I went to a 3-hour seminar yesterday at the Arizona School for Real Estate and Business called, “Property Management,” with a lot of experts speaking.
In addition to learning more about property management in general, I wanted to see where the property managers thought the market was headed.
The bull case for home prices was best laid out by my friend Fletcher Wilcox of Grand Canyon Title, when he said the population of Maricopa County has been increasing at the rate of ~200 people a day for the last couple of years.
It’s a super strong argument for why home prices would continue to be strong here while they’re starting to weaken in Seattle and Los Angeles.
But that argument gave me a flashback to a seminar made by the king of Phoenix real estate economic analysis, Elliott Pollock, in about 2007. Elliott’s argument was the same, that population increase would prevent a real estate bust here. The numbers were extremely impressive. The inflow of people into metro Phoenix had been strong for decades with no serious downturns during previous recessions. What no one predicted in 2007 was the inflow of people would slow down and actually reverse for a while. It had never happened before so no one predicted it.
A few data points from various property managers that caught my eye.
- “If you have any thoughts of selling, sell now.”
- Another, talking about tougher properties or “C” properties, “I’d sell now.” He mentioned selling “C” properties at a 5 CAP which he thought was very good.
- Another said he knew of a property manager in the East Valley that used to manage ~500 properties but who was down now to ~350 properties as their landlords were selling more than buying,
- A couple of speakers mentioned the number of properties they manage had fallen but not close to the same degree as the 500-to-350 example.
- Another, “Our investors are pumping the brakes a bit.”
- One mentioned that the (few?) people who were buying now looking for cash flow for 10 or 20 years, they weren’t buying for appreciation.
To sum up, I’ll mention a saying one property manager mentioned, “I’d rather sell a year too early than a minute too late.”
Should Landlords Hold?
I can’t get a solid handle on the amount of landlord selling. The Cromford Report has a graph on landlord buying but not one on landlord selling. I’ll email Mike and ask him if he can publish one.
Fletcher mentioned in the first presentation of the day that 26% of homes in Maricopa County are not primary residences, they’re landlord-owned or second homes.
Nationally, I believe the number is around 16% (added later; I think that’s just landlord owned), so if landlords continue to cash out next year, which I think is extremely likely, it would put more pressure on home prices in Phoenix compared to markets with fewer landlord-owned homes.
Should Landlords Sell?
You use a property manager.
If you decide to sell and you have a property manager you’re happy with, you might want to talk to your property manager about selling the place for you.
You manage it yourself.
If you manage your property yourself, you might want to first find out if your tenant might be willing and able to buy the place. I created a free class for tenants on this but landlords would learn a lot from it as well. The basic idea is for a landlord to sell at market price and credit the buyer/tenant ~3% but the tenant has to pay for their own real estate agent or real estate attorney.
If you manage the property yourself and you’re looking for a recommendation and referral to a good agent in your part of town to help you sell the place, email me at John@JohnWake.com.
2 Responses to Should Phoenix Landlords Sell or Hold?
John good summation of a three hour event. I’m out of the market loop but these things happen in approximately 10 year cycles. If you’re holding for appreciation, hold and keep the house up to par. If you’re sick of property managers or coming in to fix things yourself -Sell
I happened to listen to a recent podcast from California investment guru Bruce Norris and it seems his take on the market is similar to those at the seminar. https://itunes.apple.com/podcast/the-norris-group-real-estate-radio-show-and-podcast/id262945761
He seems to be thinking that the market might be flat for the next 8 years but investors have a comfortable year to make decisions about reducing or repositioning their portfolio of investment properties.
Downturns, he says, just make all the problems with a property worse. So he seems fine with selling everything and seems to be saying that you should to sell the properties you don’t love and perhaps reinvesting that money into properties you do love outside of California.
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