The Case For Single Family Homes

Aug. 23, 2011 7:41 AM ETREZ36 Comments
Jan Brzeski profile picture
Jan Brzeski

I recently spoke to another Seeking Alpha contributor who expressed concern that home prices could drop significantly from their current levels. This article explains why that is very unlikely to happen.

Case Study: Phoenix

I am a real estate receiver for a shopping center in northwest Phoenix. When visiting the property recently, I drove around the neighborhood surrounding shopping center, which featured 1970s-built ranch houses that would be familiar to many people who grew up in the western U.S. I was struck by two things: (1) many of the recent sales in the neighborhood were well under $100,000. Some were as low as $50,000; and (2) the other shopping centers nearby were not filled only with 99 Cent Only stores and check cashing shops. In fact, the closest grocery stores were upscale, with hardwood floors and expensive lighting in the produce area, as well as other upgrades.

Replacement Cost and Why It Matters

The cost to build a new home similar to the ones I saw in Phoenix is at least $130,000. This includes land development costs such as streets, curbs, gutters and utilities, as well as city and county impact fees, plus hard constructions costs. I am assuming that the land is free -- with land costs of just $20,000 per lot the total cost is likely in excess of $150,000.

Now let's look at the historical population growth rate of Phoenix. Below is a chart, courtesy of Arizona State University's Water Simulation project.

If Phoenix is going to continue grow, even at half the projected growth rate, then home builders will eventually need to start building homes there again. However, the only place with vacant land to build homes is on the outskirts of the city, far from jobs, which tend to be closer to the core.

Granted, some

This article was written by

Jan Brzeski profile picture
I manage several funds dedicated to investing in single family homes. The bulk of our business consists of making loans to developers who specialize in buying, renovating and reselling single family homes in California, in order to generate steady income with a healthy margin of safety. We have a special emphasis on making loans on luxury properties that will sell for $2-$6 million upon completion of an extensive renovation. To date I have made more than 275 real estate investments where my own capital was at risk. I am actively involved in real estate education and have taught four classes at UCLA Extension as well as organizing eight events at the UCLA Anderson School of Management and speaking on real estate as part of the CFA Los Angeles Alternative Investment Series. For more information, please see my LinkedIn profile at

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