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Albuquerque Residential Real Estate May Report

The Greater Albuquerque Association of Realtors Released their May 2017 Market Report for the Greater Albuquerque Area.

This is a research tool provided by the Greater Albuquerque Association of REALTORS® (GAAR)

with data from Southwest Multiple Listing Service, Inc. (SWMLS). The SWMLS market areas includes Albuquerque, Corrales, Placitas, Rio Rancho, Bernalillo, East Mountains/Estancia Basin and most of Valencia County. Percent changes are calculated using rounded figures.

The following are excerpts from the report.  Click here to download the May 2017 Local Market Snapshot reports, presented by zip code and MLS area.

Highlights From the Greater Albuquerque and Rio Rancho May Sales Report

  • the median detached home price rose 5.2 percent to $199,950
  • the average detached price increased 4.0 percent to $235,723
  • the number of new detached listings increased by 13.7 percent to 1,836
  • overall inventory of detached homes for sale decreased 19.6 percent to 3,266
  • the number of closed sales for detached homes increased 17.5 percent to 1,196

Home prices across the U.S. are reaching all-time highs, prompting worry over another boom-and-bust scenario like we experienced roughly ten years ago. Yet, as we glance across the state of residential real estate, what is clear
compared to the last extended run of price increases is that lending standards are now much stronger than they were before. Incomes must be verified, a reasonable amount of money must be paid toward the home prior to purchase and a more stringent loan approval process is in place to prevent a repeat performance of the Great Recession.

New Listings increased 13.7 percent for Single-Family Detached homes and 7.2 percent for Single-Family Attached homes. Pending Sales increased 20.7 percent for Single-Family Detached homes but remained flat for Single-Family Attached homes. Inventory decreased 19.6 percent for Single-Family Detached homes and 27.4 percent for Single-Family Attached homes. The Median Sales Price increased 5.2 percent to $199,950 for Single-Family Detached homes but decreased 4.5 percent to $139,950 for Single-Family Attached homes. Absorption Rate decreased 24.4 percent for Single-Family Detached homes and 28.3 percent for Single-Family Attached homes.

In addition to a stronger base upon which to conduct real estate transactions, the overall economy is in better shape than it was a decade ago. More jobs are available, unemployment is relatively low and workers have more faith in their wages and the potential for wage increases. Although we continue to battle an inventory shortage in much of the country, optimism for the Summer 2017 buying and selling season.

Albuquerque and Rio Rancho Rental Investments

A plan for finding the best Albuquerque and Rio Rancho Single-family investment property

The following are a few things to consider when planning on investing in a rental home in the Albuquerque Metro Area.   People have been building wealth by investing in real estate since the beginning of civilization. In Albuquerque and Rio Rancho metro areas approximately ten percent of the single-family homes are an investment property.  Just as every market is different every single-family home is different.  This discussion is intended for the investor who wants to hold their property as a rental for at least five to seven years and not for someone who is looking to “flip” a property for a quick profit. The following are some of the things I have learned over many years of investing for myself and managing thousands of single-family rental properties for Single-Family Home Investors.   These are simply my suggestions.  Be sure to check with your financial and real estate professionals when developing your own plans and benchmarks.

Strategies for finding the right long-term single-family home investment

1. Create a plan. Include in your plan, both the local and the micro local market in which you want your investment. (All real estate is local but market rents are micro local.).

2. Be sure to factor in the vacancy time as well as the cost of getting the property in condition. Inspections are crucial to include in your plan. From the inspection you will be able to assess better the condition of the property.

3. Deferred maintenance is a double-edge sword. Limit your fix up items to carpet, paint, yard work and minor carpentry, or as I call it lipstick and eye makeup. Larger projects often cost twice as much as estimated and take longer than expected.  The loss of monthly income generation plus the remodel cost can be hard to make up in rent increases.

4. If you pay cash, remember to factor in the cost of insurance and property taxes when figuring out the net present value of the initial investment and revenue streams.  Consider using a self-directed ROTH IRA.

5.  Be conservative with  vacancy cost and maintenance cost in your calculations.  For my own calculations I use a three year block of time.  I estimate an average of 18 months leased with four weeks of vacancy and  approximately two and a half months rent as routine maintenance cost.  This does not count any capital improvements.  If you anticipate having to make a capital outlay within five years factor that cost as well.

6.  The investment return % can be calculated using many of the revenue stream present value calculators available on the internet.  I escalate my rent by 2% each year and use a 2% inflation factor from the initial purchase for sales price at the end.  I wantshoot for a 6+% net present value over seven years as my minimum benchmark.

7. There is always a risk that something unexpected can go wrong with the rental process.  People, money and many Federal, State and local regulations are involved.  You can minimize that risk when you hire a local professional property manager with great experience and enough staff.  Murphy’s law of rentals says: if you do not have an expert on your team you will need one.  My corollary to this is: if your property manager does not have enough qualified staff the person you need will be sick or out of town when you really need them.   If you want to do your own maintenance at lease hire a professional for the lease up.  It you have a quick temper, do not do your own maintenance.

 

Albuquerque Rentals And Lead Paint

Nice Homes In Lovely Neighborhoods Can Have Lead Paint

Many popular rental neighborhoods in Albuquerque have homes that can cause lead paint concerns.  Most Albuquerque pre-1977 rental homes are located in the established neighborhoods that mushroomed around the city center in the 1950’s and 1960.  These lovely older neighborhoods especially appeal to young couples who rent as a first step from apartment living and people with young children who want a large yard for the play area.   Although, the use of lead pigmented paint was banned in the US in 1977 due to rising concern over its toxicity, the possibility of lead paint toxicity still remain as long as some of the original home is standing.

Children Chewing on Window Sills Is Not The Issue

The average pre-1977 rental home in these tree shaded established neighborhoods of Albuquerque are usually in excellent repair and have been repainted outside and inside many, many times.  Many people do not realize that simply sanding or cutting into a wall painted with a lead based product can create substantial risk.  If you have owned a pre-1977 rental home for a while or have recently purchased one as an investment you may be considering doing some remodeling such as in the kitchen and bathrooms.  Remember that toxic lead paint may be lurking behind old cabinets, moldings, etc.

Lead-based paint will continue to be a concern in pre-1978 properties for many years to come, requiring diligent attention by all who work in any capacity with renovation or repair. The landlord needs to be aware of potential toxicity of the presence of Lead paint and the regulations that need to be followed.  Studies have proven that protection from the potential hazards of ingesting lead from the paint extends far beyond not chewing on window sills and that adults are at greater risk than originally believed.  The EPA web site contains vital information with which every consumer, contractor and landlord should be familiar. The following link takes you to the EPA Repair, Renovation and Painting Program page. A little time spent in educating yourself can save a lot of grief! http://www2.epa.gov/lead/renovation-repair-and-painting-program

A Little History

In January of 2011 the Environmental Protection Agency established a series of regulations regarding procedures to be followed when areas containing lead-based paint are disturbed in any way. Failure to follow these procedures creates substantial risks to health and can result in very heavy fines

The use of lead based paint came about in part as a result of public health concerns. In the late 1800’s and early 20th century, millions of people worldwide died from infectious diseases. Although the concept of bacterial and viral infections was ill understood, the medical community encouraged people to regularly wash the walls of their homes. Most walls of the day were covered with paper, a fact which made regular washing both difficult and ineffective. Enter the era of paint. People of the time most often relied on professionals to paint their houses and the products of choice by tradesmen contained lead pigments, prized for its shine and durability. The Federal Government even specified the use of lead pigmented, “lead-based”, paint in government buildings.  The detrimental effect of lead on health has long been documented. Studies in the late 1800’s showed the ingestion of lead to be the cause of a wide variety of health problems, particularly in young children. As early as 1904 a link was made between lead-based paint and health problems among children. The wisdom of the day was that even though adults are also adversely affected by lead, they were not at as much at risk since children were more likely to ingest lead. The slightly sweet taste of lead (the ancient Romans added small amounts to their wine) often tempted young children to eat paint chips or “chew on the window sills.”

 

Tax Deductions for Rental Property

Tax Deductions for Rental Property Depreciation

When you rent property to others, you must report the rent as income on your taxes. But you can deduct, or subtract, your rental expenses — the money you spent in your role as the person renting out the property — from that rental income, reducing your tax obligation. Many expenses can be deducted in the year you spend the money, but depreciation is different.

TurboTax Tax Tips & Videos

Know your tools for tax deductions

Maintenance can be a good tax deduction

 

 

Trends in Albuquerque Sales Market Today

What does the sales market hold

The following are my personal predictions for today’s trends in the Albuquerque sales for the residential market. Although, I am an industry expert, no one can predict with certainty what the future sales market will hold.

Affordability to Drive Albuquerque Sales

First, I believe the affordability of housing and the low cost-of-living in the area will drive housing growth. In return, these drivers along with a recovering economy, will bring an increase in people relocating to the Metro Area. A much needed trend for the Metro Area’s economic growth. Population growth has been stagnant in the Metro Area since the great recession of 2008.

Second, there is an emerging trend for an increase in first-time homebuyers to enter the real estate market. Many millennials are settling down with a life partner and having children. Despite the great recession, owning your own home is still an important part of the American dream. These millennials want a yard and a pet not another high-end apartment. As home buying declined in the past few years, single-family residential rents increased across much of the country, including New Mexico. In the Metro Market it is usually more affordable to buy than to rent. For this reason there has been an uptick in investors buying homes to rent out in the area.

Third, the metro real estate market is benefiting from the the wave of baby boomers reaching 66 every year for the next ten years. The word is out, the Albuquerque Metro Area is affordable and we have a very pleasant climate. The boomer’s children are well established and have family homes of their own. As an example, the Del Webb division of Pulte homes has recently opened up a new 55+ active community in a planned development, Mirehaven, of over 500 homes. This project is selling so quickly they are looking for another Del Webb location in the area. The majority of purchasers in these communities are coming from out of state. Great news for population growth. Locally the 55+ demographic are downsizing in record numbers. This demographic shift will create a large demand for housing in the smaller well-appointed homes.

Market for $750k Plus Homes Lagging

I saved the soft spot for last, the demand for homes over $750,000 has lagged for a long time and will continue to lag until some time next year. The metro continues to be in a 2008 post recession housing slump for expensive homes. As I see it, political uncertainty and the volatility of the stock markets have kept the upper-end homes from rebounding. High-end homes are going for much less than the cost basis of these homes. I believe this market will experience some relief starting in Spring of 2017 when the election dust clears. If you are in the market for a fabulous home in the Metro, now is the time to buy.

Albuquerque’s Apartment rental rates are expected to climb 2.1 percent in 2016.

Albuquerque’s rent prices and apartment occupancy rates are expected to increase in 2016, according to a forecast by Berkadia.  Berkadia, a joint venture of Berkshire Hathaway and Leucadia National Corp., recently released its 2016 Apartment Forecast, which looked at Albuquerque’s metro area.  Berkadia predicts Albuquerque’s apartment rents will climb 2.1 percent in 2016, causing rent prices to increase from about $826 in 2015 to $843 per month by December.  The firm also predicts vacancy rates will continue to go down, and with more people renting, rental concessions such as move-in promotions will fall.

Read full article in Albuquerque Business First

What’s in your wallet.

man's walletNew Mexico Lawmakers are forced to face the Driver’s Licence REAL ID issue.  Finally!

Published: Journal staff and wire reports Wednesday, January 20th, 2016

SANTA FE — The U.S. Department of Defense says it will no longer accept New Mexico driver’s licenses at its installations nationwide.

Defense Department officials announced Wednesday that driver’s licenses from New Mexico — along with those from Minnesota, Illinois, Missouri and Washington state — can’t be used as proof of identity to enter its bases.

The move comes after the U.S. Department of Homeland Security declined to give New Mexico an extension on complying with tougher rules under the federal REAL ID Act. Those rules require proof of legal U.S. residency in order for state driver’s licenses and IDs to be valid for some federal purposes.

Some U.S. Air Force bases previously had said New Mexico licenses still would be accepted, but this new announcement makes it clear all U.S. military bases must stop accepting that form of identification.

Sandia Labs, a Department of Energy installation, as well as DOD sites White Sands Missile Range and Fort Bliss also said this month it would stop accepting New Mexico IDs.

New Mexico lawmakers are set to begin debate Thursday on a REAL ID fix.

2016 Rental Market Predictions

My predictions for Rentals in the Albuquerque Metro Area Housing Market in 2016

crystal ball

The Metro Area was slow to decline from the housing bubble burst of 2008 and as is our usual trend we have been equally slow to recover.   The Metro Area finally saw the turn around in the housing market during the second quarter of last year. This affordability will create economic growth and housing demand. According to a January 5th article by Sal Christ, ABF’s business reporter, the average price of $175,000 with a 5% down made it 33 percent more affordable to buy than to rent the Metro Area last year.   According to a recent survey in the Wall Street Journal the greater Metro Area ranks as one of the 20 most affordable cities of more than a million residents in the country.

I see rents continuing to be strong in the Metro Area. We will not see average rents going up as fast as in the past few years or vacancy rates as low but overall we will remain in a Landlord Market. The Post Millennials (or generation Z) are becoming adults everyday now and are more apt to move into their own place sooner than the millennials.   Interest rates have started to go up and the constraints on financing a new home are much tighter than before 2008. They remember the effects of the housing bust. I predict they they will continue to rent for several years before taking the plunge into a mortgage commitment.   This will keep the Metro Area rental market strong until 2018. After 2018 I believe the demographic will change.   Without a crystal ball I have prudently decided another year to make predictions for 2008.

My next post will address my predictions for the Metro Real Estate sales market.

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