INVESTOR BUS TOURS

I heard many stories about investors coming from California and touring Arizona neighborhoods in buses and buying homes. I never saw or was part of that in 2004 and 2005. However, a week ago Sunday I took a group of investors out from California on a tour. They flew into Scottsdale airpark in the private plane. We met early Sunday morning. I reviewed the market and gave them a presentation on the state of our real estate market.

They asked many questions and demonstrated they were very knowledgeable investors. One of the investors had bought 50 home through me and my aunt back in the mid 90’s. He made a ton on money on those homes.

We set forth on a tour and checked out several homes. They feel the bottom has not hit but it is on the horizon. They have assembled about $5,000,000 to invest in nearly $15,000,000 worth of properties. They realize this in not the time to flip, but the time to buy and hold. They are looking for good rental properties. Their main goal was to go after the bank REO property and buy in bulk. I contacted several banks and spoke with the head guy with REO at one bank. They are not interested in selling in bulk to investors at this time. I was rather shocked. But the banks were very consistent with the fact they are selling their homes at market value, so why take a discount?

We moved on to the resale market. We identified the target market for homes they would purchase.

Our target for rental properties was as follows:

Tile roof homes.
Smaller homes in neighborhoods with larger homes.
Be as near to the city center as possible. Really trying to stay inside the 101 to the west and below Carefree Hwy to the north.
No areas like Surprise, Maricopa or Queen Creek.
3 bedroom minimum but 4 bedrooms is a bonus.
No pools.
1,600 square foot homes or larger.
A purchase price of between 70 and 80% of today’s value.
Based on rental rates, we want them to break even or be close to break even.

Sticking to these criteria should protect them from making bad decisions. The investor group realizes we are not at the bottom of the market. However, the bottom will not be known until we see it in hind’s sight. They believe now is the time to start entering the market and buy homes over a period time. The idea is like dollar cost averaging into a mutual fund. Some will be bought before the bottom, some at the bottom and some will be bought as the market starts to turn positive again.

I was very encouraged to see these investors to have a similar idea as I. That idea is that the market is getting better. Just like before when the market started deteriorating it takes a long time to turn a market. Our market started adding to inventory levels in March of 2005. Inventory levels went up by 40% in October of 2005. But that wasn’t the top. Buyers kept bidding up the market until mid 2006. It took over 1 year to affect prices from the time inventory levels started increasing. I think this might be a little different.

Inventory levels topped out in October of 2007 and today are at about the same level as they were one year ago. Today, sales are at their highest level in over 2 years. It appears as though the market is about 6 or 8 months into turning around. Last time it took about 16 months to turn from the time inventory levels started growing. I don’t know how far we are from seeing this market turn around. But I feel strongly that there is “light at the end of the tunnel.” The difficulty is that we won’t know the market has turned until we see it in hinds sight.