In this market, with inventory as thin as it is, about the only way to secure a home is to overpay for it. There are no bargains out there right now.Everything – everything – new to the market is going to be a multiple offer, highest and best scenario where the highest cash offer will win. And the ones on the market longer, such as this one, are going to be overpriced and most likely by more than a couple of thousand. The gamble is whether values will come up between now and when you want to refinance. Some might, some might not. Hard to say.The only way to avoid the multiple offers and get to where you can finance is with new builds, but there aren’t new builds open to investors for less than around $130,000 or so.Just the state of the market right now. When we finally get some more inventory – assuming the wave some predict finally shows after four years – there will be some more opportunity.
Now, a couple of qualifiers. The above applies primarily to those looking for homes in the sub-$100k range (something we in the biz call “bargains”) though it safely can be said of homes running up into the mid-100s just as easily. This also applied to someone who, quite logically, would prefer to finance and leverage their cash versus having to come in with cash on every single property – something that isn’t working these days below around $125k or so.
It’s all simple supply and demand – we’re at 8,310 detached homes across Maricopa County, a net drop of 230 homes from Sunday – that’s a 3 percent net drop in the inventory in about 48 hours time. Homes that come to the market are like a drop of water on a hot skillet, bubbling with a sizzling sound and then disappearing.
Of those 8,310 homes, only 665 are priced under $100,000; investors chasing these homes reminds me much of a pack of hyenas all attacking the same carcass. Or, for those who prefer their metaphors more Disneyesque, like kids (and spouse) digging into a plate of cheese fries at Disneyland’s ESPN Zone. In either case, there isn’t nearly enough meet on the bone (or fries on the plate) to sate everybody’s desire.
As it stands now (subject to change if conditions change), the waiting game isn’t a viable option; part of the reason there are so few homes in the sub-$100k price range is the scarcity of resale housing is pushing prices higher and higher by the day. So if you happen to be waiting for that alleged tsunami of homes to hit, know in advance that those homes are going to be priced at a higher level than they might have been had they hit the market six months ago. Or three months ago, for that matter.
None of this is to say real estate investment in Phoenix is impossible. It is to say if you happen to be trying to invest in the sub-$100k market, you’re better off in about 1,000 locales other than the Phoenix real estate market. That window of opportunity has all but closed after being open for the better part of three to four years. The lone exception may be in the trustee’s sales, assuming you’re comfortable with the risk attendant in purchasing a home sight unseen and thoroughly uninspected with absolutely zero contingencies – a workable scenario if you’ve got a crew who can do any work needed on the cheap, more daunting if you don’t.
Where the opportunities currently exist are in the new build world. Base models in Buckeye start around the $100k mark and $150k will get you into spec homes in areas such a Surprise or Glendale. Note: it also helps to know which communities and builders allow investors – information I happen to have handy.
Depending on the areas, the rents are not going to be earth-shattering. But much like a sports franchise, where there’s as likely a chance as any of either operating losses or simply breaking even, the value isn’t necessarily in the cash flow as much as the potential. No, my friends, real estate does not always go up (as the diehard Realtor haters will say we always say). At the moment, however, there’s better potential in the appreciation than in the rent.
This may not make the Phoenix market the most attractive out there (he says, in a blatant paean to real estate guru Jeff Brown). In general, though, I’d still be inclined to bet my long-term money on the Valley of the Sun as there’s more long-term potential in this market, which already has been beaten down and is starting to come back ever so slightly, than elsewhere.
We’ve got some really smart real estate investment types who read this site, Mr. Brown included. The defense rests here and I turn things over to them in the comments.