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First and foremost, I am well on the road to recovery from Covid-19. Yes, both Tom and I had it.  He first, then me.  While he was nearly as affected as I was, he is still feeling the after effects of the general  fatigue.  He is back at work and should be fine.  Many of you know that I was in hospital and am still recovering at home.  I tire quickly and still (probably for some time) have a cough.  However, neither of us are contagious anymore.  This is something to take seriously and please be careful with distancing and using your masks.

 

I will say that many of my clients have given me great support and I want to thank you for this!

 

Real Estate continues to be very lively in Phoenix. Many investors are against multiple offers.

 

I wanted to share my thoughts when you may be in a multiple offer situation.  As a Buyer’s Agent, I am seeing this quite often.  I REALLY hate to get into a multiple offer situation.  Here’s why, you are simply bidding against yourself.  You and I have no knowledge of what the other offer is and we are simply allowing the listing agent to raise the price or remove contingencies.  If this is what you want, I will certainly do my best.  My recommendation is often, withdraw the offer and go on to another property. Many times the listing agent suddenly becomes much easier to work with and we still get an accepted offer.  Did the listing really have another offer? Who knows? A few days ago, I wrote an offer for a client that had several offers.  The listing agent wanted my client to pay 20K over listing price and remove appraisal contingency. Also to remove the inspection contingency.  While I certainly spoke with my client to offer them the terms and conditions, my solid advice was to move on.  In another case last week, we wrote a really good offer on a property and the agent called the next day that they had accepted another offer.  She let it slip that the other offer was one of her own clients.  Did she use my offer to encourage an offer from her client? PRobably.  This is called “shopping the offer”. Hard to prove but highly unethical!

 

As a Seller, if you received more than one offer be careful.  I usually recommend that we work with the best offer.  If you use the multiple offer forms and it is done correctly, often you may lose ALL offers for the very reasons that I have outlined above.  If we vet the offers on the table, while there is never a guarantee in Real Estate, most often we go to a successful closing,

 

I also wanted to touch base on the differences that I am personally using with Covid-19 and listing a property.

 

While I alway use professional photos and supply the due diligence upfront thus circumventing many buyers that are not serious, I have added other tools to the tool chest. I now have virtual tours done to all listings.  I also am in the process of obtaining actual floor plans for each property. This way every potential buyer has a tour of the property and floor plans.  Of course, I have always kept up with current books and records along with the most current rent roll.  Some properties have 20 to 25 different pieces of due diligence provided on the more than 30 websites that I list on.  Remember that this takes me almost 6 hours to update every month.  I want to thank the property managers and the owners for helping gather all of this information.  Without this timely help, this task would be insurmountable.

 

I hope that this Blog helps draw back the curtain to the job that I work on every day and again I want to thank everyone for their continued support while I am still recovering from Covid-19.

 

Remember that I do answer my phone and feel free to call me.  602-688-9279.

 

Linda

Roofs:

“New” roof materials are being observed in the Greater Phoenix Metro.  While not “new” in the sense that they are a new technology, these materials have been around for some time, they are showing up on some new builds and some remodels.  Specifically metal for sloped and rubber for flat roofs are being installed in residential applications primarily because their price points, while high on an absolute basis, are competitive when one looks at a total cost of ownership. 
Both these roof materials have very long lives (and respective warranties when installed by experienced and licensed roofers).  And in the case of standing seam metal roofs, they provide an updated architectural look.  (Most people don’t see flat roofs, unless they are flying a drone, so that benefit is not applicable to the rubber roof application.)
Expect to pay 2X to 3X for these roofs over asphalt type materials or tile type materials, but you can also expect 40-50 year life assuming proper ongoing maintenance.
The downside to these materials is specific durability.  While they hold up well to our intense solar load, a metal roof can dent easily from impacts, primarily tree debris, but also hail damage.  Rubber roofs do much better in this area, but are susceptible to tear damage, especially if there is mechanical equipment on the roof that needs maintenance or replacement.  Extra care must be taken to protect roofs from this type of damage.
While the vast majority of inexpensive roofs are still asphalt materials (either basic shingles or raised profile shingles for sloped roofs and rolled composition for flat roofs), the quality and durability of these roofs have also improved, with the newer architectural shingles (RP) routinely having 25 and 30 year material warranties.  Even polyfoam for flat roofs have improved, primarily due to improved seal coats.  Regular application of seal coats can extend properly installed foam roofs almost indefinitely.
And having said all that, probably the best value, as in balance between first cost, expected longevity, and durability is still a concrete tile roof with an inorganic underlayment.  These can last 30+ years at a reasonable cost and routinely hold up to our infrequent but powerful weather events.
Attic ventilation:
Most attic spaces in Arizona benefit from proper ventilation, both from an energy use standpoint, and also extending the life of roofing materials.  There are some attics that do not need to be ventilated, primarily  based on the location of the insulation material.  Good examples include sloped roofs where the insulation is applied to the underside of the roof deck (i.e. sprayfoam) or any flat roof where the insulation is attached to the underside of the roof deck.  If the insulation is anywhere else, the attic should be ventilated.
A good rule of thumb regarding ventilation rates is 1 SF of free area vent for every 300 SF of attic.  Further, for every SF of vent space, about 50% should be “high” and 50% “low”.  Take a conventional gable roof attic space on an 1800 SF house.  The rule of thumb calculates  6 SF of vent.  Keep in mind that most vents have baffles to keep water out and screens to keep insects and birds out, so the typical vent has a 50% free area ratio, so the 6 SF of vent is actually 12 SF of vent openings.  Next, take the 12 SF and divide it by 2 and you end up with 6 SF of “high” vent and 6 SF of low vent.  One could use a ridge vent or gable vent for high vents and a soffit or deck vent for the low vents.  Knowing the free area of each vent type allows one to calculate how many vents of each type are needed.
As Property Inspectors, we don’t do the calculations, but we make quick assessments to determine if the installed vents are sufficient and report that accordingly.  Of course, this is an oversimplification/rule of thumb…there are many other “rules” that design professionals must use to meet code requirements.  For example, if an attic profile is a long rectangle, there may need to be additional vents required in the center area.  There is also a focus on “short cycling”, where a high vent is next to another high vent and defeats the purpose of the low vent providing air to evacuate the entire attic volume (think of a soffit and gable vent arrangement (good), but then someone adds a turbine vent 5 feet from the gable vent (bad).   In that “bad” case, air enters the gable vent and goes right out the turbine vent (short cycle) and there is insufficient pressure differential to pull air into the soffit vent, resulting in low air flow at the lower portion of the attic, resulting in increasing attic temperatures.
Of course the real problems occur when there should be vents and none are installed, or they are blocked (i.e. by added insulation).  We’ve encountered attics that were 165F on a 105F day, where someone blew in 12″ of insulation, but blocked all the soffit vents!
If you ever have any questions about property inspection topics, don’t hesitate to contact us.  Thanks, Marty  (Martin Lenich, ACI, PE, Chief Inspector at Inspect-It 1st, Greater Phoenix Metro:  602-318-7480 or MartinLenich@InspectIt1st.com

Feel free to call me, everyone knows I answer my phone  602-688-9279. 

Have a GREAT day!

Linda

The BINSR is one of the most important but delicate items of the Escrow. I want to spend some time discussing this.  It’s important that if the property is the right property that the Buyer and Seller walk away with a Win-Win situation.  Too often the Agents get in the way of the BINSR. Ijust had a property cancellation and the inspection was not anything that could not have been overcome.  Mostly small items!

 

When the Buyer has completed their due diligence during the inspection period it is time for the BINSR to be prepared and submitted to the Seller.

 

Please note that the BINSR is not part of the contract and when this negotiation is completed, there may and probably will be an addendum to the Purchase Contract will be signed. The BINSR is typically not sent to Title or the Ender but the Addendum to the Contract certainly is.

 

First, it is important to understand that no matter when the BINSR is submitted that the inspection period is now over. This means that the Buyer needs to have all of the due diligence completed.  Remember that his DOES NOT mean appraisals or loan but rather books and records along with physical items. There is a list on the Buyer Advisory and the face page of the residential contract.  

 

Secondly, when the BINSR is submitted (either Commercial or Residential) the Seller has five days to respond.  IF the Seller does not respond, this means that the Seller will not do anything. Once the Seller responds (unless they agree to everything) the Buyer has five days to either continue to negotiate, accept or cancel the contract with full refund of the Earnest Money.

 

When submitting the BINSR for multifamily, often we are looking for the Buyer a credit at cose.  One of the important items that our referral partner provides is a SOPC which can help give the Buyer the number to work from.  I cannot stress how this is helpful for two reasons. First, this gives me a number to place in front of the Seller that is a third party.  This also delineated Health and Safety and Immediate needs. The Seller thereby has material knowledge of the Health and Safety and Immediate needs.  IF they will not agree to the number or the repairs and the Escrow cancelled due to this, the Seller and the Listing Agent now have to disclose this knowledge going forward.

 

A word of caution,do not wait until the very last minute to respond.  Last year a Buyer’s Agent who was self representing himself, waited until 11:59 to send the BINSR to me.  His email failed and he sent it at 12:01 AM. The inspection period was up and his Earnest Money was at risk-clearly.  His 10K was either forfeited or he had to close. He closed. If he had sent this earlier, he could have cancelled and gone on.  

 

It is important as in any negotiation that the Buyer be reasonable as well. Last year, I had a Buyer that asked for very unreasonable items to be repaired.  Remember that if it is not broken the Buyer cannot ask for replacement, especially on items that according to the inspection would last at least another 5-8 years. Here is a saying that I think about-Pigs get fat and Hogs get slaughtered.  Something to think about.

 

Also, on all of my transactions, the Title company issues a Critical Dates Letter.  This is important to review and it will give the dates of the end of the inspection period.

 

I hope that this helps and if you have any questions, remember that I answer my phone!

 

602-688-9279

 

Have a great day!

 

Linda

I wanted to take a few moments to really explain some of the processes that I use to make Investors successful.

First, I answer my phone.  How important is that?

When a person first connects with me, we have an automated procedure that I use.  I place the person on an MLS search for 2 or more units. This allows them to start becoming familiar with the market.  It is only sent out twice a week and is an opt in program. If you have not opted in, you are missing information. If you need me to send this to you again, let me know.  If you want to be added, let me know.

I use Salesforce as a CRM.  Once the person is in Salesforce, they will get an email from me to explain my background. 

Also, if the person is on LinkedIn not only will they receive an invitation from me to connect but also an invitation to the closed investment group that is updated with market stories in real time once or twice a week.  Another great way to understand the Phoenix Market.

Additibally, remember that I am a member of the Tucson MLS and can (by request only) add you to the Tucson MLS as well.

I keep a massive spreadsheet containing all leads and current clients. This is tracked as to when I have spoken to you and your comments.  It also tracks when and how often the MLS searches are opened. Two of my referral partners Tom and JC) help me with getting these people qualified for a loan.  If the person is just looking that’s great. What about if they are interested in more than 4 units? No problem, but then I can help find the right commercial lender for the task at hand.  

When I find a deal that I think is worth getting serious about, I send out a constant contact.  I do not play favorites, the first Investor that calls me and wants it-gets it!.

When we go to Escrow or Contract, I have an online portal system that we store all executed documents and due diligence and you will be invited to this as well.

 

Did I mention the website?  I know that you are on this now but have you registered for the back side-more information.  I have spent over $30,000 on this website. You can access it easily from your phone as well.  

How about my book on Amazon?  Just google my name and it comes up!

How about the 10 hours of education on the site?  I paid almost $25,000 to make this a GOOD educational program for the investor.

Don’t forget the classroom workshop on May 2nd.

Below is a bit about the market last week.

According to the Information Market, residential sales in Maricopa County were up 14.8% in January 2020 when compared to January 2019.  That’s 7,922 units vs. 6,898 units. Resales accounted for 6,768 of the sales in January of 2020 compared to 5,954 in January of 2019. Median resale prices were up 10.1% over that period to $285,000.  New build sales rose to 1,154 vs. 944. New median sales prices rose 6.7% to $365,706.

Feel free to call me, I answer my phone and return calls as soon as possible!  602-688-9279!

Hope your day is amazing!

Linda

The first quarter of 2020 zooming byand  I am going to share my research and thoughts on the market for the Phoenix area and in particular MultiFamily.

First and foremost one of the questions that I am continually being asked is how long until we see a correction in the Phoenix Market.  Let me be clear-I do not have a crystal ball and will not set specific times or dates. 

Here is what is happening now.  There are over 250 major companies relocating to the Phoenix Market and this means jobs and building growth.  One of the reasons that we see this is really two fold. One, California is almost impossible to build in and the laws that DISCOURAGE growth are rapant. My phone is ringing constantly with California Investors.  I am meeting with several Californians that have given up and moved here. Many are liquidating their assets on the coast and moving their investments here. The second reason is that our State has a VERY friendly legislature for growth and are incentivized to make this happen. What is really interesting is that I am receiving quite a bit of interest from the East Coast as well.

Remember that our cost of living is low as well.

 

So the next question is what about jobs, tenants and places to live? 

In reference to jobs, our unemployment rate is below that National average and our workforce is robust. Tenants are interesting right for two reasons.  The first is that the amount of rents are keeping up with the wages and rents are on the increase there is no doubt. We had a multi unit property that the tenants needed the rents raised.  The Property Manager raised the rents $200 across the board and not one tenant left! One of my clients in Tucson wanted to rent a small apartment here so he could manage the rehab on one of his properties.  He could not find an apartment or at least one that he felt was affordable for his needs. The second part of the Tenant situation is that the younger tenants (millennials) do not want home ownership, they do not seem to want the responsibility of maintaining their own property.

Places to live are really interesting and probably the main reason that we see NO vacancies to speak of.  

About 10 years ago, Elliot Pollock who is probably the foremost economist on the PHoenix market projected that in 2020 we would need 525,000 more dwellings and that 35% of this would be new multifamily.  I went to a conference two weeks ago on the economy that he was one of the featured speakers. Not only have we not met these numbers but now he believes that we need more units and that he projects that our growth will remain strong for at least another 4 years.

Here is a link for some breaking news that happened yesterday check it out Historically low inventory continues driving home prices higher 

I want to quote and give you directly from the horse’s mouth Elliott Pollack’s last Monday projections. I respect him a great deal and you should go to his website and sign up for his weekly updates.  See below.

Also, remember that I am on the ground and digging deals out.  Call me I want to speak with you and help you understand the market and what is going on.  

 

ELLIOTT D. POLLACK & Company

FOR IMMEDIATE RELEASE

January 27, 2020 

The Monday Morning Quarterback 

A quick analysis of important economic data released over the last week

It was a slow week for national economic news. Leading indicators were essentially flat. Monthly existing home sales increased substantially from a year ago in December but were up only modestly for the year (2019 over 2018). And the supply/demand imbalance in the country caused resale prices to increase at four times the overall rate of inflation and more rapidly than wage gains for the December over December measure but were up more modestly for the year as a whole. This is because when interest rates declined during the year it allowed more of the pent up demand for housing to manifest itself. Other than that, it was political. The impeachment trial got underway in the Senate. And according to the Washington Examiner, the death of Mr. Peanut, the Planters Peanut symbol for the last 104 years, overshadowed the first day of impeachment arguments on Twitter. Is the public telling us something? 

On the local level, the latest Arizona, Greater Phoenix, and Greater Tucson employment data shows that the state and its major metro areas are continuing to do well economically. Arizona remained the third most rapidly growing state in 2019 and Greater Phoenix was the third most rapidly growing major employment market in the country in 2019. Thus, the state and Greater Phoenix are going into 2020 with a full head of steam. The same can be said for the single family, apartment, office and industrial real estate markets in Greater Phoenix.

U.S. Snapshot:

  • The Index of Leading Indicators fell modestly in December to 111.2.  This is a 0.3% drop from November’s 111.5 and a 0.1% increase over December 2018 (see chart below).  It is worth noting that leading indicators have modestly declined in four of the last five months. The manufacturing indicators are pointing to continued weakness in the sector.  However, financial conditions and consumers’ outlook for the economy remain positive.
  • Existing home sales grew by 3.6% in December when compared to November. They were up 10.8% over December 2018. For 2019 as a whole new home sales were flat for the year and single family sales were up a modest 0.5%. This indicates a significant rebound in housing the second half of 2019. The declines in mortgage rates helped free up some of the huge pent up demand for housing. The lower mortgage rates help offset the effect of higher prices on affordability as home prices increased by 7.8% December over December and 4.8% when comparing 2019 to 2018.

Arizona Snapshot:

  • Employment figures for both December and full year 2019 came out this week. The numbers show continued solid growth in the state as a whole, Greater Phoenix, and Greater Tucson.
     
  • For the state as a whole, December employment was up 2.9% from December 2018 or 84,400 jobs.   And for the year as a whole, employment in the state was up 2.6%. While this is somewhat slower than the 2.8% growth in 2018 over 2017, it is still strong. And while the rate of growth in employment has modestly slowed in the second half of the year, the state is entering 2020 on solid footing. Arizona remains the third most rapidly growing state (percentage terms) in the U.S. behind Utah and Nevada.
  • For the year as a whole, employment was up 74,800 jobs. The sectors with the biggest gains in absolute terms were Educational and Health Services with 19,300 jobs, Construction with 16,000 jobs, Trade, Transportation and Utilities with 10,500 jobs and Professional and Business Services with 10,000 jobs.
  • In percentage terms, the employment sector leaders were Construction with 10.1% growth, Manufacturing at 4.4% growth, Educational and Health Services at 4.3% and Natural Resources and Mining at 4.3%.
  • Greater Phoenix employment growth was up 3.2% from December 2018 to December 2019. That’s 68,800 jobs or more than 81.5% of all the jobs created in the state over that period of time. When comparing 2019 with 2018, growth was 2.9% or 61,800 jobs. That’s 82.6% of all the jobs in the state. The 2.9% for 2019 compares to 3.3% in 2018 and 3.0% in 2017. The 2019 number is likely to be revised upward when revisions are released in March. The present numbers paint a bright picture for Greater Phoenix. It is now the third most rapidly growing major market in terms of percentage employment in the country. Only Dallas at just under 3.1% and Orlando at just under 3.6% grew more rapidly in 2019.
  • Greater Tucson grew by 8,800 jobs or 2.3% on a December over December basis.  On a year over year basis, Tucson was up 1.9% or 7,300 jobs. This was the best year for Tucson since 2006.
  • According to CBRE, the Greater Phoenix industrial market continues to do well.  In the 4th quarter of the year, 2.6 million square feet of industrial space was absorbed while 3.3 million square feet was brought on stream.  Thus, vacancy rates increase modestly from 6.1% in the 3rd quarter to 6.3% in the 4th quarter. This is still very low by historical standards.  For 2019 as a whole, 10.7 million square feet was absorbed while 9.1 million square feet was delivered. Vacancy rates for the year as a whole declined from 6.5% to 6.3%.  Rental rates were up almost 8%.
  • According to CBRE, the Greater Phoenix office market also did well in 2019.  In the 4th quarter, absorption of office space was 830,401 square feet while change in inventory was 558,731 square feet.  Thus, vacancy rates dropped from 14.4% in the 3rd quarter to 14.1% in the 4th quarter. For 2019 as a whole, 3.2 million square feet was absorbed 2.8 million square feet was delivered.

 

About EDPCo

Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.  

 

Happy 1031? IPX1031


NO TRICK: A Treat for Unsuccessful 1031 Exchanges!

A treat from the IRS? Taxpayers should not be spooked if they are unable to complete their 1031 Exchanges. A treat may exist for a calendar-year taxpayer who initiates a 1031 tax-deferred exchange during the last few months of this year only to find that the exchange fails (they are unable to purchase new replacement property within the time periods set forth in Section 1031). Since the exchange period will go into 2018, the IRS provides an option called “tax straddling” which allows most taxpayers to pay the tax that is due on their 2018 return as opposed to their 2017 return.

Of course the major benefit for a taxpayer who successfully completes a 1031 Exchange is 100% deferral of taxes and the ability to invest all of their equity into new property. Unfortunately, if a taxpayer is not able to purchase new property to successfully complete the 1031 Exchange, the taxes associated with the sale of their investment property will be due. However due to “tax straddling” the taxpayer may receive a one year tax payment deferral thanks to the coordination between IRC §453 and §1031 provided in the §1031 regulations.

How does this work? If a delayed 1031 exchange begins in the latter portion of 2017, the exchange period may run into 2018. If the exchange fails or if the taxpayer (having a bona fide intent to do an exchange) receives cash boot in 2018, the 1031 regulations treat the exchange as an installment sale allowing the taxpayer to consider that the exchange proceeds were received (and are taxable) in 2018.

However, if a taxpayer prefers to pay their taxes as soon as possible, in accordance with IRC section 453 (d) a taxpayer may “elect out” of the installment method. By electing out, the taxpayer can recognize the gain in 2017 instead of 2018. To elect out, the sale should be reported on Form 8949, Form 4797 (or both) and not on Form 6252. The election must be made by the due date, including extensions, for filing the 2017 tax return. For more information about the procedure and forms to use, see IRS Publication 537 and consult with your tax advisor. Additionally, tax straddling does not apply to all sales and any gain attributed to debt relief will have to be recognized in the year of sale.

The IRS does not penalize investors for attempting to complete a 1031 Exchange. Tax straddling provides an added incentive to taxpayers selling investment property at the end of the year. Why not attempt to complete a 1031 Exchange when a one year payment deferral is available as the back-up plan?

Please call us at IPX1031 to discuss tax straddling and other valuable tax-deferral solutions. Be sure to consult with your tax advisor before participating in a 1031 exchange.

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