The risk of poor real estate investing is increasing because prices are high and there is no guarantee of a justifiable return. Now more than ever, investors must understand the fundamentals of real estate investing. The first step is to determine whether the investment fits your portfolio and financial plan. A well-diversified portfolio should include some real estate but not all real estate. Second, what type of real estate investment makes the most sense for you? There are many options including land, office buildings, apartment buildings, and condos. Given Rose Realty's specialty in residential real estate, let's focus on how to figure out what might be a hot residential real estate investment even in a cooling market.

A. Understanding Leverage: Since real estate is easily leveraged, investors are able to put in a relatively small amount of cash (5-20% of the purchase price) and borrow the rest. In a market that appreciates quickly, investors have been able to achieve extraordinary returns on their capital. However, these returns are not guaranteed and leverage can magnify losses. So how do you evaluate the odds of this happening? Call us and we'll do the math together.

B. Building a Financial Model: To figure if a property is a good investment, like the stock market, you must measure how the price of something relates to its earnings. In real estate, this is called the property's capitalization or "cap rate." It is calculated by dividing the net operating income by the purchase price.

C. Assess Your Risks: Now you must evaluate your financing options, asking how much leverage the property will bear and what the available terms of the debt will be. Be careful, because a few faulty assumptions about the operating performance could result in some devastating consequences.

D. Other Sources of Value: You should also determine what other sources of value are available to you such as improvements to the property, additional revenue opportunities, local conditions, etc.

Keep in mind there are other factors to consider when evaluating a potential property such as leases and contracts, title, zoning, easements, and tax implications. Let Rose Realty to be your guide for any further assistance you may need when investing in residential real estate.

It's no surprise - rental Prices in North Scottsdale are the highest in the valley. By the end of last year, the average apartment in the area was renting for $965 a month. That's $225 more than the Valley average. But here's the shocking part, the vacancy rates are the lowest in the Valley, dropping from about 7% to about 5% in less than a year! People are flocking to live in Scottsdale and these people are renting because the home affordability index is "in the gutter." Many of the people who work here can't afford to buy a house here, but this isn't stopping the rush of workers coming into the area! While the demand is obviously increasing, supply seems to be decreasing because of the recent condo conversion trend. Another issue comes into play when there is not enough money being spent on discretionary items because of rent rates. The situation may become even worse for low- and fixed-income residents because the federal government keeps cutting Section 8 voucher payments. Unless something happens to decrease the rental prices, traffic and sales tax worries will only get worse!

There is a recent market swing that has drastically increased the number of houses for sale in metropolitan Phoenix. Listings are up and houses are taking more time to sell because buyers are regaining the upper hand. This is quite a difference than the market was only 6 months ago. Now we are seeing picky shoppers taking their time in the market. So why the recent outburst of listings? A few reasons:

· Speculative investors are leaving after realizing gains of 40-50% in the past year
· Prices are higher and investors and other buyers are finally saying no
· High mortgage rates are costing the buyer more for their home
· Many homeowners are trying to cash in at a high price

All factors considered, the pressure is on real estate agents and sellers to get creative or to cut prices. If prices and rates continue to move up, we are in deep trouble.

Phoenix recorded a 55.2% increase in house prices over the past year according to the National Association of Realtors (NAR). NAR revealed the average single-family home nationwide appreciated by 14.7% since last year. Homes in only 6 metro areas actually lost value. Trailing behind Phoenix were Orlando and Cape Coral-Fort-Myers. Take a look at the table below for the other top 10.

Ingredients:

1 cup crushed graham crackers
1/4 cup granulated sugar
1/4 cup melted margarine or butter
1-8 oz. package cream cheese, softened
1 cup creamy peanut butter
1 cup powdered sugar
2 Tbsp. margarine or butter, softened
2 Tbsp. powdered sugar
1/2 cup whipping cream
1 cup chocolate chips
1/2 cup whipping cream

Instructions:
1. Combine graham crackers, 1/4 cup granulated sugar, and 1/4 cup melted margarine or butter, and press into 9" pie pan. Bake in a preheated 350º oven for 10 minutes. Cool.
2. Beat together cream cheese, peanut butter, powdered sugar and 2 Tbsp melted butter or margarine. Set aside.
3. Whip together 2 Tbsp. powdered sugar and 1/2 cup whipping cream. Gently fold into peanut butter mixture and spread into cooled crust. Refrigerate.
4. In small saucepan, melt chocolate chips and 1/2 cup whipping cream over very low heat until smooth. Spread over peanut butter mixture in pie pan. Chill.

Sources: "Fishing for Hot Investments in a Cool Market" By Hans L Wydler and Steven C. Wydler. Washington Post. 1/28/06; "Rising rents squeezing Scottsdale's poor out," Arizona Central. 2/13/06.; "Valley home buyers now hold upper hand," By Glen Creno. Arizona Republic. 2/8/06; "Phoenix leads price rise charge," CNNMoney.com.