Comedy Event for Kids Charity

Weekly Housing Inventory AZ

I always look forward to Karl's reporting and the report below shows activity that we haven't seen in awhile and it was so encouraging. Everyone was feeling enthusiasm and a thread of excitement that just maybe we had turned the corner and then for some unknown reason with lots of speculation as to why, it just stopped three weeks ago. Some say it is tax time, some the rates went back up and the list goes on but it certainly did a number on deflating the balloon. Hopefully this is only temporary and we get a zip in our step again.

Weekly Inventory Level comparison
©2008 Karl Stauffer

As of Friday, 2/22/08

Current rate of closings has jumped by over 8% in the last week! Closes in the previous month were up to 2668, which gives us a supply of 17 /4 months, a substantial improvement over the previous week
Current Pendings also continue to increase dramatically. They have increased over 50% in the last 6 weeks from 3323 on 1/11/08 to 5309 this week. They are at the highest level that I have seen since early July 2007, PM (Pre-Meltdown). This will translate in to more closings in the next month. Total Listings remain unchanged at 46069.

Best markets in the Valley continue to be Scottsdale under $1M at a 13 1/2 month supply, followed by the SE Valley at 14 1/4 months supply.
Luxury Markets, by contrast, are at 42 1/4 months of supply in Scottsdale $1M+, and 40 1/2 months in Paradise Valley.

The comparison of current active listing change is based on the previous week’s inventory. Supply numbers are based on the number of closings in the previous month, divided in to the total number of active listings. This data is for Single Family Detached homes only and does not include patio homes, condos, or town homes.
Entire MLS (Maricopa and Northern Pinal county), listing inventories are unchanged from last week. Total of 46069 active listings. Based on current rate of closings, about a 17 1/4 month supply.
200’s area (Central Phoenix). Listing inventories are up 1% from last week. Total of 6539 active listings. About a 19 1/4 month supply.

300’s area (West Valley). Listing inventories are unchanged from last week. Total of 15125 active listings. About an 18 month supply.

400’s area (NE Valley), Listing inventories are up 1% from last week. Total of 7792 active listings. About an 18 3/4 month supply.

500’s area (SE Valley), Listing inventories are unchanged from last week. Total of 11549 active listings. About a 14 1/4 month supply.

Scottsdale over $1m. Listings inventories are up 1% from last week.
Total of 1645 active listings. About a 42 1/4 month supply.

Scottsdale under $1m. Listing inventories are up 1% from last week. Total of 2628 active listings. About a 13 1/2 month supply.

Paradise Valley. Listing inventories are up 1% from last week. Total of 446 active listings. About a 40 1/2 month supply.

I hope this information is useful to you.

Karl Stauffer, Associate Broker
480-515-2202 (office)
karl@sonorangmac.com

The market place is terrific for those wanting to buy- prices that we haven't seen in a very long time and multi family units with equity built in http://www.cactuscountryproperty.com/multiunitandland.htm

LOVE HOUSE KIDS PROGRAM

LOVE HOUSE KIDS PROGRAM


Happy Sunday

Just had to share with everyone what happened this week. As I mentioned in a previous email, we are trying to provide a full night out for 50 kids at the Road Runner's game in April. We have the tickets and now we need to feed them and just make it a nice memory for all. We heard from Harry and Sharron Hummell at KM Coatings MFG ( you might know) and they are sponsoring 5 kids and Chuck Westerlund who works everyday of his life for these kids already, sponsored 3. Every single one counts, whether you do it as a group or individual. 20 dollars sponsors a child and we are happy to do one child at a time. Only need to it 42 more times and we are there. When we first started we had one child and after doing that 500 more times, guess what! We know the power of one at a time and we know how God works the math. Please let us know if you can help.

This was just a week of heartfelt blessings for us. Pat,a gal that works at Curves presented me with $5.00. Her church had asked their people to tithe for a charity that they wanted blessed and they felt was worthwhile. How humbling was that!

I'm not done yet. Ellen, a neighbor of mine had donated $100.00 for our kids at Christmas time. she then got our tax id number and paperwork, took it to her company that matches donations of their employees, if the charity qualifies. I received a check this week for $200.00. Thank you Ellen for taking the time to go the extra mile and present the paperwork to your company.

Thank you to Scott Miller, one of our Realtors at Cactus Country Property Professionals. Scott is also on our board. As most know our bracelet project really fell short, no it didn't fall short- it barely got off the ground. Scott works with special needs kids and he is trying to raise money for sports equipment for his football and track kids so he came by and picked up about 7000 bracelets and working with other coaches trying to get these bracelets out and make some money for his kids. We had bought these bracelets to sponsor our therapy program and it just wasn't suppose to be. Wouldn't it be so fitting if this is who they were suppose to help. If you have a fund raising need, we have the bracelets and we will split the profits with you. Call me at 602 971 3331, 602 980 0760 or email me; maureen@lovehousekidsprogram.org

Thank you everyone for being part of our network for kids. We can not do this without you and wouldn't want to try.
Blessings
Maureen

We are a 501 C charity. The math is easy-

100% of all money goes to the kids-

0% for saleries



Love House Kids Program, (602) 980 0760, Fax: (480) 275 3406

www.lovehousekidsprogram.org

Kath's Rate News

I thought you might find this of interest and remember “It is a great time to buy!”
Mortgage Bonds have traded wildly up and down over the past six days. So if you like volatility, this market is for you. Mortgage Bonds are now trading lower after this morning's Durable Goods release, which was reported well above expectations. It is known that, the Durable Goods Report is a volatile one, but the 5.2% reading was far above expectations of 1.2% and could signal that business capital investment is picking up or paint the picture that the economy is not as bad as previously thought. This translates to even more guessing about the Fed's decision tomorrow. Will it be a cut of a quarter or a half percent?
The consumer is still feeling pretty confident as Consumer Confidence for January was reported at 87.5, which was stronger than expectations of 87.0. Adding further strength to the report is an upward revision to December's reading from a previously reported 88.6 to 90.6. This morning's stronger than expected report has to raise some eyebrows at the Fed, which starts their two-day meeting today.
The Fed’s interest rate decision and Policy Statement is set for release tomorrow afternoon at 2:15pm ET. At least two former voting Fed members see a half point cut to keep the markets from going back into the sharp decline we had seen just last week. And the futures contract, which is not so good at predicting longer term Fed moves, but very good at the near term move, is pricing in an 86% chance of a 50bp or half percent cut...we see this scenario playing out as well.
If the Fed does cut by 50bp - the long term picture may not be so good for Mortgage Bonds. The Fed has already cut 175bp since September 18th, bringing the Fed Funds Rate down to 3.5% from 5.25%. And don't forget the 50bp cut in just the Discount Rate back in August. Add in the President's Stimulus Package and another 50bp cut tomorrow and you have a whole lot of ammunition to juice the economy. Remember that it takes 6 to 9 months for the effects of a Fed Move to be realized. And we are barely 4 months past the initial Fed cut. If inflation flames arise, bond prices will suffer later, as the fixed rate of return they generate must yield a number to compensate for higher inflation.
And in watching many so called experts parade in front of the news cameras this morning, it was funny to hear some of the comments. An economist from S&P said that most mortgages are priced off the 10-year Note...scary. Another said the Fed's recent cut (exactly one week ago) has had no effect on housing. Again, this shows how little understanding these individuals have about the way our business works. Do they really think that people see the Fed cut, get in their car, buy a home, get a mortgage, and close within a week?
Note the Floating Bias today - this does not mean to take your eye off the ball as we are already seeing a decline in MBS prices. Watch the windows; I will alert you if things get nasty. This is a good time to get the message out to your clients, who may be waiting on rates to drop further. As always, loan applications never peak at the lowest point for rates...they do so when rates start moving up and clients get off the fence before the train leaves the station. Warn your clients of this common error. It is wise to have your clients in queue, especially those above $417k, but below $625K. This way they can pounce on the lower rates once the conforming limit is raised.


Kathleen ReinertHome Mortgage ConsultantWells Fargo Home MortgageMAC S4153-02020369 N 59th AveGlendale, AZ 85308623.445.2297 Tel602.620.3105 Cell866.254.1668 Fax866.207.6731 ext2297 Toll Freekathleen.reinert@wellsfargo.com http://www.kathleenreinert.com

Weekly House Inventory Level in Phoenix AZ and area

Weekly Inventory Level comparison

As of Friday, 2/8/08

Total homes available for sale increased by 369, or about 1% over last week. Current rate of closings remains low due to the fact that it is reflecting activity from the end of the year. Closes in the previous month were 2405 which gives us a supply of 19 months, a slight improvement over last week
Current Pendings continue to increase. The good news is these are at the highest level that I have seen since last August PM (Pre-Meltdown). This should translate in to more closings in the next month.

Best market in the Valley continues to be the SE area at 16 months supply and next is Scottsdale under $1M at 16 3/4 months.

The comparison of current active listing change is based on the previous week’s inventory. Supply numbers are based on the number of closings in the previous month, divided in to the total number of active listings. This data is for Single Family Detached homes only and does not include patio homes, condos, or town homes.
Entire MLS (Maricopa and Northern Pinal county), listing inventories are up 1% from last week. Total of 45783 active listings. Based on current rate of closings, about a 19 month supply.
200’s area (Central Phoenix). Listing inventories are up 1% from last week. Total of 6446 active listings. About a 20 1/2 month supply.

300’s area (West Valley). Listing inventories are unchanged from last week. Total of 15156 active listings. About a 20 1/4 month supply.

400’s area (NE Valley), Listing inventories are up 2% from last week. Total of 7708 active listings. About a 20 3/4 month supply.

500’s area (SE Valley), Listing inventories are up 1% from last week. Total of 11447 active listings. About a 16 month supply.

Scottsdale over $1m. Listings inventories are up 1% from last week.
Total of 1622 active listings. About a 40 1/2 month supply.

Scottsdale under $1m. Listing inventories are up 2% from last week. Total of 2613 active listings. About a 16 3/4 month supply.

Paradise Valley. Listing inventories are up 1% from last week. Total of 426 active listings. About a 38 3/4 month supply.

I hope this information is useful to you.

Multi Family 101

Thinking of upgrading rental properties, perhaps moving from single-family homes to multi-family buildings? Have no fear. While managing these complexes, whether they have six apartments or 60, can sometimes feel more like running a business than managing a real estate investment, many of the tax, landlord and general real estate investing rules that apply to single-family housing also apply to multi-family investments.
Purchasing: Obviously, the overall cost of a multi-family building or apartment complex is much higher than a single unit. Small buildings with say, six units can range anywhere from several hundred thousand on up into the millions of dollars depending on the market, so you’ll probably need to have more cash available up front than if you’re buying a single-family home. The cost “per door” varies widely from market to market but is typically lower in larger properties, a result of various economies of scale.
An ideal building has a good mix of two-and three-bedroom apartments, the larger of which provides an opportunity to rent to families. Complexes with all one-bedroom or studio units tend to stay empty longer since they significantly narrow the pool of tenants they can attract. Of course, this all depends on the location of the property. A building near a college campus, for instance, might very well find plenty of tenants looking for one-bedroom apartments. In most scenarios, though, buildings with a good mix of unit sizes will outperform those packed with studios or one-bedrooms.
Location matters, so if you can, choose a property near the bus lines, local shopping centers, recreation facilities and other local attractions. Well located buildings command better sale prices and higher rents because they will be more desired and sought out by landlords and tenants alike.
Financing: Generally, a residential loan is all that is needed for buildings with one to four units, while a commercial loan is necessary for buildings with five or more units. Typical financing for one to four units will require 20 percent cash down, and loan fees vary, but usually average around 3.5 percent of the purchase price. In order to add larger properties to your portfolio you need to apply for a commercial loan, which has different underwriting and approval processes. For smaller residential loans, the banks generally look at the investment potential of the real estate and then fall back on the borrower’s personal financial and credit history. That’s not strictly the case with commercial loans where lenders are much more interested in profit and loss histories for the project itself. That can make convincing your bank to give you the money based on forward-looking projections more difficult. If possible, you should provide at least a three-year (five is optimum) historical report of income and expense data with your application package.
You may also run into trouble finding a bank that wants a commercial loan for less than $500,000. That means you’ll either have to think bigger and spend more upfront or shop around until you find a bank willing to finance smaller deals. Overall, lenders tend to look at all cash flow considerations including the amount of money you have in reserve to cover unforeseen expenses. They’ll also look at other costs you’ll incur besides the mortgage; these will include taxes, regular maintenance management fees and vacancy rates. Remember, banks need to see an ability to make repayments on a monthly basis in order to approve a loan. Many banks will have a set income to debt ratio, called debt service coverage ratio or DSCR that you will be required to maintain. A DSCR of 1.0 means for ever dollar of income there is a dollar of debt repayment. Expect most lending institutions to require a DSCR of at least 1.25 — one dollar and twenty five cents net income for each dollar of debt repayment — before they consider a loan viable.
Cash Flow: One big advantage of a multi-unit complex is that you will get payments from multiple tenants each month, making both vacancy rate hiccups and deadbeat tenants easier to absorb. If a single-family home is empty, vacancy is instantly 100 percent and cash flow plummets to zero. In a building with six units, if one or two of the apartments are empty there is still income flowing to help pay the bills. Compare that with a single-family house where just a few months without rent can quickly put a landlord in a cash flow crunch.
Because valuations of multi-family properties are tied more to cash flow and net income than single-family units, they tend to be less prone to wild speculative swings in value during both rising and falling markets. These values are often stated in the form of a “cap rate”, which is the ratio between the net income and capital cost. For example, a building purchased for $1 million that generates $100,000 in net operating income has a cap rate of 10 percent. When valuing properties, it is useful to think of the cap rate the same way you would look at a rate of return for any other investment. The higher the cap rate, the higher the rate of return on the investment, but also the higher the perceived risk. Cap rates vary depending on the location, size and history of the property. A fully tenanted apartment complex in a rapidly developing area will command a lower cap rate than an older building in a questionable part of town which is perceived to be a higher risk proposition.
Maintenance: This might be the first tangible difference many investors feel after the purchase process is completed. Even if purchasing and financing your first complex was easy, chances are you’ll soon feel pressure from the extra tenants you’ve taken on. Managing your first multi-unit project can feel like a full-time job. Real estate professionals will advise you to be prepared for the worst, and you should plan accordingly. Instead of that one perfect family you rented a house to with little fanfare, you’ll have several tenants with their leaky pipes, noisy neighbors and lost rent checks to deal with at any given time. Also, keep in mind that the same commonsense rental rules apply to apartments as homes. That means the more units you have, the more you will have to repaint, clean and inspect before a new tenant moves in.
However, if you currently manage several single-family units in different locations, buying a single larger complex could provide an advantage for you. Instead of six families living in six separate homes, your tenants will now share a single roof, lawn, and parking lot, leaving you only one area to maintain instead of six.
It may be advantageous to hire a property maintenance company to supervise, maintain and field calls for you. This will cut into your profit, but if you are a serious investor who wants to spend your time vetting new projects, it may well be to your advantage hiring someone else to take care of broken toilets and overgrown lawns on a day to day basis.
The Right Bet
Investing in apartment complexes should be considered a longer-term and possibly deeper commitment than owning and renting out single-family homes. It takes longer to sell a building or large complex than a home and it may take some time to get the hang of managing such a large property. However, if it’s done right, owning a multifamily complex can provide a constant source of income for years to come with considerable upside along the way. Any investment is a balance of risk, work and reward, but if you’re ready to take on a bigger challenge and move to the next level of investing, then a multifamily project might be the right bet.

Check out Maureen's multi family units at "http://www.cactuscountryproperty.com/multiunitandland.htm

Commercial Financing

September 11, 2007

COMMERCIAL FINANCING UPDATE
Reduced Interest Rates from Portfolio Lenders
A combination of factors, including the recent bond rally and the emergence of portfolio lenders, has resulted in 5-year fixed rates of 6% for average quality multi-family properties. Commercial property financing is available at slightly higher interest rates (6.25% to 6.5%). Portfolio lenders have strengthened their strategic position in the current market, while many conduit/CMBS lenders have elected to cease issuing loan quotes or Letters of Interest. Those conduit/CMBS lenders that are issuing loan quotes have increased the spreads to compensate for challenging capital market conditions. A portfolio lender funds loans with its own capital and has the ability to hold loans on its balance sheet.

Many commercial and multi-family property owners are choosing to pay-off their existing mortgages by refinancing with portfolio lenders to:
1- Lock-in historically low interest rates for 5-7 years
2- Obtain flexible prepayment penalty – i.e. declining 5-4-3-2-1 for 5-year fixed rate
3- Improve the property cash-flow through a combination of reduced interest rates and gradually-increasing rental rates

Understanding Appraised Value in Relation to Sales Price and Loan Amount
Commercial/Multi-Family real estate purchase contracts have customarily excluded any contingency provisions related to the appraised property value as it relates to the sales price. This practice differs from A.A.R, residential purchase contract language, which includes an appraised value contingency provision. According to the residential purchase contract, buyers have the right to cancel the contract in the event that the appraised value is less than the purchase contract. Commercial/Multi-Family real estate buyers waive all contingencies prior to the end of the financing contingency period, based on their receipt of a financing commitment from a reliable lender. The property appraisal is intended to meet the underwriting requirements of the lender, and is not intended for the use of the buyer or seller.

In the event that buyers and sellers of commercial/multi-family real estate are considering the use of the property appraisal in the negotiation of the sales price, there are several unique considerations that should be addressed:
1- Appraisal Assignment Requirements – The appraised value is based on the appraiser’s analysis according to the lender’s assignment requirements. For example, the assignment requirements may specify the use of market vs. actual rents. Since buyers and sellers are not a party to the appraisal, they have no control over the specific scope of work.
2- Copy of Appraisal – The appraisal is the property of the lender. Some lenders may not authorize the release of the appraisal to the buyer or seller.
3- Appraised Value and Net Operating Income (NOI) – The lender determines the loan amount based on the property’s NOI (i.e. minimum 1.15 debt coverage ratio) and appraised value (i.e. loan not to exceed 75% LTV).

It is important to note that the NOI is one of three factors used by the appraiser to determine the appraised value. Appraisers apply an appropriate Capitalization Rate to determine the value based on the income approach. For example $100,000 NOI divided by .055 cap rate equals $1,800,000 value. The other two valuation methods are the cost approach and sales comparison approach. The appraiser uses his professional judgment to use one or a combination of the three valuation approaches to arrive at the final Reconciled Appraised Value.

Receiving an appraised value equal to the sales price does not assure the buyer of a 70-75% loan. For example, multi-family appraisals frequently agree with the sales price when appraisers use current market cap rates. NOI has not kept pace with the increases in the price/unit paid for apartments over the past several years. This has resulted in historically low cap rates.

Since the primary factor in determining the loan amount is the Debt Coverage Ratio (i.e. NOI divided by 1.15), the maximum LTV for many properties is 60-65% of the purchase price. Based on $100,000 NOI, the maximum loan amount for a 6% interest rate is $1,200,000 (67% of $1,800,000 – see above).

In most cases, the ability of the buyer to obtain a minimum loan amount is more critical than the confirmation of the property’s appraised value. Many buyers knowingly pay more than “as-is” appraised value based on their assessment of the potential for increased property value. Increased value may occur from future rental increases, reduced operating expenses, property appreciation, or property repositioning. According to Vince Davis, of Davis Valuation Group, “Appraisers are required to comply with USPAP standards when preparing appraisals for clients. When preparing an “as-is” appraisal report, these standards include the use of actual rental rates and operating expenses. This valuation method does not account for other factors that may increase the property value after close of escrow.”

Conclusion
An appraiser’s conclusion of property value may not be a reliable basis for a commercial/multi-family contract negotiation. Experienced real estate brokers and their clients are in the best position to establish a property’s sales price based on a consideration of:
Current market conditions
Financing Terms – interest rate, portfolio vs. conduit, loan-to-value ratio, etc.
Experience and financial ability of the buyer to complete the transaction successfully

Resources
Vince Davis, Davis Valuation Group – Contributed technical information and editorial review for this article
430 E Southern Ave, Tempe, AZ 85282 – 480 968-7449 -
www.davisvaluation.com

Commercial Real Estate Institute – Continuing Education and Professional Designations for Commercial Real Estate Agents and Brokers
602 285-1433
www.commercial-real-estate-institute.com

Robert T. Gibney & Associates
4300 N. Miller Road, Suite 212, Scottsdale, Arizona 85251
480 429-3642
www.AZCommercial.Biz