The stagnant real estate market is finally starting to see some light at the end of the tunnel. Since the beginning of the year, inventory levels have started to go down and the government's intervention is showing some signs that the stimulus bill is working.
In Mesa, Tempe, Scottsdale, and Chandler, prices for 2-4 unit complexes have gone down to as low as $39,000 for a duplex to $65,000 for a fourplex, both in Mesa. You combine these prices with record-low interest rates and you've got yourself a lot of investors starting to aggressively snatch up these bargains.
One thing I'm now experiencing is many multiple-offer situations in transactions, something that was unheard of last year. Many of the investors I talk to have said, "with these prices, I can get instant positive cashflows on multi-unit properties." This is something that rarely happened on transactions in the past few years where many buyers was banking on making money on price appreciations while losing money every month.
To Illustrate My Point, Let's Look At An Example
For illustration purposes, let's keep the math simple. The median price for a fourplex in Mesa is $141,000 and let's assume no down-payment. Your mortgage payment would be approximately $840.00 at an interest rate of 6%. With an average rent in Mesa for approximately $600.00 per unit, that totals $2,400 total rent per month. Let's throw in about $500 per month in operating expenses and you still come out with an estimated $1,000 positive cashflow per month.
* $140,000 - Median price for a fourplex in Mesa and amount financed
* $2,400.00 - Total monthly rent revenue at an average of $600/unit
* $840.00 - Estimated monthly payment at 6.00%
* $500.00 - Monthly operating expenses
* $1,000.00 - Monthly positive cashflow, monthly net profit!!!
It's no wonder many investors are buying aggresively now! And this is not even the best scenario. I'm seeing even better cashflows stemming from:
* All-cash offers (no mortgage payment)
* Sales prices even lower than that (fourplexes as low as $65,000)
* Good property management demands higher rents and low maintenance
Where Are These Troperties Coming From? Banks!
Many of these properties are foreclosed and are bank-owned properties. Ok, I know what you're thinking! The moment you open the door, you're going to find wholes on the walls, missing appliances, ripped-out cabinets, etc. Right? Wrong! Surprisingly they are not in bad shape!
Normally when someone loses the home they live in to foreclosure, the owner feels anger and feels like destroying the home. It's understandable since they are emotionally attached to the home. However, in investment properties, the owners are not living in the property, they are not emotionally attached to the property, and see it as a business decision gone wrong. Therefore, when the tenants move out, the usually leave the unit in pretty good condition. This leaves the new owner with minimal work to do on their new investment and usually requires only cosmetic repairs.
Another Reason Why Bank-Owned Properties Are Good Buys Right Now
Banks don't want to keep these properties on their books. It looks bad to their investors. Therefore, they have an urgent need to sell them. Usually, a bank will responde to your offer in about 3-5 business days. They will respond to your offer with their addendums basically telling you they are selling the property "as-is" and have no knowledge of anything with the property. After that, it's a pretty smooth transaction - get your inspections and financing taken care of, and done deal!
Compare that to the other type of transaction - the Short Sale. In this case, you submitt an offer to the bank and expect to wait approximately 2-5 months to get a response. By which time the property has depreciated and lost more of its value.
It's no wonder that bank-owned properties account for more than half of the transactions currently in escrow!
Have We Hit The Bottom?
In my opinion, not quite. But we're pretty close. These values can't go down that much further. However, I think this is the best time to buy since competition for bargains is getting more competitive, thus the drop in inventory. In my recent transactions, we've faced multiple-offer situations where the bank has countered for "highest and best" offers. This means if you really want that property, you begin to raise your offer or take your chances of losing it. Then you have to look for another and begin the bidding again.
In any case, there is a massive real estate clearance sale going on out there right now. What are you waiting for? The time is right, the prices are right! I'll help you find them!
On A Personal Note
I have recently started training again for another marathon. I will be running the P.F. Chang's Rock 'n' Roll Marathon in Phoenix January 17, 2010. As part of my training, I will be running the Armed Services YMCA Mud Run in Camp Pendleton on October 17, 2009. The race will raise money that "benefits all programs and services offered to Camp Pendleton military personnel and their families at low or no cost, by the Armed Services YMCA." Click here for the link
Thanks for reading!
Manny Carrillo
REALTOR®
SJ Fowler / GMAC Real Estate
4015 S. McClintock Dr., Ste. 110
Tempe, AZ 85282
480.338.3062 - Direct
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