September 20, 2017

Why Invest In Real Estate

With record numbers of foreclosures, short sale and notice of defaults… investors around the state, around the country and around the world are asking “Why invest in real estate in Arizona?”

Almost every short sale or foreclosed seller in Arizona transitions to a single family home rental, usually at a rental rate substantially less than what they had been paying on the mortgage, or mortgages, on their “upside down” residence.

The result of this is a high demand for quality rental properties. 

"Sweet spot" Chandler buy and hold real estate

Investors are buying residential rentals for cash or financing: the return on investment for a cash purchase is substantially (especially after factoring in depreciation and expense tax write offs) and safe – most of these homes are being purchase for less than the replacement cost… or what it would cost to rebuild the same house. 

Consider these two points of view for why invest in real estate: the investor and the prospective tenant.

The investor wants:
–  Newer construction for less maintenance and repairs: 1995 and newer
–  Good location & good schools (for appreciation and resale value): East Valley of Chandler, Gilbert, Tempe, Scottsdale, parts of Mesa, Ahwatukee and possibly (for ultra bargain hunters only) Queen Creek and the city of Maricopa
–  A 3-4 bedroom, single story home, with no pool, 1500-2100 square feet (not enough rooom for a large family who will likely bring on more wear and tear)
    –  Profile renter is a single parent, single professional, or parents with 1-2 kids
–  Planned community with greenbelts, parks, schools, and possibly a community pool with a HOA fee of less than $70 per month-  Access to freeways, shopping, restaurants and large employers (Intel, Honeywell, Aerospace, etc.)
–  Return on investment (cash flow + tax benefits) of at least 8%
–  Rents in the range of $1,100 per month ++
–  3-5 year opportunity for appreciation of 2-3% per year

Click here to see all the “sweet spot” investment properties in the East Valley area!

Prospective tenant wants:
–  Quality area (planned community with greenbelts, parks, schools, and possibly a community pool)
– Newer construction
– Possibly the opportunity for a lease to purchase to get back into the ownership game (built in buyer for you with no repairs when it comes time to sell!!!)
–  Lower monthly payment to re-build credit and their financial base/savings account

Example of “the sweet spot” Chandler buy and hold real estate: 

Subject property: Canyon Oaks planned community, built in 2001, single story, 1,842 square feet and no pool

      Purchase Price: $165,000 cash ($89.57 per square foot)
      Assume monthly rent of $1,250 (rent range of $1,100-$1,400 per month)

      Monthy expenses:
      –  Property taxes:  $113 per month
      –  Insurance:  $70 per month
      –  HOA:  $43 per month
      –  Property management:  $75 per month
      –  Maintenance & miscellaneous:  $100 per month
           –  Total Monthly Expenses:  $401

      Annual positive cash flow = $849 ($1,250-$401) x 12 months = $1o,188

      Return on investment (before tax benefits) $10,188 divided by $165,000 (purchase cost) = 6.2% ROI

Tax benefits:
Expenses:  $401 per month x 12 months = $4,812 
Depreciation expense (straight line 27.5 years) – land does not depreciate so take out 20% of the purchase price = $165,000 – $33,000 (20%) = $132,000 divided by $4,800 annual depreciation.

Annual tax benefits:
Depreciation:  $4,800
Expenses:  $4,812
Total tax benefits:  $9,612

The tax benefit will substantially increase the ROI, depending on how the investor holds the property (personally, LLC, trust, IRA, etc.).

The “multiplier effect” on this investment property is the likelihood of appreciation in the asset over a 3-5 year hold.

Now you have seen why invest in real estate to generate positive cash flow is a great opportunity.

Click here to see all the “sweet spot” investment properties in the East Valley area!

If you’re interested in investing in real estate Arizona or adding Chandler buy and hold real estate to your portfolio, fill out this quick profile about what type of property you’re looking for and we’ll set up a one on one consultation to set up an acquisition strategy that fits your exact needs.

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Investors Cash In

A recent article from Realtor® Magazine reports that the number the number of investors and international buyers taking advantage of real estate bargains has reached a record number in all-cash purchases — and some experts predict that number will only grow higher.

Across the nation, a record 33% of existing-home sales were made to cash buyers in February, the National Association of Realtors® reported. The total proportion of cash deals by real estate investors could hit 40% by year end of 2011, predicts Thomas Popik, research director for Campbell Communications in Washington, which conducts monthly surveys of 3,000 real estate brokers.

Many of these cash deals are also coming from a growing number of international buyers – Canadians and Australians making up a large part of this group. About 55% of international buyers paying cash for real estate in the US, according to an April 2010 report by NAR.

The Cash Buyer Advantage?

Cities around the US where about half of all purchases were done with cash include Detroit, Miami, Las Vegas, and Phoenix, in which prices have dropped considerably and foreclosure rates remain high, says Oliver Chang, a housing market analyst with Morgan Stanley.

In some areas of Arizona, house prices have dropped about 70% from the 2006-2007 prices.  However, specifically in the Phoenix investment real estate market, we are seeing A LOT of buyer activity and as a result most homes are selling for list price or above list price.  in March 2011, 55% of the purchase made in Phoenix were investor buyers and of that 55%, 85% were cash sales.

Short sales and foreclosures accounted for 59 percent of last year’s cash sales, according to a report by Morgan Stanley.

If you buy the house at a discount with cash, then you can either buy and hold it as a positive cash flows rental property or you could flip it almost immediately to a homeowner getting a mortgage who is interested in getting into a move in ready home.

With tightened lending standards, cash purchases can provide buyers with more leverage and allow buyers to close properties more quickly.

If you’re interested in more information about our local Phoenix real estate market, please contact Jason Dawson directly at 480.620.8874 or send us an email.  We specialize in Chandler buy and hold real estate investments and Gilbert buy and hold investments.

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