of this current opportunity. Let us know you are interested and we will assign an investor specialist to work with you. We will locate the house which is vetted with an eye towards performance as a rental property and provide funding resources who specialize closing loans for investors.
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Saturday, February 7, 2009
Job Loss Hits Texas
The government just released December numbers and it is official, we are losing jobs in major Texas markets faster then we are adding them. DFW had 12,600 fewer employed persons than the prior month as we dropped below 3 million employed, down to an estimated 2,990,900. The Austin area saw a reduction of 7,300 jobs with a non-farm civilian workforce of 822,100.
These are December numbers, before many of the recent layoff pronouncements which arrived in January, so I expect this trend to continue, as it has been happening across the rest of the country over the past year. This is one time when you are glad to be the last ones at the table. The Governor's office released an economic advisory stating this trend should continue until September or October of 2009, but I have no clue as to why they think they can predict the future with any accuracy.
The thing we have in our favor is that we continue to see companies announce relocations and additional jobs into our area. Click on these company names to find out about the type of job growth we continue to see as organizations like St. Jude Medical and EaglePichler add to the available jobs in the Dallas area.
A couple of other interesting notes:
On the foreclosure front the numbers of foreclosures in the DFW area has flattened. DFW used to lead the country in the rate of foreclosures, but at .9 foreclosures/100 homes we are now almost 50% lower then the current US average of 1.7 foreclosures/100 homes.
Rentals of single family homes continues to be strong. We are still at 95% occupancy and continue to increase rents in the DFW market. If a home is priced correctly we are finding a good tenant within 3-5 showings. If a home is priced too high we will not see enough showings. If it is priced "right" you get enough showings, but if nobody is applying to lease it then the house is probably in need of upgrades or serious reduction to compensate for the need for an upgrade. That emerald green carpet which is still holding up well because you put in the "good stuff" back in 1997 might be holding back the home. Remember styles change and if your product does not keep up with the styles, it can cost you in reduced revenue. If an upgrade is recommended you need to evaluate how long it will take to recoup the new expense by the higher rent you will receive. The additional benefit of an upgrade is that the better equipped home tends to attract a better quality of tenant who is more likely to take care of the home and meet all their lease obligations.
Brace yourself for this last item. How old is your home? If you purchased your investment property new in 2004 or 2005 you need to prepare yourself for the expense of replacing the original builder installed fence. This will typically cost in the $2,000 to $4,000 range. Unfortunately, most builders use construction materials and methods which have a planned obsolescence of five years. The builders install an inferior fence to save money with the understanding that the typical owner occupied home has their original occupant five years or less. For an additional 20% more in cost the builder could have installed a fence that would last 15 years before needing a major repair. Most of our clients hold their investment properties for 10-15 years to make the asset work best from a financial return, so unless they have been through this before, this expense is a unwelcome surprise. We are reviewing all the properties we manage to better forewarn about this and other repairs and if we recommend a fence replacement we will be recommending an appropriate fence, one which will last longer, have fewer repairs and still look good at time of resale.
Sorry for the long post, I will try to keep the next one shorter.
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These are December numbers, before many of the recent layoff pronouncements which arrived in January, so I expect this trend to continue, as it has been happening across the rest of the country over the past year. This is one time when you are glad to be the last ones at the table. The Governor's office released an economic advisory stating this trend should continue until September or October of 2009, but I have no clue as to why they think they can predict the future with any accuracy.
The thing we have in our favor is that we continue to see companies announce relocations and additional jobs into our area. Click on these company names to find out about the type of job growth we continue to see as organizations like St. Jude Medical and EaglePichler add to the available jobs in the Dallas area.
A couple of other interesting notes:
On the foreclosure front the numbers of foreclosures in the DFW area has flattened. DFW used to lead the country in the rate of foreclosures, but at .9 foreclosures/100 homes we are now almost 50% lower then the current US average of 1.7 foreclosures/100 homes.
Rentals of single family homes continues to be strong. We are still at 95% occupancy and continue to increase rents in the DFW market. If a home is priced correctly we are finding a good tenant within 3-5 showings. If a home is priced too high we will not see enough showings. If it is priced "right" you get enough showings, but if nobody is applying to lease it then the house is probably in need of upgrades or serious reduction to compensate for the need for an upgrade. That emerald green carpet which is still holding up well because you put in the "good stuff" back in 1997 might be holding back the home. Remember styles change and if your product does not keep up with the styles, it can cost you in reduced revenue. If an upgrade is recommended you need to evaluate how long it will take to recoup the new expense by the higher rent you will receive. The additional benefit of an upgrade is that the better equipped home tends to attract a better quality of tenant who is more likely to take care of the home and meet all their lease obligations.
Brace yourself for this last item. How old is your home? If you purchased your investment property new in 2004 or 2005 you need to prepare yourself for the expense of replacing the original builder installed fence. This will typically cost in the $2,000 to $4,000 range. Unfortunately, most builders use construction materials and methods which have a planned obsolescence of five years. The builders install an inferior fence to save money with the understanding that the typical owner occupied home has their original occupant five years or less. For an additional 20% more in cost the builder could have installed a fence that would last 15 years before needing a major repair. Most of our clients hold their investment properties for 10-15 years to make the asset work best from a financial return, so unless they have been through this before, this expense is a unwelcome surprise. We are reviewing all the properties we manage to better forewarn about this and other repairs and if we recommend a fence replacement we will be recommending an appropriate fence, one which will last longer, have fewer repairs and still look good at time of resale.
Sorry for the long post, I will try to keep the next one shorter.
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