Investors not flipping houses, but renting

I found this in the Arizona Republic.  I believe it might shead some light on the state of our market.  As related to insurance, we have seen a significant increase in Landlord policies, as well as Vacant Home policies (this are typicly homes in the renovation process).  Enjoy.

by J. Craig Anderson – Jun. 12, 2009

Real-estate investors have returned to the Valley in a big way, prompting concerns that the housing market is becoming too speculative to sustain the recent buyer activity.

The lure of once-in-a-lifetime deals on bank-owned homes is driving investor purchases, which experts say account for 50 to 70 percent of recent home-buying transactions. Still, it’s the ability to generate revenue by renting the homes to tenants – in some cases, previous owners – that makes the properties such attractive investments.

The Phoenix-area housing market has been flooded with homes for rent in recent months, raising concerns about whether there will be enough tenants to keep the Valley’s estimated 130,000-and-growing rental properties out of financial jeopardy.

Even some longtime supporters of the home-investment market say they’ve noticed a disturbing return of the can’t-lose mentality that got so many speculators and house-flippers into trouble a few years ago.

“Investors are starting to look at the market from a speculative standpoint,” said Alan Langston, who runs the Arizona Real Estate Investors Association. “We could end up with an oversaturated rental market.”

Although the demand for rental homes is still strong, Langston said, speculators seeking big returns could be in for an unpleasant surprise, especially if they don’t treat rental-home ownership as a business that requires time, effort and cash reserves.

Dealing with tenants also requires legal knowledge, he added. “You need to have a good lease, and you need to know how to enforce it,” he said.

Langston has created a second organization, the Arizona Rental Property Owners and Landlords Association, to provide resources such as proper lease agreements, market data and legal advice in exchange for an annual fee of $129.

Rental-home owners who lack a full understanding of the financial risks and recommended precautions could find the homes they purchased from lenders right back on the market, which would be bad for investors, tenants and the area’s economic recovery.

Home foreclosures have created an atypically high demand for rental properties, but that demand is not unlimited, and rental investments are not immune to financial risks such as tenants losing their jobs or continued decline in rental rates as supply increases. The glut of single-family homes for rent, overbuilding of apartments and failed condominium projects have created a difficult and highly competitive market for rental-property owners.

Many apartment managers have responded by boosting incentives such as lower rents, waived or reduced fees and complimentary services.

Many rental-home investors have purchased the properties with cash, which means there is little chance of those homes going into foreclosure. Of the estimated 131,000 rental homes in the Phoenix area, only about 5,000 are currently in the foreclosure process, according to Valley market-research firm NetValueCentral Inc.

Langston said it’s likely that many of the houses in foreclosure are owned by what he calls “reluctant landlords,” people who were forced to leave their homes and rent them to tenants because of financial problems.

But whenever there is a perceived opportunity for investment gains, he said, it will attract what Langston calls “stupid money.” Stupid money was flowing like water during the housing boom, he added.

“The idea is that you could make money even if you didn’t do anything right,” he said.

Chaz Smith, senior vice president of the LandSource Group at Colliers International in Phoenix, said first-time buyers in the current market are all too aware of the investor presence.

“Young people looking for a starter home, they get outbid by investors,” Smith said.

Still, Smith and Langston see real-estate investment as a positive. The competition that’s causing frustration for other buyers is keeping prices from falling further, they said. Starter-home buyers alone would not create enough demand to absorb the supply of bank-owned homes coming on to the market each month, they said.

Investors have fixed up many dilapidated or trashed homes and prevented the Valley from having neighborhoods littered with abandoned properties.

“Homes are being bought, neighborhoods are recovering,” Langston said. “Imagine this market today without investor activity.”

However, he said, there is a big difference between an investor and a speculator.

“Investors follow solid investment practices. They add value to the transaction,” Langston said. “Speculators are looking for a very quick turnaround and a very large return.”

Despite the economic benefits of investor participation in the market, some observers say, the return of investors – even responsible ones – has disturbing moral implications.

Jim LaVanway, vice president of Homeowners Financial Group in Phoenix, is among those who blame the investment community for creating a bubble in the first place.

“That’s the irony of it,” he said. “Now, we’re waiting for those same guys to come back and buy those same homes at a lower price.”

FENDER-BENDERS IN MICRO CARS CAN BE COSTLY

Ken Thomas (Forbes.com) Recent crash tests conducted by the Insurance Institute for Highway Safety indicate that even a minor accident in a minicar can require thousands of dollars to repair. On June 10 the institute reported that repairing damage to microcars in crashes of speeds as low as three to six miles per hour could cost from $474 to $3,701. The crash tests were conducted on the front and back bumpers and the front and rear corners of seven 2009 model year minicars. These cars have become more popular as a result of rising fuel costs in recent years. The Kia Rio sustained the most damage among the minicars, requiring $3,701 to repair the full front bumper. In the four tests the cost of repairing the Rio averaged $2,705. Of the seven vehicles, the Smart fortwo had the lowest average repair cost of $899.

Twelve Ways to Save on Homeowners Insurance

 

The best way to save on homeowners insurance is to protect your home against typical perils. By preventing losses and claims against your policy, you can help to keep the cost of insurance down. These include: 1.) Keep fire extinguishers in fire-prone areas such as the kitchen, laundry and garage. 2.) Replace old, faulty wiring and make sure to tell your insurer. 3.) Regularly check your roof, down spouts and water pipes for clogs or leaks. 4.) Discourage crime by using exterior lights at night, installing deadbolt locks on all doors, and using timers on inside lamps and lights. 5.) Keep your property safe. Repair loose railings, steps or walkways. You may want to consider adding storm shutters. 6.) Ask about available discounts. Some companies provide homeowners discounts for newly constructed homes, since they’re built to updated building codes and electrical standards. Most companies offer discounts for homes that include a monitored security system, but be sure to ask how much you’d save on your insurance before going to any great expense in security system installation. If you’ve had your home insured with the same company or agency for several years and have been claim-free, you may also be eligible for an additional premium discount. Ask your agent or company representative for tips to help reduce your risks. 7.) Raise your deductibles. By raising your policy’s deductible, you’re responsible for smaller losses, not your insurer, thus lowering your premium and chances for frequent claims. 8.) Review your policy annually. Before tucking away your policy renewal, make sure the information is correct and up to date. For instance, brick or masonry is less expensive to insure than a frame structured home (except for earthquake insurance). Double-check the information regarding how far your home is from a water source such as a fire hydrant or a retention pond, as well as the location of the nearest fire station. If you’ve insured an item separately and it’s depreciated, reduce the floater amount and pocket the difference. 9.) Don’t over-insure. Your land is included in your home’s market value, so don’t include it when deciding how much insurance to buy. If you do, you’ll wind up paying higher premiums. 10.) Avoid frivolous claims. Submitting a claim after years of paying premiums is justifiable, but frequent claims may mark you as a high risk. 11.) Cover your home office. Don’t assume automatic coverage. Premiums can run as little as an extra $20 and can protect business risks. 12.) Keep your garage doors closed, even when you’re home.

Source: Arizona Insurance Council

Homeowners insurance losses are climbing; Cost Drivers List

The following are true of both residential and commercial buildings.  I believe this information can help us all keep our insurance costs down.

Goal: Affordable Homeowners Insurance

Affordable homeowner insurance is a major concern for insurance companies and their customers. In recent years, the factors that determine the cost of insurance have forced premiums higher.

Cost Driver Number 1

Building Materials, Home Repairs: In recent years, increases in cost for lumber, steel, concrete and copper have significantly outpaced other products measured by the Consumer Price Index. Those price increases affect what insurers pay to repair and rebuild homes and the costs of satisfying those claims is shared by all homeowner insurance consumers.

Cost Driver Number 2

Water Claims: Insurers have paid more money to satisfy claims caused by water damage than any other single cause.

Cost Driver Number 3

Crime : Arizona continues to rank as having one of the highest crime index’s in the United States. In its latest analysis of crime, the Arizona Criminal Justice Commission reported that Arizona’s property offense rate was 36% higher than the national average in 2005. For every 100,000 people who live in Arizona, 5,168 are victimized by crime annually.

Cost Driver Number 4

Windstorms: Windstorms are an annual occurrence in Arizona, typically occurring during the “monsoon season.” These strong winds, usually accompanied by hail or rain, cause millions of dollars of damage to Arizona homes each year. In 1996, one monsoon storm caused $160 million in damage to Arizona homes.

Cost Driver Number 5

Fire/Arson: The top five causes of home fires are cooking mishaps, heating equipment malfunctions, arson, faulty home-and-appliance wiring, and wildfires.

Wildfires have become more serious in recent years as increased development borders forests and deserts in a growing number of Arizona communities. Oftentimes, these unincorporated areas lack the necessary regulations to protect homes from wildfires.

Arson is also increasing. While it is a difficult crime to successfully prosecute, government statistics indicate arson may be responsible for a third of all home fires and in most of those cases, the homes are total losses.

Sources: Insurance Information Institute; Phoenix Fire Department; Office of Federal Housing Enterprise Oversight; Federal Bureau of Investigation; and U.S. Department of Labor, Bureau of Labor Statistics.

Homeowners insurance losses are climbing; Cost Drivers List

The following are true of both residential and commercial buildings.  I believe this information can help us all keep our insurance costs down.

Goal: Affordable Homeowners Insurance

Affordable homeowner insurance is a major concern for insurance companies and their customers. In recent years, the factors that determine the cost of insurance have forced premiums higher.

Cost Driver Number 1

Building Materials, Home Repairs: In recent years, increases in cost for lumber, steel, concrete and copper have significantly outpaced other products measured by the Consumer Price Index. Those price increases affect what insurers pay to repair and rebuild homes and the costs of satisfying those claims is shared by all homeowner insurance consumers.

Cost Driver Number 2

Water Claims: Insurers have paid more money to satisfy claims caused by water damage than any other single cause.

Cost Driver Number 3

Crime : Arizona continues to rank as having one of the highest crime index’s in the United States. In its latest analysis of crime, the Arizona Criminal Justice Commission reported that Arizona’s property offense rate was 36% higher than the national average in 2005. For every 100,000 people who live in Arizona, 5,168 are victimized by crime annually.

Cost Driver Number 4

Windstorms: Windstorms are an annual occurrence in Arizona, typically occurring during the “monsoon season.” These strong winds, usually accompanied by hail or rain, cause millions of dollars of damage to Arizona homes each year. In 1996, one monsoon storm caused $160 million in damage to Arizona homes.

Cost Driver Number 5

Fire/Arson: The top five causes of home fires are cooking mishaps, heating equipment malfunctions, arson, faulty home-and-appliance wiring, and wildfires.

Wildfires have become more serious in recent years as increased development borders forests and deserts in a growing number of Arizona communities. Oftentimes, these unincorporated areas lack the necessary regulations to protect homes from wildfires.

Arson is also increasing. While it is a difficult crime to successfully prosecute, government statistics indicate arson may be responsible for a third of all home fires and in most of those cases, the homes are total losses.

Sources: Insurance Information Institute; Phoenix Fire Department; Office of Federal Housing Enterprise Oversight; Federal Bureau of Investigation; and U.S. Department of Labor, Bureau of Labor Statistics.

WEDDING SEASON FAST APPROACHING: GOT RING INSURANCE?

Putting a policy on your engagement ring may sound unromantic, but nothing’s sweeter than peace of mind.

What It Is: Ring insurance is best purchased as an extension (also called a “rider”) for your renters’ or homeowners’ policy. Renters’ and homeowners’ policies cover the stuff in your home, but only up to a certain dollar value: Expensive, special items like engagement rings, art, and electronics are guaranteed through scheduled personal property coverage — an insurance policy extension that covers particular items.

Who Needs It Most: Any couple with jewelry that has high material or sentimental value — whether your wedding and engagement rings cost $500 or $50,000, an insurance policy is a way of honoring not just their financial value but what they represent. The sentiment behind your rings is priceless, but the rings themselves can be replaced — if they’re insured — in the event that something happens to them.

What to Know About How It Works: You’ll need to provide your receipts, as well as an appraisal (which costs a small fee; you can get an appraisal from a certified gemologist). And remember: If you move after the wedding, make sure your “ring rider” follows you. Some couples have the ring insured at the bride’s house (or her parents’) before the wedding, but forget to add it to the policy for their new home when they move in together.

If you don’t have a renters’ or homeowners’ policy, there is an alternative way to insure your ring: Certain insurance companies offer policies through jewelers on individual pieces — ask your jeweler if they work with an insurance company to offer ring insurance. These kinds of policies can vary widely company by company (usually a jeweler will offer a policy that’s underwritten by smaller company), so ask specific questions about the level of coverage provided.

Questions To Ask Before You Choose a Policy:

Average Cost: The yearly cost to insure your ring is $1 to $2 for every $100 that it would cost to replace. In plain English, this means that if your ring would cost $9,000 to replace, you might expect to pay between $90 and $180 per year to insure it — or slightly more in cities where the risk of theft is higher.

How To Get Your Cost Down: Buy a vault or safe to keep jewelry in when it’s not being worn. (You can also keep paperwork like appraisals in the safe, so you’ll always know where it is if needed.)

What To Remember if You Only Remember One Thing: When you shop for a “ring rider” policy, make sure to read the fine print: A good policy will cover every potentially ring-threatening situation from theft to damage to accidentally dropping it in the garbage disposal. © 2009 The Knot Inc. All rights reserved.

Office-space landlords willing to bargain in tough economy

by Andrew Johnson – Nov. 20, 2008 12:00 AM – The Arizona Republic

Consumers have cut back discretionary spending. Credit is harder to obtain. Energy costs have been on a roller coaster.

Operating a small business has become something of blood sport in the past year.

But an area of the economy where small-business owners are getting breathing room is commercial real estate.

Fundamental factors that turned the Valley into a commercial-development hot zone – rampant in-migration and job growth – have slowed. Leasing and sales velocity in the commercial market has stalled. Vacancy rates for office, retail and industrial properties are at their highest levels in several years.

The news may sound dour, but the ailing market has opened new and, in some cases, classier doors for small businesses. To fill space, landlords offer a bevy of concession packages: several months of free rent, reduced parking rates, money for improvements and greater move-in flexibility.

The specials enable companies in older buildings or less-than-ideal locations to move into Class A space without necessarily paying Class A prices.

 

 

The downturn has taken a toll on businesses in all sectors. Many have scaled back hiring or postponed expansion because of skittish consumer demand. Others have gone belly up.

The result is fewer tenants available to fill the growing pool of commercial space. That has delivered a hefty blow to building owners and property managers, who struggle to attract and retain tenants.

 

Very shallow’ market

 

“The market’s very shallow right now in terms of activity,” said Don Mudd, a senior vice president in the Phoenix office of commercial-brokerage firm Grubb and Ellis/BRE Commercial LLC.

In addition to the rising number of businesses that are vacating space altogether, many are trying to sublease. Some want to sublease space they don’t need; others are looking for cheaper space elsewhere and can’t prematurely end the contract for their current location.

Subleasing is one way small-business owners can move to a premier location without paying premier prices.

“On the sublease side, there is a significant reduction of (rental) rate,” said Nicole Cooley, a senior associate with Cushman and Wakefield of Arizona Inc. in Phoenix. Cooley works with office tenants seeking 3,000 to 10,000 square feet.

Many tenants are taking advantage of the slow market by “either stepping into Class A space in a better submarket or into a more ideal location for their employee base,” she said.

Lisa Perez, who co-owns a document-shredding business, is subleasing about 500 square feet from an office-furniture company in east Phoenix. She pays about $1,200 on a month-to-month basis.

Other properties she looked at cost $3,800 to $5,000 per month.

“I thought, ‘Gosh, we’re going to burn through cash pretty quickly,’ ” recalled Perez, CEO of AZ Docushred LLC.

 

 

Flexible terms

 

Many landlords have become more accommodating to potential tenants as the commercial real-estate market has softened.

When Ultimate Shade Alternatives in Tempe was looking to relocate its office and warehouse last fall, price was important – so was space configuration and move-in time.

The company installs outdoor shades on commercial and residential properties.

The shade materials are as long as 50 feet, so the company requires large swaths of unobstructed space. The business also was growing, making it difficult to pinpoint exactly how much space it needed.

The owners decided to stay put in a multitenant office-warehouse building in Tempe. A deciding factor was a change in the building’s ownership. The new landlord’s offer to let the company move into the space during the course of several months instead of at one time helped seal the deal.

“They allowed us to utilize some of the new space before we even had an agreement, so they really were going out of their way to help us as a business manage our growth,” president Joy Whitfield said.

Tenants often focus on lease rates when they should keep an eye out for other factors that can affect the bottom line, too, said Greg Mayer, a senior associate with CB Richard Ellis in Phoenix.

“There are 40-plus points in an office lease,” said Mayer, who brokers lease agreements for office tenants. “Most people focus on rent as being the biggest point in a lease, (but) you have parking, you have operating expenses, you have insurance, you have remedies if something happens in a building.”

 

 

Staying put

 

Despite plentiful deals, other tenants are making do with what they have.

Earlier this year, John Beck was considering moving his office equipment firm, WORKspaces LLC, into a new building because the business could use more space.

The company had moved from a 1,000-square-foot Camelback Corridor office into a 4,000-square-foot multitenant building in northeast Phoenix two years ago.

“We were growing like crazy,” Beck said. “We had too many people stuffed into a small office.”

The company’s office is starting to get crowded again, but the economic downturn has Beck putting potential moving plans on the back burner.

The company could financially afford to take on a couple of thousand more square feet, especially with the some of the deals landlords are offering, he said. Still, the office-furniture business is particularly susceptible to economic downturns, and Beck doesn’t want to risk having to pay for more space than he’s going to need.

In many cases, it’s more difficult for businesses to add locations or relocate headquarters because of financing issues.

“With the tight credit markets, it’s really difficult, if not impossible, for companies to borrow on a business line of credit or (obtain) business loans,” said Thad Seligman, president of the Phoenix office for commercial brokerage firm NAI Horizon.

For some businesses, the only option is to dip into cash reserves.

“The problem is there’s so much unknown about what’s going on in the business environment that no one wants to spend their own cash,” Seligman said.

Burglary Prevention Checklist

-Organize a Neighborhood Watch program. Neighbors

working together make one of the best crime-fighting

teams around.

-Keep shrubbery trimmed. Tall, thick shrubbery

provides cover for burglars and lets them work

undetected.

-Keep the area around your house well lit. This will

discourage burglars.

-Using an engraving pen, write your Driver’s License

number on your personal property.

-Make sure that the locks on your doors and windows

are strong and secure, and use them. Most burglars

won’t attempt to break a secured window for fear of

noise and the attention it would attract.

-Make a home inventory list, complete with photos or

video. Store this list away from your home (Ask your

Farmers agent about the Insurance and Household

Inventory Record brochure offered through Farmers.)

-Never leave a house key in such obvious places as

mailbox or under a doormat.

-Have a security plan for when you are on vacation.

Ask a friend to pick up mail, newspapers, etc.

-Use automatic timers to turn on lights, radios and

televisions. An especially effective method is to have

one timer turn off a bathroom light as one timer turns

on a bedroom light and vice versa, to give an

impression of movement within the house. Also, it’s

important to change the sequence at least every

two months.

http://www.farmersinsurance.com