Tucson Kent's World

HUD could be causing prices to tumble further as an unintended consequence of its attempts to be fair in assigning properties to listing agents in some communities. 

While a particular community may be geographically close to another city, that city may belong to an MLS system that doesn't really serve the market area that the community belongs to.  Case in point:  Red Rock, Arizona. 

Red Rock is a master-planned community north of Tucson by about 30 minutes.  It really is a bedroom community for the Tucson region.  Residents shop in Marana & Oro Valley in the NW sector of the Tucson Metro.  Nevertheless, there is about a 50/50 split with agents in Casa Grande (which belongs to ARMLS - really serving the greater Phoenix region for the most part), and agents belonging to the Tucson MLS (TARMLS).

From a geographic standpoint, it looks like a fair division of property allocations.  Casa Grande is about the same distance/drive time from Red Rock as Tucson is.  HOWEVER, by doing so, putting these properties into an MLS that really serves a different region causes these properties to languish on the market much longer.  People looking for properties in Red Rock generally see them through Tucson agents...so the homes listed in ARMLS usually go ignored or unnoticed.

We all know that longer time on market results in price reductions.  Appraisals use hard data to help determine value - a government agency directing properties to the wrong market isn't a mitigating factor...it just produces lower appraisals.  People don't see it (agents too), so they don't even know that a property is for sale!  Nothing wrong with the house, nor with the agent listing it - the languishment is simply because it isn't being seen!

I've noticed in the last several months that HUD listings of the same relative size are selling within 30-70 days (depending on condition) for a price in the $60-$75k range when listed by agents working in the Tucson MLS.  Properties listed by agents in Casa Grande have typically lasted 110 days or more before going under contract...and the prices are in the mid-$40's to mid-$50s & $60's.  All because they are handled in an MLS where Red Rock is on the extreme southern end...and not a viable commute for people working in the Phoenix region.  This is NOT because the Casa Grande agents are doing anything wrong - in fact, the ones that I have done business with are working harder to sell Red Rock homes at a lower price, and are relieved when someone finally shows one!

Luckily, TARMLS & ARMLS have a "data share" agreement that allows agents to see info on properties belonging to the other MLS (without agreement of compensation).  When looking on behalf of my clients, I use both systems in order to ensure that they can have all of the choices in Tucson real estate available to them.  When I can find price anomalies similar to the ones in Red Rock, my buyers are happy to save the money.

I know that HUD is trying to be as fair as possible - and applaud that desire.  Unfortunately, an unintended consequence is that they are driving down prices because the asset managers don't understand what region actually serves the market their properties may be in.

There's enough factors contributing to price declines in outlying regions...it is Unfair to have a simple policy accidentally cause more damage to the market.

The Real Estate Hall of Shame - not sure if anyone has built one yet, but I found a property today that could qualify as a good place to house the "How Not To Use Equity In Your Home" exhibit.  I think it used to be Homer Simpson's place.  He lost it to foreclosure.

Lets take a peek behind the scenes and see how this property might qualify for Poster Child status on the Real Estate Hall of Shame:

Lets see...Homer bought it in 2001 for a little under $300,000. Bear Stearns got it for $465k last fall.  Don't see any problems so far - probably a typical foreclosure on a note gone bad, purchased by the investment bank for pennies on the dollar.

This doesn't look so bad - what qualifies it for the Hall of Shame?  Lets take a look at the loan history:

Okay...lets see:  the buyer put down a little less than $15k - which works out to roughly 5% down back in 2001.  No problem yet...less than 2 years later, the owners refinanced for about $20,000 more.  Could have needed to pay somebody's tuition or something.

But wait - look at what happened in 2006!  (Gee, isn't that when the market was going gangbusters & everyone was going to get rich quick?)  After only 3 years, the owners refinanced AGAIN, but for 231% what it previously was worth!

Kind of strange how we dismiss claims of investments that promise amazing returns or "long-lost gold mines" as foolish or the stuff of legend, not reality...but not when it comes to our HOMES.  

"Lets get all of the equity out of our home, we're GETTING RICH QUICK," Homer Simpson says to Marge, "they might change their minds!"

But WAIT...another year passes and lo & behold...the value has gone up ANOTHER 25%! 

"We sure could use another $160,000 - now I can get that boat I always wanted & Marge can have that fur coat to wear when the temperature drops below 80 degrees...and I can show up to my high-school reunion in a shiny new Benz with spinners on the wheels!" -OR- "This real estate thing is a SURE-THING! It will NEVER GO DOWN...lets buy 3 or 4 other homes to MAKE MORE MONEY ON...we'll be ON EASY STREET!"

Homer refinances again in 2007, again pulling out all of the paper "equity" in the home - probably with an interest-only loan that adjusts after 3 years (which was the only way they could afford the payments on their $800,000 home that only cost $280,000 such a short time ago.

For some crazy reason, the lenders want Homer to pay the money back, and the home isn't magically going up in value anymore.  The payments now start to include principal AND interest.  Can't refinance again because the property isn't worth what it used to be.  Time to sell the home!

But the market is going d-o-w-n.  It doesn't sell at the price Homer & Marge need to get out of their debt.  It forecloses.  Homer isn't rich anymore and Marge has to sell her huge hair to rent an apartment.  Easy Street has potholes that could swallow an ark because the City was counting on the revenue from all of these wonderful property taxes to fill the coffers that it depleted on consultants and studies to tell them how to spend all of that money that should be coming in.

It wasn't just Homer - Moe did the same thing with his bar.  Marge's sister Patty bought 3 duplexes and a new 3500 square foot home because she was jealous.  Otto the school bus driver got a loan to buy 20 acres with a bitchin' manufactured on it so he could turn his stereo up as loud as he wanted.  Ned Flanders put Todd & Rod's names on loan applications and is now being investigated for mortgage fraud.

This didn't just happen in Springfield, or Tucson.  It happened everywhere that values on paper rose extremely quickly.  Apu still has the home he bought in 2002, and is easily making the payments.  He just bought 3 more Quickee Marts at bargain prices, and is thinking of getting a bigger home since prices and interest rates are super-low.  Principal Skinner & Groundskeeper Willie have been buying foreclosures, fixing them up and making a modest profit renting them out (which proves even a numbskull like Skinner can make smart decision if he doesn't get greedy).

Springfield is slowly coming back to normal (as is Tucson).  Some people are at different addresses than before, some the same, but a sobering reality has set in & a lesson learned:  "If it seems too good to be true, it probably is."

Did Homer learn anything?  Probably not.  He's trying to get all of his friends and family to come to a party to celebrate becoming an owner of a business that will soon make him money while he sleeps.  He's changing his name to Homer MLM Simpson to show his dedication & commitment in front of his "Double-Platinum Diamond Distributor/Coach.

The property?  Oh yeah...its still in good shape, in fact, it really is a good deal.  Now.  It can be yours for a little over $400,000.  Needs a little work, but not too much.  If you were smart with your money and still have some, give me a call.  I don't have any get-rich quick steals to show you, but I do know how to spot a solid investment in real estate.

University property in Tucson has traditionally been very popular for investors and parents of students attending the University of Arizona.  Benefiting from the proximity to campus and the ready supply of renters and buyers, the value of these properties has held up better than the overall real estate market the past few years - see this article.

This area in the Tucson real estate market is one that I enjoy concentrating on, not only because of the business, but the vitality of the people and the variety of styles, architecture and property types near the University.  Recently, I represented a couple who purchased a condo for their daughter to live in.  Just a few weeks later, they decided to invest in another condo to use as an investment property in the same complex.

Getting a testimonial from a client is a wonderful thing, but when they take the time to make a video, it is extra-special!

Investing in real estate may be better now than in decades - because of the combination of prices tumbling from artificial highs a few years ago & record-low interest rates.  Some university properties are bargains while others are not - having an experienced REALTOR® who knows the area well can make a difference in getting good value for your dollar or finding a "bargain" that turns into a money-pit.

Below are current properties for sale in areas that are popular with University of Arizona students.  The list on the left contains Residential Income properties, the list on the right are single family homes, townhomes and condos for sale.  Click on either list to see more detail - no, you don't have to register or sign up for anything.  If something interests you, please feel free to contact me.

Early this evening, I got a call from a young man looking to begin investing in real estate, but unsure of where to start.  After a few questions, it was apparent that he really was at the very beginning of his journey, and was reaching out for some guidance.  What resulted was the most rewarding conversation I've had with a prospective first-time buyer in a l-o-o-n-g time.  I won't make a penny from this phone call, but that isn't the point.

Turns out, this young man is 19 years old, going to school in an area of the country hit extremely hard by the implosion of the real estate market, raw & inexperienced in purchasing real estate - but careful with his money & eager to learn. He has heard about predatory lending and "0 Down, EZ Qualify" scams.

His goal is to purchase a duplex, triplex or fourplex, live in one unit and rent the others to help him pay for the investment.  Good idea.  He spoke about his lack of knowledge as a challenge to be solved by consulting with professionals who would take the time to explain the process along the way & guide him to a smart decision "because I don't want to be a foreclosure victim, I want to start building my nest egg now, since prices are so low."  Great idea.

We spoke about the pros & cons of investment property:  what can happen when a tenant moves out unexpectedly - or doesn't pay the rent on time.  Landlord responsibilities, maintenance issues, taxes, insurance and fair housing laws, cash flow & reserves, the reality vs the hype of short sales, factors involved in choosing an area to start looking, vacancy rates and much, much more.

As the conversation went on, I suggested he take advantage of some seminars and classes put on by the Association of Mortgage Brokers and the REALTOR® Association in order to have a clearer basis of understanding concerning the process and procedures in buying real property.  Since I was by my computer, I looked up the contact information for these associations in his area and gave him the websites.  Oh, did I mention that he lives nearly 1,000 miles away from Tucson?  This young first-time homebuyer has never seen Southern Arizona, except for in movies & photos.  He won't be buying in Tucson, either.

At the beginning of this phone call, my inquisitive young caller asked if I could spare 10 minutes of my time - we talked for just over 45 minutes.

In the first few minutes of the call, I already knew that this buyer was not interested in my market - but he was reaching out to me to help get him pointed in the right direction.  Whether it was something I had written on my blog, posted on Facebook, Twitter, YouTube or somewhere else that caused him to ask me - or some random quirk of keywords on Google...it doesn't matter.  He is the public, took the time to call me, and had realistic, rational goals in mind.

After hanging up with him, I felt a certain fulfillment - a feeling of living up to the vows I took to become a REALTOR®.  It isn't all about the money or the deal.  There is a service commitment implied in that oath.  Sometimes all it takes is a conversation and some frank discussion.  This was the best phone call I've had in a long time.

Thank you, Abraham, you made my day. 
I wish you success and happiness in all of your goals...and yes, I WILL buy you lunch near the University of Arizona if you ever visit Tucson so that we can dine in the presence of "all those HOT Arizona girls!"  (Now it is in writing - verbals don't count as a contract)

Being a REALTOR® has its moments, and this is one of them.

Could repeal of FIRPTA help the recovery of this nation's real estate market?  In this morning's Globe St. News, the subject was FIRPTA (Foreign Investment in Real Property Tax Act), the 1980 measure that adds a layer of tax on the sale of any real estate owned by a non-citizen of the U.S.

The article cites a study by two economists that calls for a reform of FIRPTA to encourage more foreign investment in the United States real estate market.

Would it be so bad, since the U.S. real estate market is basically "on sale," to encourage investment groups from abroad to buy our distressed properties?  Do we put an extra tax that is 10% or more on gold, sugar, wheat, etc?

In my opinion, the 1980 provision was reactionary, imposed at a time when we had a nation reeling from financial crisis and seeing large real estate assets being purchased right & left by foreign investors - primarily Japanese interests.  Protecting national interests is one thing...technology, software, certain industrial products, etcetera, but to slap a huge tax on property is anti-market - going against the very grain of what we espouse when expecting other countries' markets to be open to us.

There are those who will cry that foreign investment will drive prices up, or shut locals out of the market - but my feeling is that open markets are better for everyone in the long run...and we have properties that need to move instead of languishing vacant or uncompleted.

I often work with people who are looking at their real estate as an investment rather than a home. 

Looking for multi-family properties where the numbers made sense last year was a challenge, to say the least.  With interest rates hovering in the mid-7% range for investment properties, crunching the numbers just didn't work with the prices sellers were asking, for the most part.  Cap rates in the 5's and 6's were predominant - and they just didn't cash flow.

Now, after the price drops, we're seeing a lot more properties with cap rates in the 8's - some even in the 10's.  Combine that with the fact that interest rates for investment properties are in the 6% range, and investing in multi-family housing is looking more & more attractive in the Tucson real estate market.

There are currently at least 30 duplexes, triplexes, fourplexes and apartment buildings (that aren't short sales) on the market in Tucson with a cap rate of 8 or higher.  Some folks are holding out for 10, but when is that going to happen?  When interest rates are a full percentage point higher or more?

Investing in real estate is all about cash flow, value and timing.  Why hold out for a small gain in cap rate if you are paying more for your money?  For the large or institutional investor, that may make sense with short-term gains.  For the smaller investor who plans to hold the property for a long time, a property that pays its own way, and a mortgage at a lower interest rate can be more practical.

Below is a direct link to my property search for Multi-Family Properties in the Tucson area - see if anything looks interesting to you.

Even in areas where University of Arizona students live, there are a few opportunities that might be tasty!

Foreign nationals wishing to become permanent residents in the United States can sometimes run into maddening restrictions or quotas that can vary, depending on political swings both in Washington D.C. and in their countries of origin.

Those that have the financial means are using the “Investment Visa” more than ever before as a way to obtain their green card.  Since other options are becoming more unavailable to foreign nationals under U.S. Immigration law and the significant decrease in the value of the dollar vs other currencies, this option is making sense to a growing number of people – especially with conversion rates at a favorable scale.

The basics are this:

Start a business with $1M in capitalization or more – get your resident visa.  Of course there are more details, but that is a place to start.  You’re creating jobs or perhaps becoming an active partner in a business that can benefit from your expertise & capital.

The Immigration & Nationality Law Firm of Klasko, Rulon, Stock & Seltzer, LLP has a very informative website that explains the requirements and the process of obtaining an EB-5 Investment Visa:  Klasko Law

Welcome to America – the great thing about this country is that we are all relatively new descendants of people from somewhere else.  Perhaps even our ancestors were neighbors at one point!

Should you be interested in what the Desert Southwest has to offer, my team will put together a package to show you the opportunities, facilities & support for commercial ventures.

Whether you're looking for warehouse, industrial, high-tech office or development space, research facilities or raw land, we're ready for all of your commercial or residential real estate needs.

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Sam Hughes Neighborhood is located just east of the University of Arizona campus in Tucson, Arizona.
It is a vibrant, eclectic neighborhood favored by academics, professionals and students.  Properties are a blend of single family homes, condos, apartments and townhomes - with construction ranging from the 1920's to today.

Below are sales statistics for the past year (as of 4/1/2009):

Should you be interested in living in such a community or would like to see what some of the homes look like, please click here to see a slide show on the area.

If you are an investor and would like to see the performance of an investment in Sam Hughes Real Estate, please click here.

My name is Kent Simpson - I specialize in buyer representation in the Tucson Metro area.

Instead of wondering if your latest thought about investing in the company that makes the best antacid or anxiety medicine is a strategy born of genius...

Rather than watching your investment disappear as a company becomes worthless...

As a choice for stability in the long-term instead of today's roller-coaster ride...

It just might be worthwhile to go back to basics and put your money into something REAL for once!

Companies come, companies go
Dow Jones can be fickle, you know

This one's good, this one's bad
Without even knowing, you got had

Enron me once
Tyco me twice
Global Crossing and more

Once upon a time
Grandpa spoke some sage advice:

"Houses are houses, and houses shall be
Dirt doesn't go bye-bye nor
parachute its way free"

"It might not be thrilling
or chilling or what

When paper goes crashing
that which is real
should garner a thought"

The values may rise very fast or real slow
Regardless of market
There's still something to show

Ideas come forward,
make noise and get stale
Arthur Andersen and other
White Whales

More fortunes are made
from realty, you know
let someone else be
the last one to go

So come on investors,
the savvy, the sane
I'm here to help you,
your serenity regain.

Time to put your money in Tucson real estate, my friends.  I'm ready to take your call.

Kent Simpson works with
The Pepper Group in Tucson
& Southern Arizona.

I recently had a discussion with an amazing 1031 Exchange expert, Brigitte Echave (she talks terms even I can understand!) about the pros and cons of doing exchanges.  One factor that I had missed when attending classes on 1031s before is the fact that whether or not someone takes the tax deduction for depreciation on investment property...the IRS figures you did, and wants to recoup it...and it is charged before Capital Gains is applied!

So, in Arizona, home to a lot of investment and vacation homes, your Gain will be charged 25% depreciation recovery, then Uncle Sam wants 15% Capital Gains tax, and Aunt Arizona gets 5%.  I'm no tax advisor, but highly recommend anyone looking to sell investment property have a good talk with one - as well as with a 1031 Exchange specialist.

I can recommend one to you - she uses small words to explain the big ones so that I can understand:

Brigitte Echave of Leverage Exchange is someone that I value & respect very highly.  Click on the logo to learn more about her company & what they can do for you...anywhere in the U.S.