Fix and Flip

Buy Phoenix foreclosures 30% below market!

Riffing off what Chris posted yesterday

In Phoenix, the winter tourist season is here. Every year this means a new wave of newbie real estate investors who are convinced that you can buy investment property in metro Phoenix for 20% or 30% below market value. Here’s the real deal…

I’ve been helping investors in the metro Phoenix real estate market since before the boom of 2005-06. This is my fulltime gig and I’m a happy workaholic, so I feel reasonably sure you can trust me on this. Don’t trust me? Trust my clients, who talk about me behind my back.

As of 2009 through 2011, there is no way to purchase property on the open market for 20% or 30% below market value. It simply cannot be done.*

Why? By my count of the last 12 months, banks were involved in 64% of metro Phoenix property sales.  One national estimate puts Fannie Mae and Freddie Mac in charge of 80% of American real estate.

**Metro PHX homes sold, Feb 2010 to Feb 2011:

# of Sales% of total sales
Total Sales91,425100%
REO sales38,08341.65%
Short Sale or other pre-foreclosure19,36521.18%
HUD homes6570.72%
Total sales involving banks58,10563.55%

With 6 of every 10 Phoenix-area homes sold involving banks at some level on the seller side, the banks are so huge they move the market. In fact, in metro Phoenix right now, the banks are the market. Whatever prices banks let their homes sell for is the new market value.

This is just Econ 101 from your freshman year of high school.

  • Thousands of buyers + thousands of sellers = happy, healthy, free market economy. Market values float up&down according to supply and demand.

  • Thousands of buyers + handful of sellers = lopsided marketplace where sellers rule and the price they want is the price they get.

Banks aren’t colluding to fix home prices. At least I don’t see any evidence of that (finding evidence of that would be waaay above my pay grade). But banks do have a bottom line on every home they sell and they stick to it without fail. I’ve seen banks turn away an offer for $61,000 when their bottom line was $62,000.

Sometimes, a few investors get lucky and find homes that need paint, carpet and a few handyman repairs and are then worth 15% or 20% more than the purchase value (but closing costs eat up as much as 12% of that ‘profit’). Almost without exception, these buyers go directly the foreclosure auctions and pay cash. The auctions aren’t designed for rookies. I hear they’re literally throwing elbows down there. Our brokerage has an agent who will go to the auctions with you. Contact me for his info.

If you’re an investor who still insists that a “good” Realtor can find you a property for 30% less than market value, please don’t call me. I’m a very good Realtor, but I’m not a magician.

Funny things in the MLS

This is one of the funniest things I’ve seen in the Arizona Regional MLS in a long while. It’s in the Realtor-to-Realtor “private remarks” data field.

Promise of response within 12 hours with a full price non-contingent offer.

Okayfine…   How random. Am I supposed to think that’s a good thing? Cranky me, I feel like testing them with a full price offer at 2 o’clock in the morning just to see if they can really reply that quickly.

The listing is a condo in a North Phoenix resort community that shall remain nameless.  <cough PointeTapatio cough>  I might be just a little touchy about this because I live in the Pointe, but what really grabbed my attention in the first place was the price – $75,000 for a one-thousand square foot condo. Nothing wrong with that, it’s a decent price compared to the rest of the North Phoenix area.

My problem with this price: the owners bought it on February 3, 2011 for $55,125. They relisted it yesterday, the 17th of February 2011 for $75,000. Know what the new owners did in the intervening 14 days? They painted.

Man, that had to have been some expensive paint!

Head’s up, fix and flippers… nobody’s paint job is worth $20,000. That’s a big “duh” and most of you will figure it out on your own. What you’re likely to miss because you see visions of $20,000 overnight profits dancing in your head is this: no buyer in their right mind is going to give you $75,000 for this condo when 14 days ago you paid $55,125. Plus there’s another bank-owned REO condo for sale 1 building over, in the same general condition for $53,000. Finally, your price point puts you squarely in cash purchaser land, and anybody who’s got $75k sitting around in cash had to be pretty dollar-savvy or they wouldn’t have accumulated that much. They’re smart, so they’re not going to be stupid enough to give you $20,000 extra just because you asked for it and promised to answer their offer within 12 hours.