Thursday, June 13, 2019

Phoenix Housing Market stats for June 2019

Residential real estate in greater Phoenix continues to see price appreciation, driven by modest personal pay increases and falling interest rates.  Current 30-year conventional loans are 3.82% with .5 points. (Fannie Mae, June 2019)  
Further, the Federal Reserve is now forecasting a drop in rates through next year with many Wall Street analysts predicting three reductions of ¼ point each over the next 12 months.  
Why the change in rate forecast?
Late last year, signs of a significant slowing in the U.S. (and global) economies began to emerge.  The Gross Domestic Product (GDP) had slowed, and forecasts were predicting continued slowing over the next several months.  Also, the U.S. found itself in a significant trade dispute with China (and for a brief time, Mexico), and trade disputes are almost never good for global economic growth.  With the economy significantly slowing, the Fed announced its intent to change its forecast of approximately three interest rate increases to taking a “wait and see” position.  
Today, analysts are predicting rates in 2020 to be flat to slightly down:
(Reuters) – The U.S. Federal Reserve is done raising interest rates until at least the end of next year (2020), according to economists in a Reuters poll who gave a 40 percent chance of at least one rate cut by end-2020.
So what have these lower rates done to our housing market?  Our median sales price in June 2019 is $278,000, up 4.9% year over year.  
One last point, whether buying or selling, please keep in mind that our market is not monolithic.  Price ranges and neighborhood locations will vary in performance, often significantly.
For the $150,000 to $225,000 range, expect annual appreciation rates to be between 6%-10%.  For homes that sell for $225,000-$500,000, appreciation is expected to be between 3%-5% and those selling over $500,000 appreciation is expected to be between 1%-3%. (Cromford Report, June 2019)

If you have any questions or need more specific information about your neighborhood, please contact me and I would be happy to help you find any information you need!  

Monday, June 3, 2019

Is It Time To Sell Your Investment Property?

In our East Valley Real Estate Investor article, we talk about a fictional man named Carl who has owned four homes since 1999. The homes were built in the 1970’s and the mortgage on each home is $650. Carl charges tenants $750 per month, well below
the $1300-1800 market rate for rental homes in the area. When the air conditioner in one home needs to be replaced, Carl has no choice but to finance it. This creates more debt on what should be a cash flow investment. He is in a real bind and his family is asking him if it is time to sell the investment property. While fictional, this scenario represents a lot of investors who haven’t managed their properties and end up in a different financial position than they had likely intended.

When is it time to sell the investment property?

The reality for Carl is that it may make sense to sell at least one of the four homes. Because the homes have not been renovated, he may not get market rate on the sale but will still likely have equity because of the timing and original cost of the homes; his real estate agent will be able to price the home to sell while protecting the equity. He can then take equity from the sale to make improvements on his three remaining homes as the tenants vacate. While he may have a few months without tenants as he makes improvements, afterward he will be able to charge a market rate of $1300-1800 rather than the $750 he had been charging, while still only paying $650 per month for each mortgage. In other words, he is creating the cash flow he wanted when he became an investor. For Carl, it makes sense to sell one home in favor of being able to make improvements to the other homes.

What can we learn about managing investment property?

The key errors Carl made as an investor were that he didn’t increase rent for new tenants as the market changed and because of that, he didn’t have cash flow to make home improvements. The result was outdated homes that aren’t yielding the financial rewards he had planned. Don’t be a Carl.
Treat your investment properties as a business. Understand what it costs for upkeep of the home(s) including renovations, general upkeep, and cost of renters.
Renters may not treat your home as their own so you may (sadly) have to make repairs that you weren’t expecting.
Wear and tear of a home is a reality. Carpets wear out. Tiles come loose. Faucets leak. No matter how well a renter treats the home, there will be work needed when they move out.

As you’re thinking about whether or not to sell your investment property, consider:

What’s your goal as an investor? Maybe you want to sell in order to buy a new home or make improvements to an existing rental property. Maybe you want to sell because of capital gains tax reasons like reinvesting or exiting the market.
What are the numbers telling you? The real estate market changes over time; working with Beery Realty, we can determine if now is the best time to sell your investment property. We can also refer you to our loan officers and other financial professionals who can determine if it makes sense for your overall investment portfolio.
Is there a special circumstance? Life changes like divorce or death of a spouse may facilitate the need to sell an investment property. You may have bought the homes with the intention of selling to your children when they are ready to buy and now may be that time.
Whatever the reason, Beery Realty can help you navigate the decision making process of choosing to sell your investment property.