Paradise Valley Real Estate News

Nov. 4, 2017

How the New Tax Plan Will Affect Real Estate

The proposed changes to the US tax code could have a tremendous impact on the real estate market. Here is my analysis of winners and losers with regard to real estate:

 
Winners
  • Renters - High standard deduction reduces the benefit of buying for most families, and effectively allows them to enjoy comparable tax savings as renters. 
  • Real estate investors - 25% taxation of passthrough entities could mean big tax savings, and importantly, many renters can afford higher rents under the proposed tax code, which improves cash flow for landlords
  • Residents of low tax states - State tax deductions will be capped, so for those in lower tax states (like Arizona), the benefit of higher standard deduction and lower federal tax rates will outweigh the cap.
  • Arizona - People and businesses will leave California and other high tax states in greater numbers, and many of them will choose Arizona. This will be good for job growth, and real estate. 
Losers
  • Residents of high tax states - Under the proposal, there will be many people who lose tens of thousands, hundreds of thousands, and even millions in deductions. I say, "Move to Arizona and your house is free" - the tax differential will mean wealthy Californians can buy a massive home and still have savings to spare.
  • Buyers of luxury homes - Only the first $500k of mortgage gets a deduction, chopping the benefit in half; however this only applies to new purchases, your current home is grandfathered. This is a double-whammy for buyers because not only do they get less of a deduction, it de-incentivizes people from selling their homes, and thereby reduces inventory.
The above is based proposed legislation, and there will almost certainly be substantial changes.
 
However, the intention of the legislators is quite clear. They've picked the winners and losers, and it's just a matter of how much they can get into the final legislation.
 
If I lived in a high tax state, I wouldn't be waiting to find out what happens next. I'd beat the rush, get my pick of Arizona real estate in slow season, and hope to be grandfathered in under the existing mortgage deduction. 
Posted in News Category
Oct. 21, 2017

Protect Yourself from Hackers and Financial Fraud

Hacking, identity theft, and fraud are completely out of control. The government is way behind in dealing with this, and we have to protect ourselves as best as we can.
Here are some important things to know, and do:
1. Never wire funds based on email instructions without calling to confirm them. This is an extremely common fraud, unfortunately. Hacked emails make it easy for criminals to redirect wires. This happens to companies, and individuals, so if you own a business make sure your company policies demand verbal verification of all wires.
2. Freeze your credit reports to avoid fraudulent accounts being opened in your name. There are credit bureaus offering "locks" and other services, but a "credit freeze" is the only method that offers protections under the law. In the wake of the Equifax hack, I have frozen all my credit reports, and am recommending friends, family, and associates all do the same.
This article gives step by step instructions for freezing credit, it only takes about 5 minutes per bureau.
3. People who may be suffering from the early stages of dementia are at the greatest risk. I learned of a heartbreaking story where two elderly people fell for the Nigerian Prince scam, losing millions of dollars and having to sell their home.
If you know people with declining faculties, it's especially important to put protections in place - aggressive spam filters are the easiest place to start.
4. Enable 2 factor authentication on all important accounts, including your email. DO NOT USE YOUR PHONE as the second authentication factor. In other words, don't count on receiving a text message or call to your phone for verification, because hackers are stealing phone numbers. So, wherever possible you want to avoid this. Google, Microsoft, and other major firms offer authentication apps for your smartphone that bypass the phone number. This site provides details on two factor authentication for many services.
I hope this information is helpful. The steps above can potentially save hundreds of hours, millions of dollars, and the aggravation of correcting identity theft.

An ounce of prevention is worth a pound of cure.
Posted in News Category
Feb. 25, 2017

Unlisted Formal Mediterranean Custom Home

This week we have a spectacular off-MLS Mediterranean home. This custom home offers Venetian plaster, Crestron automation, wine cellar, air-conditioned garage and more -- and you won't find it on the MLS. It's over 9,000 square feet and the asking price is just under $3.7 million.
Here's where it gets really interesting...
The seller is retiring and looking for income. Selling the house will generate a lot of cash, but then what to do with the cash? Rather than investing in the stock market at record highs, or a bank account earning record lows, the seller is offering to "be the bank." The seller will carry back the purchase price, subject to a reasonable down payment and interest rate.
I haven't written about seller financing in quite some time, even though I've negotiated many deals (and wrote a book about seller financing back in 2011). Expect seller financing to be more important in the coming years, especially in the luxury market. 
Seller financing is valuable for both buyers and sellers:
  • Sellers can generate income from their property without the hassle of being a landlord. It's often possible to get a higher price for a property when offering terms.

  • Buyers can buy without jumping through the hoops of bank underwriting. This is especially valuable for business owners who may have structured their business for tax efficiency -- not for pleasing bankers.
If you're thinking about buying or selling, let's chat about whether seller financing may be right for you. It's a technique that is powerful, and underutilized.
There are numerous other seller financing opportunities beside this home. I've successfully negotiated seller financing in recent years at many price points, and all over the Valley.
For more information, please call or text (480) 771-7787.
Posted in News Category
Feb. 18, 2017

Investors Who Called the Last Cycle Make Another Call, Mortgage Interest Deduction, Intel Invests $7 Billion in AZ

In the last real estate downturn when many were wiped out, Peter Wells and Marcel Arsenault were thriving. They had timed the cycle brilliantly, selling 85% of their properties in 2005. With lots of dry powder, their company Real Capital Solutions made tremendous deals acquiring and building from the bottom of the cycle through the present.
 
Given their flawless execution in the last cycle, and long term track record of several decades, I was eager to read this article in Inc magazine about their current plans.
 
Real Capital Solutions has doubled their budget for acquisitions in 2017. They see great opportunities in housing, and offices. Their method of managing the company is also quite noteworthy. It's an interesting read
The way banks report mortgage interest to the IRS has changed. While a new tax form isn't usually newsworthy, this change could hit people in the wallet.
 
Specifically, there are rules about what type of mortgage interest is deductible. The old form allowed for more ambiguity, and some portion of debt that shouldn't have been deducted was being deducted anyway.
 
The Washington Post has useful coverage of the change, as well as clarification about what is, and is not, deductible.
 
If you have refinanced your mortgage, or taken out a home equity loan, this will be especially important to understand.
Intel is resuming construction on a $7 billion factory in Arizona. It's another positive announcement for our state, with Apple, McKesson, State Farm, and several other household names having also made huge commitments here recently.
Posted in News Category
Jan. 28, 2017

Housing Supply Hits 17 Year Low and Dow Jones Hits Record 20,000

This newsletter has been reiterating one observation for a few years: the supply of U.S. housing is low. It's low relative to (a) history, (b) current demand, and (c) increasing future demand predicted by the rates of birth, immigration, and the huge percentage of Millennials living with their parents.
This week brought news of just how serious this matter has become: the U.S. housing supply now stands at a 17 year low. There are 1.65 million homes on market, the lowest since 1999.
As reported in this newsletter previously, the pace of homebuilding remains under trend, as builders face shortages of labor and land. 
If interest rates rise substantially over the next year, that will let some of the steam out of demand. However we are so far below trend, that a significant drop in demand will just put us back to equilibrium. The latest numbers suggest the current deficit is 400,000 housing units per year.
Given the most recent month of sales -- down 2.8% nationally, as many buyers simply can't find a suitable home -- the current inventory will be absorbed in just 3.9 months. This is the lowest number since January 2005. That would be an ominous statistic except now is a mirror image of 2005 -- back then, high demand was driving this ratio, and now it's being driven by lack of supply.
The Dow Jones Industrial Average hit 20,000 this week. This is particularly interesting because it first hit 10,000 in 1999 -- coincidentally the same year our housing inventory was this low.
As Mark Twain wrote, "History doesn't repeat itself, but it often rhymes."
This newsletter was early calling the stock market bubble last year, and just as in 1999, conservative people will look foolish for a while -- until they look smart.
The best illustration I can provide to prove that the stock market is massively overvalued is the chart below from the Federal Reserve Bank of St. Louis.
Note that the ratio of the Wilshire 5000 to Gross Domestic Product peaked at just below 1.18 in Q1 2000 before the bubble burst. We are now at 1.39, totally unprecedented territory.
Here's what's really scary: the current valuation is up almost 40% from the peak of the stock market in 2007 -- from the peak!
The bottom line is now would be a wonderful time to sell stocks. You may witness the market continuing to rise, but it's better to miss out on some of the upside than get crushed on the downside. Nobody ever went broke taking a profit.
It took 17 years to go from Dow 10,000 to Dow 20,000. That's a long time to double one's money. The cash flow and appreciation on just about any type of real estate anywhere in the country beat that, and with a lot less heartburn.
Posted in News Category
Jan. 14, 2017

Home Design Trends for 2017

Without question, the most consistently difficult deals are homes that are either half remodeled or partially remodeled. The seller is focused on the money they've spent on the home, but the buyer is focused on the money they will have to spend after closing.
 

For this reason, it's important for homeowners to keep up with design trends. You might take a loss on the the money you put into a remodel if it doesn't meet with buyer's expectations. The buyers will be looking through the lens of "gotta change this, gotta change that" while you're counting the dollars paid to contractors. It's a bad situation for all parties involved.

 
If there's one trend that we've seen take root in Arizona, it's been the shift from dark to light color palettes. Dark cherry cabinets and dark green countertops of years past have given way to white cabinets, contrasting black countertops, and butcher block islands. Heavy tile and dark woods have given way for lighter shades of oak, and narrow planks have made way for wide planks.
 
Of course these trends don't work in every style of home, and we'll continue to see, for example, Spanish and Territorial homes using a more traditional palette. However, for Ranch homes, a dark palette is going to depress the price and increase the amount of time it takes to sell.
 
So what's next in home design? This week brings two helpful articles on major trends happening around the country.
 
The Wall Street Journal's Mansion Global cites more natural materials and minimalism, with judicious use of metals and dimensional textures.
 
This article from Yahoo confirms that white cabinets will continue to reign supreme in 2017, but granite countertops are gradually losing ground to quartz and butcher block.
 
If you're considering a remodel, I've found a terrific designer I'd be happy to introduce. She's done beautiful work, and at a very reasonable price. One of the many vendors I keep in my "little black book" to make life easier for clients -- and for myself, I'm going to hire her for my next remodel ;)
Posted in News Category
Nov. 26, 2016

The Pros and Cons of "Slow Season"

The fall and especially holiday season is typically the slowest time of year, and the slower pace of closings in recent weeks confirm that. However, it doesn't mean selling your home is impossible.
This week, one of my listings in Paradise Valley received an all cash offer closing in 3 weeks, at 94% of the asking price.
As I've written in previous issues of this newsletter, the activity is down, but those buyers that are out looking are serious.
To catch these serious buyers, you must be actively marketing your property. Going on the MLS is not enough, and sadly that's what most agents rely upon.
I use an orchestrated marketing campaign with ads going out literally every day. The longer a home takes to sell, the more it costs me - so my interests are completely aligned with the seller. You should accept nothing less when you sell your home.
If you'd like a valuation of your home, or to discuss the type of marketing that gets results even in the slow season, please call my direct line at (480) 442-7325.
***
U.S. home sales reached their strongest pace in a decade.
With the specter of rising interest rates on the horizon, expect to see a "buying frenzy" in coming months.
If you've been sitting on the fence, and will be buying with a home loan, NOW is the time to get off the fence.
 
You are virtually certain to pay more for a home next year due to rising rates and pent-up demand.
Not only will you secure a rate before they spike higher, you'll also beat the January rush. That rush always comes, but this year is likely to be bigger than ever. We have pent-up demand from people who postponed decisions due to the election, and now the added incentive of interest rates that will likely go up will add to that demand.
I don't want to beat a dead horse, as I've written about this numerous times. But you'd really be missing out by not prioritizing this matter now.
Posted in News Category
Nov. 18, 2016

Mortgage Rates are Up - What to Do Now?

This has been quite a week in global markets, and real estate is feeling the impact.
Mortgage rates are up 50 basis point in just a week, and there is widespread speculation that the Fed will soon be raising rates. 
If you are planning to buy, and will be using a lender, it may be wise to lock in rates now and go shopping.
Longtime readers will have read this many times, but it bears repeating: the holiday season is one of the best times to snag a bargain in real estate. 
Why are holidays such a great time to buy?
  1. Less competition. Showings are always down this time of year, as many buyers are simply too busy with holiday activities and parties to prioritize their search. 
  2. Sellers are vulnerable to the powerful psychology of wanting to "start the new year fresh." It's often possible to get excellent terms as a result.
  3. The election exaggerates the trends. Showings are down even more than usual as buyers postponed due to the election. Many of them are now just punting things out to January.
I put my money where my mouth is: my home I negotiated in November two years ago. While it was in escrow there was a long procession of broken hearted buyers who had missed out. I'd return for an inspection in January, and people were there looking and hoping it would fall out.
The home next door to mine sold for 40% more the month after I closed. While my situation was extreme, there are opportunities every holiday season.
Always remember that great deals are rarely "found" -- rather, great deals are created. The seller's asking price or opening offer may be a long way from where they are willing to go.
January brings more inventory, but it also brings more competition. If you are more motivated by a deal than by checking every last item on your wishlist, now is the time to be writing offers.
January could be even busier than usual, with all the people who postponed buying due to the election becoming active again. 
 
Posted in News Category
Feb. 13, 2016

Notaries Go High Tech

If you've ever been frustrated by the hassle of getting documents notarized, you're going to love this service. You can get documents notarized from the comfort of your computer, it's all done via video.
 
Very clever, and a great timesaver at $25 per document. Also works internationally, and notarizing documents can be a huge challenge when traveling. Visit notarycam.com to learn more. 
Posted in News Category
Jan. 30, 2016

Important Things to Know When Buying or Selling a Home with the Furnishings

It's quite common in many Paradise Valley luxury home transactions to include some personal property in the transaction. Whether it's a table that perfectly fits the room, or a couch that just wouldn't go as well anywhere else, there's often at least some bit of personal property in a luxury home transaction.
 
However, when the value of that property becomes significant, it can muck up a transaction involving a bank loan. To the bank, 100% of the value lies in the house -- that's their collateral, and they are not lending on personal property. So, when hundreds of thousands of dollars of art or furniture are thrown in the mix, they have to be accounted for.
 
What the bank typically wants is to see personal property excluded from the purchase contract, on a separate bill of sale. While this sounds simple enough, it often leads to massive problems.
 
Specifically, the buyer and seller then have to agree what the personal property is worth, and separate that out from the transaction. I have never met a seller who hasn't overestimated the value of their furniture. In reality, even furniture just a year old has a market value in the range of 25 cents on the dollar. That stings, and thus furniture with a market value of $50k can derail a $3 million real estate transaction.
 
The advantage of cash deals is that this type of separation of personal from real property need not be spelled out. The buyer can simply offer on "the total package" as they please.
 
Both buyers and sellers should be mindful of these issues if personal property is going to be involved in the transaction. Where there's a bank involved, the tail often wags the dog.
Posted in News Category