Sitting with a group of Realtors recently, the question came up: Are investor sales tapering off?

We were all commenting that we were seeing increases in 1st time home buyers, relocations, vacation home buyers, even move-up buyers.  “Normal” home sellers are starting to reemerge. So out of curiosity, the question was asked – Are investors becoming a smaller part of the market?

The answer is a resounding "No!”.  The chart above shows that investor sales (in red) have been on the rise, jumping 10% in the past year, and over 15% in the past three years.  What you also see is that home sales (in blue) are definitely on the rise, too, with well over 2,000 homes sold in the month of March.

Looking at the long-term picture, since 2003, almost 13% of all Scottsdale property sales were recorded as rentals.

Last month, the percent of sales in Scottsdale recorded as rentals was about 15%. Slightly higher than the long-term trend.

However, when you look further, you see that the long-term percentage of properties purchased as rentals in Phoenix has been 18%, and now has jumped up to 36%. In Tempe, the long-term rate is 17%, while last month 28% of the properties purchased were classified as rentals.

As always, the market is changing. When it comes to rentals to third parties, Scottsdale is holding close to the long-term trends, while other cities around greater Phoenix are seeing a much greater percentage of investors purchasing rental properties.

Misleading emails and other communications about the 3.8% Medicare tax in the health care reform law continue to circulate.  You might have received one or more of these emails.  The messages usually say that the 3.8% tax is imposed on unearned income that includes the sale of a principle residence. However, the tax that’s being referenced is far narrower and only has the potential to impact a small sliver of high income households who receive investment income.  The $250,000-$500,000 capital gains exclusion remains in place.  NAR has created a brochure with more information on who is impacted and it is available on REALTOR.org: http://bit.ly/bhS8H6

The brochure includes the following details about home owners who are impacted to this new tax on some investment income which goes into effect January 1, 2013:

Applies to:

• Individuals with adjusted gross income (AGI) above $200,000
• Couples filing a joint return with more than $250,000 AGI

Types of Income:

• Interest
• Dividends
• Rents (less expenses)
• Capital gains (less capital losses)

Formula: The new tax applies to the LESSER of

• Investment income amount
• Excess of AGI over the $200,000 or $250,000 amount

The brochure contains examples of various transaction and the resulting tax.

Additional information can also be found at: www.REALTOR.org/healthreform

photo credit: TheTruthAbout

Fletcher Wilcox from Grand Canyon Title Agency recently emailed me a report for the Phoenix Metro area, “Should You Rent or Buy a Single Family Home?”, where he has analyzes and answers the question:

Is it cheaper to pay rent on a single family home or pay a mortgage on a single family home?

While there are many reasons to rent or buy, as a starting point this report compares the average monthly rent paid to rent a single family home compared to how much the mortgage payment might be to purchase an average priced single family home in Greater Phoenix.

Fletcher’s report is a quick 12-page read, covering the costs of buying a home vs. renting.  He also includes the time impact of short sales, foreclosures, and bankruptcy on a credit history, as well as another comparison of the costs of FHA, VA and conventional financing.

Click here to open report: “Should You Rent or Buy a Single Family Home?”

Related Reading:

• Scottsdale Real Estate Prices Continue Downward Trend
• Buy or Rent – Now there’s a calculator
• Arizona Landlords, Tenants Know Your Rights

I just got off the phone with one of my clients who decided to list his house for lease also.  The sale of his Scottsdale patio home has been complicated by some major community renovations, which for the long-term, add tremendous value, but for the short-term do nothing in terms of curb appeal.  Winter visitors have gone home. There are a shortage of unfurnished rentals in the area, so his decision to open up his options is a smart one.

There’s an education process needed for first-time landlords.

The first resource I recommend is the Arizona Landlord Tenant Act.  After reading this documents, sellers often will say “Never mind”.

The next step for an owner who decides to move ahead is to contact their financial planner and their accountant to see if being a landlord works for their particular situation.  Talking to their insurance agent is next.

The house must also be registered with Maricopa County, as a monthly sales tax (TPT) must be paid to the city the rental property is located in.

Under A.R.S. § 33-1902, an owner of a residential rental property in Maricopa County must register certain information relating to the property and its ownership with the Maricopa County Assessor. ALL owners of residential rental properties must register their properties regardless of whether the tenant is a family member. Under the statute, out-of-state owners must designate a statutory agent who lives in Arizona who will accept legal service on behalf of the owner.

To register a rental property, you can use this on-line form:  Maricopa County Residential Rental Property Registration

Each city has different rules and rates which must be followed. The Scottsdale rental tax rate is currently 1.65%.  If the homeowner will be paying the sales directly, they need to register the property with the City of Scottsdale. If they are working with a property management firm, they might be covered under the company’s master license.

Being a landlord isn’t for the faint-hearted, but with some education and experience, it can definitely be a cash-flow, asset-building option.

Over the past five years, investors have accounted for more than 10% of the home sales in:

1. Tempe
2. Carefree
3. Phoenix
4. El Mirage
5. Tonapah
6. Glendale
7. Scottsdale
8. Avondale
9. Paradise Valley
10. Apache Junction
11. Mesa
12. Fountain Hills

Surprised?

This morning at AZCentral.com, there’s an article, “Familiarize yourself with Ariz. tenant laws“, which further reinforces the importance of the Arizona Landlord and Tenant Act.  While the news article was written from the renter’s perspective, the Landlord Tenant Act really serves as a guide to define the rights and responsibilities of both the landlord, and the tenant.

With the increased number of homes on the market, some owners are resorting to renting out their properties.  I’m finding a much better of selection of rental properties for my clients in the MLS system than I have in the past.  If you are a first-time landlord, make sure to do your research and hire someone who can guide you through the process.   And, if you are looking for a home to lease, let me know and I’ll get you set up with some automated searches that will email you homes that match your needs.