New House Investing (Entry Level Homes)

Ever wonder why both pros and amateurs are hitting home runs in entry level new home investing? Gut instinct has been telling us for quite some time that Tucson homes are priced well below other comparable home markets. Even markets that don’t offer our Tucson’s wonderful quality life have seen drastic value increases in the past few years.

As California enjoyed their enormous run in home prices, many started looking for other markets in which to invest a portion of their profits. First, they went to Vegas and drove their market crazy with 23% annual appreciations during the years 2003 to 2004. Their average home sales price during late 2004 was already at $321,769, and during the first 2 months of 2005 this jumped by $9,865, reflecting an estimated annual rate this year of at least 37.4% so far!

Granted, Vegas has some of the most amazing hotels along the strip, but many of their basics can be found right here in our backyard: gambling at local casinos, golf at highly rated courses and artificial lakes for sailing and fishing. Along with the Wall Street investments into Vegas brought their demand for skilled and unskilled labor, which in turned forced markets even higher.

At the same time the mortgage markets got really creative with their ARM loan programs, national lenders started offering home buyers products that permit borrowing all they can with maximum leverage (minimal down payments). Plus with a short-term interest rate locks that result in a very low monthly payment, most investors have been able to control a larger portfolio size than ever before possible.

It wasn’t only the Californians swooping down on Tucson, but rumor also has it that entire vans full of investors were coming in and buying five to ten homes each. People are coming from all over the U.S., but mostly from similar real estate markets where people have seen very nice market jumps in both their primary and investment properties. Historically, when similar home appreciation happened, investors funneled their profits into the stock or bond markets. But after 9/11 the investor habits all appear to have changed toward investing in real estate.

Builders caught on and started building investor restrictions into their covenants and conditions running with all the lots in a subdivision. Finally, in May of last year after I was buying a large number of new homes, I got shut out of Black horse Ranch (NW Tucson). Many national builders got stung in the Vegas market when investors started underselling their newly completed homes, also causing the builders to lower prices right at the point of completion. Although the builders had locked in handsome profits, well above pro-forma, they simply decided that they could generate more profits in owner-user upgrades than from us cost-conscious investors.

Is it too late for those of you who have been drooling along the sidelines? I don’t believe so! Let’s spend just a few moments on the reasons why I’m so big on Tucson’s future. Demand for local properties is a direct result of people’s desire for a most stable climate, topography, location and local economy. Unlike some other regions in United States, Tucson is blessed with a stable climate around the year. The quality of life is not only attractive to the elderly, but also to young families. Tucson’s economy has been growing at a stable rate and is expected to grow exponentially in the next few years. Tucson is nestled among the Catalina Mountains and the Rhincons which give the region the diversity to develop housing with character and views. Unlike the flat expandable plains in some states, Tucson’s location is a big plus and only recently is commanding a premium.

Moreover, Tucson is located on the commerce highway (I-10) and is a critical location for trade passage between Mexico and Phoenix. The region provides opportunities in the form of government and private sector jobs. Another advantage of investing in Tucson is that the housing market is still affordable and has comparatively lower taxes compared to other parts of the nation. These factors make Tucson not only a favorable choice for the residents, but also for the investors. Tucson also offers several year round activities that are desirable for an active life style, like golfing, hiking, biking, gambling, boating, traveling into Mexico or heading up to Mt. Lemmon.

The city of Tucson has seen a rising influx of winter visitors, as well as people who want to retire in Tucson and make it their home. The year 2004 saw a whopping $3.5 billion in home sales according to MLS stats, and the trends for 2005 so far have beaten all expectations and are moving upwards. Tucson was named number 8 (among medium sized cities) in the list of Top cities for doing business in America by ‘Inc.’ magazine in March 2004. Average sale price has gone up on an average of $ 25,000 from 2003 to 2004 and the trends for 2005 so far indicate the same for the balance of 2005.

Enough for “why Tucson” let’s jump into a “get started now” review of some basics on having your own new home built as soon as possible. Come see for yourself why the latest cocktail or dinner parties are all buzzing about how normal Moms and Pops are dabbling in this local market.

# 1 Get Pre-Qualified Today
Start with finding out how much you and your family can borrow by either calling your mortgage broker, banker, credit union, or even applying online. Be realistic with your household income to avoid over borrowing and risking everything. Keep in mind that most national builders will offer you some serious financial incentives to use their affiliated mortgage company. Don’t be too shocked at all the items a builder may give you. They are fully aware that whoever controls the purchase money really controls the probability of closing that sale. Builders right now are also facing a severe labor and materials shortage, so giving you an exact date for completion has been rare.

# 2 Select At Least 5 New Subdivisions To Research
Now, you’re aware of an approximate home cost that fits your budget. Either you can research the subdivision candidates, or you can hire a realtor® (they get 3.00% commission paid from the builder). Many realtors® are already dabbling in this for extra income- so don’t be shy about asking them to assist you. In addition, the realtors® will know which builders are willing to accept an offer from either a second home buyer, or an investor (very rare now).

Here are a few key variables which have assured that each of our firm’s new home investments have made handsome profits: