The Housechick Blog

Having trouble selling your house?  You’re in good company.  Today’s Tucson Real Estate snapshot: there are 8081 active residential listings, and there were 767 homes sold in October of this year.  Seasonally, we’re about to have our winter slow-down as well - it is a determined Buyer that wants to move over the holidays.

More and more, I hear Sellers considering renting the house for a year, and then trying their luck in next year’s market.  Is that a good decision?

Let’s discuss the possibilities, and you can make the best decision for yourself.

First - the market next year is unknown.  Worse, better, the same - it all depends on who you talk to and who you care to believe.  Let’s look at worst and best, and hope for the middle or better.  We’ll use this later in some scenarios.

Are you ready to become a landlord?  Go download the Arizona Landlord Tenant act and read through it carefully.  Do you feel confident that you can screen potential tenants carefully?  Are you prepared to handle calls regarding stopped-up plumbing or broken cabinet doors?  If you’re going to use a property management company, they’ll take at least 10%, if not 15%, of your monthly rent, plus an annual fee - usually a couple hundred bucks. 

Okay, so let’s say you successfully rented your house for a year.  Now that your tenant is out, you’ll need a fresh coat of paint, and a carpet cleaning, if not an outright replacement.  Let’s say you spend $3000 in repairs and cleaning. 

So was the year’s rent worth it?

Let’s look at an optimistic scenario:  Say you have a 3 bedroom house on the Northwest side of Tucson.  You bought it 3 years ago for $175,000, and took out $20,000 in an equity line to landscape the backyard and make some other interior improvements.  Your monthly mortgage costs are $1380, including the first and second mortgage and your $30/month HOA fee.  You have your house listed at $275,000 for it.  It would probably sell more easily for $250,000, but you don’t want to take that hit.  You decide to withdraw your listing and lease the property for a year.  Since you have a nice house, you get $1200/month for it.  In a year, your house is worth $260,000.

Scenario One: Sell today for $250,000

Sales Price: $250,000

- $21,000 closing costs

- $135,820 first mortgage remainder

-$19,571 second mortgage remainder

= $73,609 at close

Scenario Two: Rent for 1 year, then Sell for $260,000

Sales Price: $260,000

- $22,000 closing costs

- $134,204 first mortgage remainder

-$19,400 second mortgage remainder

= $84,396 at closing - but we need to figure costs for the year, plus rent.

- $16,560 in mortgage payments (includes HOA, taxes, insurance)

+14,400 in rental income

- $3000 in cleaning, paint, and repairs

= $79,236 after costs.

So you gained an additional $5600 by renting for a year instead of lowering your price now.  Assuming you were able to rent it right away, sell it right away, and prices went up $10k over the year.  Possible?  Maybe.  Let’s look at a more realistic scenario.

You have the same 3 bedroom Northwest side house, same costs.  You decide to rent for a year, and it takes 4 months to find a tenant because of the sheer number of available rentals in the area.  You only get $1000 per month for the house, and sign a year’s lease.  After the tenant moves out, it takes you 4 months to sell the place, at $260,000, and after $3000 in paint, cleaning, and repairs.

Scenario Three: Tougher Rental Market, sell after a year’s lease

Sales Price $260,000

- $22,000 closing costs

- $134,204 first mortgage remainder

- $19,400 second mortgage remainder

= $84,396 at closing

- $27,600 in mortgages (12 mo. lease, + 4 mo. before lease, 4 mo. to sell)

+12,000 in rental income

- $3000 in cleaning, paint, repairs

= $65,796 after costs.

So in this more realistic version, you make $7,813 LESS than you would had you just sold at a reduced price now.  You had to deal with a tenant, who hopefully was on time with their rent, didn’t destroy everything, or call frequently with problems.  We haven’t factored in marketing costs, or tax benefits, OR your living costs while your current house is being rented, so your mileage may vary.

What’s your scenario?

University area housing is all the rage this week.  There’s a question often overlooked when it comes to buying a house for your college student - what happens after graduation?

When asked, most people want to sell it and make money.  Leasing it out for a period of time is a distant second answer.

So how long until your kid graduates and you want to sell?  2 years?  5 years?  That’s going to make a big difference.  The longer you hold the property, the more costs you’ll incur on maintenance, mortgage, taxes.  But the longer you hold, the better your chances of seeing a market turn around, perhaps even some normal appreciation of 3-5% percent for a year or two.

Selling it in 2 years and expecting a profit might be difficult.  Let’s say we can find a decent deal today, buy a 3 bedroom University area home around $200,000 that needs maybe $10,000 in updating and repairs (you don’t want to put your kid in an unsafe home or into something that won’t be easy to maintain, do you?).  We’ll even use a rosy scenario.  Let’s say 3% appreciation per year.  You buy with 10% down at a 7% investor rate.  Your kid has two roommates, who each pay $400 per month in rent.  Your kid lives there for free (lucky guy).

Simplistic Scenario:

Purchase Price $200,000

plus Closing Costs: $4000

and repairs/upgrades: $10,000

Total In: $214,000

Total Lease Income over 2 years: $19,200

Appreciation over 2 years at 3% annually: $12,180

Let’s say you get half the cost of your improvements back: $5000

Sales Price in two years, rounding to nearest 10th: $220,000

Selling closing costs: $18,000

So:

   $220,000 sales price

- $   18,000 closing costs

- $214,000 original purchase plus closing and improvements

+ $19,200 lease money

- $   28,741 monthly PI mortgage costs

- $   2,000 maintenance costs

+ $ 9600 in money not spent on kids apartment rent

- $  4,000  taxes and insurance

= $-17,941

So you end up $17k in the hole all in all, but we’ll make some of that up in tax benefits.  To really make the numbers work, you need to get more rent, make smarter improvements to raise the value of the house, or have greater appreciation.  What will you pay for your kid to rent a place or live in the dorms for 2 years?

At 5 years, with the same scenario (your kid moves out after 2 years and you rent the whole house out for $1200), you end up $10k behind, but again, that’s before some nice tax benefits.  If we get closer to 5% appreciation per year, at 5 years, you end up with $8k in your pocket after all your costs, plus the tax breaks.

If you can find the right deal, and have a good plan for the house and the amount of time you will own it, then it can make a lot of sense to buy an investment property that your university student lives in while attending college.  Just don’t expect to buy a typical house, not improve it, and make a huge profit when you sell it in 2 years.  We’re not in that market anymore.

Well, I finally did it.  It took a long time, but now I, too, have joined the masses of Tucsonians who have eaten at the local In-N-Out Burger.

Floyd and I stopped on our way home from the vet.  Since it was still early, the typical 20 car line hadn’t yet formed, so we breezed on through.  A good portion of the drive through line is covered, which is a nice touch.

The lady on the intercom asked me if I wanted to eat my meal in the car.  It took me a while to answer that question, because I started wondering why they were asking and how many people, after getting a drive through meal, stop in the parking lot and eat.  And finally, how does that change my food order?  Apparently, you don’t get a bag if you want to eat in the lot.  Go figure.

Turns out - it’s pretty much just a burger.  Although the lettuce was fresh and crispy, which was nice.  The fries were woefully undercooked.

But for the rest of the day, I have my status symbol to carry around: the distinctive In-N-Out cup, to let the world know exactly how cool I am.  Who me?  Been there, done that.

Finally, a contest I can get behind, and all for a good cause. 

I do love spicy food.  There’s almost nothing that doesn’t taste better if made spicy, IMHO.

Enter the Tucson Salsa Challenge!

Held in Reid Park at the DeMeester Performance Center on Saturday November 10th from 11am to 6pm, the Salsa Challenge is a festival featuring over 70 professional and amateur chefs, preparing fresh salsa on site.  There’s also  Margarita Mix-off from 12:30 to 3:30, and each margarita in the contest will be auctioned off to the highest bidder.

Besides all of that, there will be live music, cold beer, Mexican food from Macayo’s, and something called a “Fun Zone” which offers “interactive family fun.”

Tickets go for $8 a pop for adults in advance (buy tickets online), kids under 12 are free.  If you wait to buy a ticket at the gate, you’ll pay $10 per adult.

All proceeds go to the Arizona Hemophilia Association, who will use the money raised to continue their educational and emotional support programs for the hemophilia community at large.

Because I don’t routinely travel at the speed of light, time is a nice, clean, linear thing to me.  There’s 24 hours in a day, every day.  My clock’s hands go from one, to two, to three, and so on in a never ending cycle.  This whole spring forward fall back business is just, well, it doesn’t compute. 

You crazy other states can spring and fall all you want, but I’m sticking with Arizona, where we don’t need no stinkin’ daylight saving time.  We like our time simple.  It’s always the same - Mountain Standard Time all year long.

You other states have fun trying to figure out how to change the time in your car.  Oh, and on the VCR (hopefully, your Tivo is smarter).  Oh, and on the microwave, and the oven, and the coffee maker.  And your alarm clocks.  And desk clocks.  And your sprinkler system timer.  Don’t forget to mention the change to your dog so she doesn’t pounce on the bed an hour early wanting her kibble and a trip outside.

This year, at least, you got your hour back that you gave away in March - and without interest, I might add. Will you always be so lucky?

Recently, I wrote a post about my loan officer friend moving to a new office, which prompted a question regarding what she did to get such a nice post just about her.

Let me preface this by saying that I do not recommend only one loan officer to my clients.  I’ve got four that I routinely recommend, so my clients have the freedom to compare and contrast, and select the person that will work with them best.  Whether my clients call one or call all four, they’ll have selected a competent, trustworthy, excellent loan officer.  Everyone has different personalities and different programs - I don’t subscribe to a ‘one size fits all’ approach.

So what do I want out of a loan officer?  How do they make my recommendation list?

• They communicate regularly with my client and me, without being prompted.  A good loan officer initiates calls/emails to both me and my client to let us know when an appraisal will happen, what it comes in at, when the loan is going to underwriting, when all supporting documentation has been received, and so on.  I rarely have to call a good loan officer - they’re calling or emailing me to let me know the progress.
• They take the time to listen to my client’s needs and concerns, address those issues up front, and will always make time to explain a myriad of loan programs, how they work, the implications of each, and really educate my clients so that they are comfortable with the financing side of their transaction.
• They know their business inside and out and have access to a large variety of competitive loan programs.  If one of my loan officers says my client can get a loan, I can bank on that.  If my loan officer says we’re good to go, then we’re good.  Period.
• They play well with others.  We all get angry or have bad days, but we are never rude or condescending to a client.  I expect that from my loan officers, my title and escrow people, my home inspectors, from everyone who provides a service to my clients.

My preferred loan officers aren’t the cheapest in town, neither are they the most expensive.  They deliver value, they perform to what they say they can do, and they’re nice, interesting people who are enjoyable to work with.

What kind of loan officer do you want to work with?  How do you select?

Just a warning: I’m moving some stuff around, there may be a couple odd pages or broken links for a day or two until I can get everything live. Private Buyer and Seller Pages are now listed under “Clients Only”, to make some room for a Stats page. The client pages are up and running, the stats are going to take a few days to get fully functional. If you’re curious, check back again in a couple days to see what’s new.

And now back to your regularly scheduled programming.

 ”Seller will give a $2000 flooring allowance at close of escrow.”

…but only if you buy it for full price.

“Roof will be placed prior to closing.”

…but not if you buy it at the ‘as is’ price.

“All fogged windows will be corrected before closing.”

…and by that, we mean we’ll give you money and you can go fix them.

“The barbeque and patio furniture convey with the house.”

…except when you show up at the walkthrough and they’re gone.

Many, many times, there are comments made in the MLS regarding an incentive offered by the Seller that just aren’t completely true.  Unfortunately, you can’t depend on getting these kinds of incentives unless you specifically negotiate for them in the offer.

If you want the roof fixed, or a flooring allowance, or really really want their patio furniture, you’d better be asking explicitly for those things and securing a decision that is recorded in a purchase contract.  Most often, offers made via MLS comments aren’t enforceable (at least as far as my company’s legal counsel is concerned - if you’re in the middle of one of these situations, get your own legal advice.).

Personally, I think those Sellers ought to be just making those repairs and removing those items as negotiating tools.  Go replace the floors or the roof or windows, so that a Buyer can’t use those things during a negotiation to get a lower price for the house.