Cash is King or the Norm in Phoenix Arizona Investment Real Estate?

The bar for investment real estate in Phoenix Arizona has been raised. Our housing tracker reports that cash buyer's in 2011 have quadrupled from historical trends, as noted in information obtained from the Cromford Reports. Investors who bought property for cash almost always had advantage over home buyers who were obtaining mortgage financing.

Historically, less than 10% of all residential home purchases are made with cash. As the chart below indicates, the foreclosure trends of the last few years -- coupled with lower interest rates for saving accounts and unstable stock and financial markets -- have induced many more investors to buy property with cash.

The chart indicates that cash buyers jumped to an average of 17.1% in 2008.The number went to 31% in 2009. 34.7% was the average in 2010. However, cash purchases for residential homes, either by home buyers or investors, has jumped to an amazing historical high of 41% in 2011.

Let's take the analysis a step farther. How many Phoenix real estate investors do you suppose are paying cash for home purchases? While I have not been able to find any detailed information on that statistic, we can always do a little interpolation of the data based on the below chart.

The chart indicates how many residential home purchases were made by investors. The Cromford report obtains this information by scraping it from the tax records. They do this by evaluating the number of properties that are categorized as rentals at the initial purchase. The left side of the chart, illustrated by the blue lines, indicates the number of purchases made by investors. The right side of the chart, and illustrated by the red circles, indicates the percentage of investment purchases. We can now clearly see that 25% of all residential home purchases in 2011 were made by investors. This is a higher percentage than during the real estate boom when the average was around 17%.

Now comes the time for the interpolation. If 25% of all property purchases are made by investors, and 41% of all purchases are currently being made with cash, what percentage of investors are paying with cash? The odds are in favor of an extremely high percentage of investors paying cash. Therefore, it appears you are in a minority if you're a real estate investor and not paying cash.

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