csua.org/u/az4 -> www.azcentral.com/arizonarepublic/news/articles/0206investor06.html
Gambling on housing Investors squeeze Valley real estate market Catherine Reagor Burrough and Glen Creno The Arizona Republic Feb. They won't shop at the nearest grocery store, and they won't invite their neighbors over for a barbecue. That's because most of these out-of-state buyers are investors who live o utside Arizona but are purchasing houses here, counting on a better retu rn than the stock market. They are drawn here by Phoenix's impressive ho me appreciation. Most plan to sell in a short time for a fast profit or rent out the homes and sell later for even better profits. Other buyers may hold Valley homes longer for use as vacation or retirement homes, bu t they still see the property as an investment that could become their b iggest asset. Out-of-state buyers and investors are purchasing nearly one out of every four homes sold in the Phoenix area, a rate that has doubled in two year s The pace shows no signs of slowing, according to an Arizona Republic analysis of sales records done in collaboration with real estate data ex pert Tom Ruff of the Phoenix firm Infocom. advertisement Most of those buyers didn't move into the homes they bought. The number o f metro Phoenix houses purchased by investors and turned into rentals ha s tripled since 2002. Never has the demand for residential real estate in metro Phoenix been hi gher. Almost half of the homes in some new neighborhoods in Gilbert and Scottsdale are investment properties or rentals. Nationally, investors now account for about 10 percent of all home sales, according to mortgage lenders. The Phoenix area is drawing more than double the average US ra te of investment home buying. Phoenix's new title as a hot spot to invest in homes could carry much mor e risk than status. This influx of investors could damage Phoenix's hous ing industry, the most dominant part of the area's economy. Already, hom e prices are being pushed beyond what some Valley residents can afford. The trend raises concerns among local homeowners, who worry that investor s could hurt housing values and harm the quality of their communities. Too many rentals in a neighborhood can deter other buyers, reduce home va lues and lead to blight if the properties aren't maintained. Also, inves tors who can't find tenants might sell for a loss, and too many of those deals would drive down the value of all Valley homes. Flocking to Phoenix Californians are the biggest group of out-of-state investors in greater P hoenix, making up almost 50 percent of the market. Zareh Tahmassebian lives in Las Vegas but has bought 15 houses in the Pho enix area since summer. The 23-year-old mortgage banker is gambling on h ome values continuing to climb. Tahmassebian sold ho uses in Los Angeles when prices began to shoot up there a few years ago. He then began buying homes in Las Vegas, but when housing prices in the Nevada city broke national records by climbing 50 percent in a year, Ta hmassebian started looking for the next hot real estate market in the We st. He turned his sights to the Phoenix area and began cashing out in La s Vegas. Twelve of Tahmassebian's metro Phoenix houses are new, bought despite eff orts by home builders to ban or regulate investor buying. Builders don't want speculators buying homes early in a new development. If speculator s get in at the beginning of a project, they can buy at a lower price. B y the time the homes are finished, the builder has raised prices on the same-style homes several times, so the speculators can sell the house fo r a profit while still charging less than the builder. Tahmassebian and a partner paid more than $2 million for their Phoenix in vestment properties and estimate the houses are now worth almost $3 mill ion. They put 10 percent or less down on each house, so only about $300, 000 of their own money is on the line. "Why buy one house with cash when you can buy 10 of them at 10 percent down?" The partners plan to sell the houses in a year or two and buy more. They aren't worried about rents covering the mortgage payments because they'r e counting on appreciation. Plus, Tahmassebian and his partner can write off any losses and mortgage expenses. Despite double-dig it increases last year, homes prices in the Phoenix area are relatively low for the West. The median, or typical, price of a new house at the en d of 2004 was $195,000; Houses in metro Phoenix cost one-third of what the typical home sells for in California and at least $100,000 less than houses in Las Vegas and Denver. "Investors in Las Vegas got their awakening late last year," said Gadi Ka ufmann, chief executive of national real estate consulting firm Robert C harles Lesser & Co. He said Phoenix needs to be careful not to mimic Las Vegas' recent home p rice run-up and overinvestment boom, or it will lose out on drawing new residents and businesses. Builders such as Pulte Homes cut new home prices in Las Vegas by 10 to 15 percent in September after skyrocketing housing costs dampened demand. Market watchers are now concerned the same could happen in Phoenix. "Investors are behind the housing market's big numbers now," said Jay But ler, director of the Arizona Real Estate Center. Used-home sales climbed 30 percent last year to a new record of 112,813, according to RL Brown's Phoenix Housing Market Letter. At the same tim e, metro Phoenix surpassed Atlanta to lead the nation in new-home buildi ng during 2004. Last year, Brown tallied almost 61,000 permits for singl e-family homes. The investment game Like typical homeowners, residential investors can deduct up to a certain amount of the mortgage interest they pay from their tax liability. Rent al-property owners also can write off all expenses to upgrade and mainta in homes. Out-of-state buyers aren't the only ones cashing in on Phoenix's housing market. Many Valley homeowners are tapping the recent equity run-ups in their primary residences to buy investment properties they can rent out or resell for a profit. America West Airlines pilot Roger Pieper has a different investment strat egy than Tahmassebian. Pieper and his wife, Anne, of Chandler, buy house s as long-term holdings that must bring in enough cash to cover their co sts. The Piepers have about $90,000 invested in 11 houses that are worth about $2 million. Roger Pieper estimates the houses will appreciate by $200,0 00 this year. A small amount in an investment can get you a high return." Including local buyers like the Piepers, investment-driven home purchases accounted for as many as 30 percent of metro Phoenix's home sales in 20 04. Pieper isn't worried that Phoenix's housing market is attracting too many investors or that prices will spin out of control. "The increases are a shock to people in Phoenix, but people in California laugh at us when we say prices are going nuts here," he said. Sam Van Winkle, a computer consultant from the San Jose area, has been in vesting in Phoenix houses for three years. He owns five homes in Chandle r and Gilbert and wants to buy three or four more. So far, Van Winkle ha s spent about $400,000 on residential property in the Valley, which he e stimates is now worth more than $1 million. Much of Phoenix's growth has been spurred by new residents moving to the area for its affordable housing. Home prices already are far outpacing t he Valley's income gains. If housing costs continue to increase by doubl e digits, it will push homeownership out of the reach of most buyers. Th ese are the people left behind when fickle investors move on to the next hot housing market. If that happens, metro Phoenix's growth would stall along with the area's biggest industry. Frank Hanson, a real estate agent with Coldwell Banker Success Realty in Mesa, said investors have to be cautious. When home prices go too far be yond what local residents can afford, the market will soften. Based on m etro Phoenix's typical household income of $50,000, homes priced above $ 200,000 are unaffordable. Tahmassebian believes Phoenix is far from its peak and is counting on his homes to appreciate at least 20 percent this year and the next. Real estate analysts are calling for home prices to flatten or increa...
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