Category Archives: Investment

Flipping Scottsdale Real Estate vs. Buy-and-Hold

3-25-flipWhen you own the Scottsdale home your family lives in, you are by definition a real estate investor: it comes with the turf. Your investment is essentially a passive one. Until the day you decide to sell and move on, any improvement in its value is secondary to how well it serves to shelter your family.

How you think about your investment—and how you proceed to manage it—is altogether different when you buy a Scottsdale home purely as a financial venture. For one thing, you face an immediate strategic decision: will you be flipping for a quick short-term profit, or aim for the long term through a buy-and-hold strategy? You have to weigh some pros and cons in order to make the right decision.

Flipping

Pro: Capital is Freed

A flipping strategy minimizes the amount of time your investment capital is committed, freeing it for other uses. Should you identify another potentially lucrative investment, you will be able to take advantage of it.

Con: Unexpected Challenges

While flipping for short-term profit has definite ‘hands-on’ appeal, first-time investors can be surprised by unexpected complications. Properties that appear to be undervalued (and ripe for a quick flip!) may require costly fixes. Overspending on renovations quickly eats into profits, but underspending can lead to a lengthier holding time. Experienced Scottsdale flipping veterans have learned to successfully gauge a property’s true turnaround value.

Additional Consideration: Taxes

Scottsdale flipping has tax implications that impact the bottom line. Profits from a property owned more than a year are generally taxed at the ordinary income tax rate, while a property held for less than a year may be taxed at the capital gains rate. Local and state tariffs need to be considered as well—this is where input from a qualified professional is important.

Buy-and-Hold

Pro: Passive Investment

If management is outsourced to a professional property manager, the buy-and-hold strategy will require less personal attention than flipping does. Preparing a property for a flip often involves considerable time commitment and adept contractor schedule-juggling.

Con: Management Costs

The passive investment advantage holds true if outside management is contemplated— with commensurate expense. If you enjoy the challenge of successfully managing a property, this negative doesn’t apply.

Pro: Fewer Properties Need To Be Identified

Ultimately, successfully executing a flipping strategy means scrutinizing a huge number of properties over the course of time. In contrast, a buy-and-hold strategy necessitates finding only a few great bargains. Pursued intelligently, both buy-and-hold and quick flip strategies have proved profitable for many investors.

Both call for finding solid value in Scottsdale properties—which is where giving me a call comes in!

Phoenix Parents Consider Home Rental for College-Bound Kids

3-25-reentalFor many Phoenix parents of high school seniors, these are hold-your-breath days—the time of year when college acceptance letters begin showing up in Phoenix mailboxes. If all goes well, after settling on a school, next comes tackling the array of decisions that follow. Chief among them: where he or she will live. Many parents tend to take the common course, assuming that a college dorm is automatically the best answer—but a college’s room-and-board plan is actually only one of the possibilities. In fact, it may not be the best financial, social or developmental choice for parent or student. Renting a house can be an intriguing alternative. Here are three of the reasons why some Phoenix parents decide a home rental makes more sense:

1. Cost

Sharing a home rental is often significantly less expensive than renting an apartment—or even a dorm room. Prices vary, but it’s more than possible to end up paying as much as $4,500 per semester for student housing. If your student lives on campus during the summer, fall and spring terms, that would create a $13,500 bill for the year’s housing (the equivalent of paying more than $1,000 in rent per month). Considering that most dorm rooms are tiny, that translates into a much higher cost per square foot than does a shared home rental.

Renting even a one-bedroom home near campus can give your child more space and quiet time to study without interference from fire alarm-pulling pranksters or noisy roommates. Every student is different, and having a place to escape the hustle and bustle of campus life can provide some kids with the extra focus they’ll need for success.

2. Safety

When students live in crowded dorms, many parents worry that they are more likely to catch colds or other communicable diseases. Being packed into a dorm with hundreds of people who may or may not behave responsibly is a dire way to view dorm life, but that is some parents’ view. When their child lives on his or her own or teams with a select group of roommates, some parents breathe easier.

3. Responsibility

With a home rental, any student will learn more about responsible adulthood than when campus authorities assume parental-like responsibility for day-to-day living. Students who are on their own may be wholly or partially enrolled in school cafeteria programs, or may learn to shop for and prepare their own meals. Household and maintenance chores will be theirs to handle, rather than being the province of college employees. In that way, a college home rental can serve almost as a youngster’s “starter home.” They will graduate from college with a rental history, self-sufficiency skills, and home stewardship experience that will prepare him or her to better care for their own home later in life.

Of course, it’s not universally the best answer to the student housing problem: every institution and child combination are different, and different youngsters respond to independence and responsibility in differing ways. But if you haven’t thought about the possibility, it could be worth looking into.

If I can help with a referral to a rental agency—or if you’d like to consider buying—do give me a call!

Foreign Property Offers can Attract Scottsdale Investors

3-4-foreignIn today’s globalized economy, purchasing a foreign property has become an option for Scottsdale buyers who in earlier times would never have even considered it. As an investment, a vacation or retirement property, or as an accommodation for children studying abroad, there are many reasons why you might decide to look into purchasing a property outside of the Scottsdale market. Here are some general tips for how to go about making a real estate purchase overseas:

1. Research the Foreign Market

Research the local real estate market carefully. Its cycles and trends are likely to be markedly different from ours here in Scottsdale. Don’t assume that because real estate prices are on the rise here, the same is true in any given foreign market. You should also step back to make a realistic appraisal of the overall stability of the country’s economy—it will affect your investment.

2. Check the Laws Regarding Foreign Ownership

Many countries place ownership restrictions on foreigners. It’s a favorite ploy of fraudsters to “sell” foreign property in markets were non-citizens are not legally allowed to own…and it’s only one good reason why you will be wise to—

3. Retain an Independent Local Lawyer

You will want to consult a lawyer when purchasing any foreign property. That lawyer should be representing you and you alone. Make sure you can communicate clearly and easily with your lawyer, and that your queries are answered in a timely manner. If you find yourself having major difficulty in selecting the lawyer, that may indicate more serious issues to come.

4. Visit the Property

You or a trusted representative should visit the property before buying. This may sound like a no-brainer, but persuasive pitches and affordable prices can be powerful inducements. Photos, videos, and other marketing materials are designed to present the property (or even a nearby property!) in the best possible light. At a minimum, have a friend or family member look over and photograph the actual site. You need to be firm in your insistence that the property lives up to your expectations.

5. Plan for Changes in the Exchange Rate

Unless you are purchasing the foreign property outright, you may be contracting to make payments over decades—years during which exchange rates might shift significantly—impacting the actual total purchase price. Too, if you are paying for the property outright in cash, there can be a delay between when you agree to the purchase price and when the funds are transferred.

6. Translate all Documentation

Once you have signed the foreign property transfer documents, you will be legally obligated to abide by all its terms, so before signing any documents, make sure that they have been accurately translated. Even relatively small differences in wording can create problems.

Purchasing a foreign property can be a legitimate way to diversify your real estate holdings. Approach the foreign market carefully, do your research, and have the right local representation. But before you make a final decision, think about giving me a call to see how today’s comparable Scottsdale properties compare!

Scottsdale Rental Property Choice Involves 6 Key Factors

2-20-rentalJust about any investor on the lookout for a promising Scottsdale rental property has a number of assumed criteria in mind—often arrived at without bothering to sit down to list them. Remember, this is already a successful individual, usually with ample business experience—and always with the financial acumen to be able to make a substantial investment. For them, creating a written decision matrix really isn’t necessary.

Still, there’s a lot of literature on the web offering opinions on what are the most commonly agreed-upon factors for choosing a rental property. Quite a few “Top 10”s. Going over them, it turns out that some are only slight variations on a single theme, so I’ve boiled them down to a “Top Six.”

The first one is barely ever mentioned. It’s this:

1. Most investors have predetermined the price range that his or her Scottsdale rental property must fall into, but that can turn out to be a false step. If the goal is to garner the maximum return, it’s possible that some humbly-priced Scottsdale rental properties can actually turn a greater annual profit—even in absolute dollars—than some higher-end homes (particularly those that suffer extended periods without suitable higher-end tenants). So Number 1 is SET YOUR INVESTMENT GOAL. Cash flow return can be a very different goal than long term property appreciation.

2. LOCATION LOCATION LOCATION. This is the one that combines a half dozen factors, variously listed as Neighborhood, Proximity to Jobs, Amenities (parks, malls, gyms, movie theaters, public transportation hubs, etc.), Crime, Schools, and even Property Taxes. This factor might be chosen for convenience, as when a rental property investor wishes to be able to supervise the property; or for an expectation of value appreciation in a Scottsdale area which is gaining popularity. As everyone has had heard from time immemorial, L.L.L. is always important!

3. HEALTH OF THE PROPERTY. If the underlying structure and mechanicals have been intelligently designed and well maintained, this one is of no importance. If not, a thorough inspection with top-grade recommendations and cost projections is a must.

4. VACANCY RATES. The number of rental homes listed and the number of vacancies should be considered highly important for determining a promising rental property in Scottsdale. In newly expanding communities, sometimes you can spot a man parked near an intersection, clicking away on a counter as the autos pass by. He’s measuring traffic to see if the volume is great enough to support a gas station, or market, or mini-mall. The turnover of rental listings—how long rental properties stay vacant from week to week—can provide guidance about the same kind of information.

5. COMPETITIVE MARKET. The average rent amounts advertised for comparable properties can be the decisive factor for whether a rental home investment makes financial sense.

Of course, another factor that can make a big difference is the experience level of your Scottsdale Realtor®. That’s actually key factor #6—and (I hope) where I come in!

Four Reasons Phoenix Real Estate Investments Beckon

1-21-realestateinvestmentGood investors tend to be cautious souls. For those who prior to 2007 had never ventured into the realm of Phoenix real estate investments, the ensuing downturn might have been enough to discourage any curiosity about that direction (even if their other investments had also suffered during the global financial crisis).

Nonetheless, at this juncture those same cautious investors might well assume that the value of real estate investments in Phoenix have rebounded so substantially that it’s now too late to bother looking into them. But as National Public Radio has just pointed out, there’s an excellent argument to be made that conditions are now highly conducive for real estate—with real estate investments in Phoenix being no exception. I could tick off three solid reasons that immediately leap to mind, but stand corrected: NPR points to four:

1. Employment.

Employers are hiring anew, and “when companies are hiring, would-be homebuyers feel more confident about taking on mortgage debt.” Unemployment rates have (finally!) come down to 5.6%, and with employers having added 252,000 jobs in December, consumer confidence is up nearly 20% over a year ago.

2. Prices seem more rational.

NPR points out that from January to October, prices rose 4.5% nationally; a “subdued” gain compared with the 11% burst of the year before. They project that the slower price appreciation may have set the stage for a “buying surge in 2015.” From a Phoenix real estate investments standpoint, too, gains from last year’s run-up in equities markets combined with mortgage rates still holding below 4% would seem to create the key elements many investors would consider favorably.

3. Demand for rentals is high.

There is a healthy demand for rental accommodation across the country due to a tight supply of quality accommodations. USA Today tells us that between 2009 and 2013, the national vacancy rate for apartments dropped from 8% to 4.1%. Over the same period, the effective rent increased by 12% to $1,083. As one potential consequence vis-à-vis Phoenix real estate investments, new landlords might expect to be more selective about the tenants that they choose. That would mean fewer headaches for landlords with troublesome and slow paying tenants. It might also portend that investment properties will stand vacant for briefer periods.

4. Millennials are sick of Mom’s basement.

NPR points to a Census Bureau report that says only 36% of Americans under age 35 own a home, down from 42% just seven years ago. The recovering employment picture might not enable young people to save up for a down payment for a while yet, but renting quality digs should soon be more doable than was previously the case. That could set the table for a continuing robust rental environment, with Phoenix real estate investments benefitting proportionately.

NPR’s four reasons for optimism in 2015 are actually only the tip of the iceberg. If you have ever had the thought that it could be worthwhile to take a look at Phoenix real estate investments, this is a great time of year to give me a call!

Year-End Review Shows Institutions Exiting Investment Picture

12-31-investmentAt 2014’s year end, it’s as good a time as ever to look back over the real estate investment landscape to see if any new trends or directions may have become apparent. It does look as if one development in the country as a whole may cause ripples that could affect Phoenix real estate investment hunters in the coming year.

This is a development with roots that go back to the 2008 upending of the housing market. That triggered a glut of foreclosures, so that banks, already up to their vaults in turmoil, found themselves holding uncomfortably large numbers of repossessions. Bright-eyed executives at private equity firms and hedge funds were quick to spot this as a new opportunity: they could scoop up the repossessions for a song, rent them out, and then just wait to sell until the economy improved.

By 2013 The New York Times was reporting that the Blackstone Group now owned some 26,000 rental homes—with Colony Capital picking up more than 10,000 single-family residences. Warren Buffet had endorsed the idea; J.P. Morgan and Morgan Stanley had set up new real estate investment funds earmarked for the purchase of houses. Vague concerns about absentee investor landlords were waved away—this was like some kind of newfangled Institutional Investor Gold Rush, and as any ‘49er could have told you, in a gold rush, there isn’t time to worry about the details!

The main real estate investment targets centered on certain markets: Minneapolis, Atlanta, Detroit, Los Angeles, Phoenix, New York, and Phoenix saw the most activity. In some regions, 2012 and 2013 saw bidding wars for repossessions and lower-priced housing, until by July of this year, The Times could report that in some areas “prices of the least expensive homes have more than doubled” in two years. As Forbes reported in 2013, “Wall Street has been bullish on real estate.”

Sellers (mostly banks) were happy. The institutional investors were happy. However, ordinary people looking out for the same kind of real estate investments found themselves competing with institutions. They were largely beaten out or priced out of the market.

By the end of 2013, though, those earlier “details” that had been ignored were beginning to rankle. Individuals whose real estate investments were hands-on propositions may not have had the same kind of problems, but a company like Colony American Capital had to report that it had found renters for only 51% of its properties. Many private equity firms and hedge funds began to report losses. As the CEO of Carrington Holding wrote, “We just don’t see the returns there that are adequate to incentivize us to continue to invest.” (Translation: Good-bye.)

With institutional investors bidding adieu to the areas they’d previously targeted, any repercussions felt Phoenix ’s real estate investment landscape can only be to return to a more familiar market scenario—one where individual investors have the last word.

If 2015 will see you in the hunt for suitable real estate investments in Phoenix , that should come as good news…as well as a good reason to give me a call!

When a Real Estate Investment Beckons, the Question to Ask

12-17-investmentIt happens: an all-but-irresistible Phoenix real estate investment crops up when you’re least expecting it. You may have been actively searching for your next family home when you happen across a particularly good bargain—but it’s not a good fit for your own family. “Holy cow,” you think to yourself, “that’s a ridiculously great property at an absurdly low price!”

That can start the wheels turning. If you have the financial resources (or enough experience to know how to corral them), it can be the genesis of a lucrative real estate investment in Phoenix. There is, however, one question to be asked before taking the idea to the next level.

It’s a question familiar to experienced investors in all walks of life. Whenever a phenomenal opportunity presents itself, it’s the first question that venture capitalists, stock market analysts, even small business entrepreneurs automatically pose. There are scores of ways this question might be worded, but they all boil down to pretty much the same kernel of an idea—which is to question the assumptions that make this new venture so seemingly irresistible. In short, at its core the question is simply, “What’s wrong with this picture?”

Applied to any real estate investment in Phoenix, it’s a valuable opening question. Finding a great property at an unbelievable price—one that unmistakably flashes ‘profit!’ for either renting or reselling—does happen, of course. But it’s never wrong to take a step back for a reality check. Remember, there are alert competitive forces at play in the local market. Other real estate investors are constantly on the lookout for the next promising Phoenix real estate investment opportunity.

You may well be among the first to notice a prime offering, but even so, you’ll be well served to look hard for a reason why it hasn’t already been snapped up. The fact is, there is a well-developed, reliable mechanism at play that should lead a seller to have a good idea of what his property is worth—and therefore, what to ask for it. The comparable property value numbers—the ‘comps’—make the market fairly well ‘regularized.’ They make greatly underpriced offerings rare.

Asking yourself what’s wrong here? is a shorthand way of reminding yourself to curb your enthusiasm as you exercise all the due diligence steps: verifying the condition of the property inside and out and spelling out title and lien issues and location, neighbor, neighborhood and historical matters. The curbed enthusiasm should last until those inquiries come up with the right answers…at which point, even the most jaded real estate investors tend to put the pedal to the metal. When everything begins to check out, they know a crowd will soon be forming!

It’s my job to help facilitate every phase of a good Phoenix real estate investment—from discovery and investigation through offer, negotiation and all the documentation steps. It’s what happens when the answer to, “What’s wrong with this picture?” turns out to be, “Absolutely nothing!” If you’re looking to buy an investment property in Phoenix this winter, call me today!

Investment Properties’ Unique Advantages Revisited

11-5-investmentIt’s the perpetual ebb and flow. Sometimes the popularity of investment properties in Phoenix begins to rise, sending them toward the head of the pack against rival investment ideas. A Phoenix investment property’s basic allure has always been its unique attribute as the most “real” of real goods (investment property is pretty close to the very definition of the word ‘substantial’). But as a haven for capital, its place in the pecking order of investment ideas depends a lot on the performance of the competition—especially stocks and bonds.

When the predicted long term returns from the stock market begin to look lackluster, or if market factors begin to seem more volatile than usual, investment property gains in comparison. When the uncertainty gauge starts twitching upward—and that seems to be happening lately—some of the underlying benefits Phoenix investment properties offer get renewed attention. Items that register in the calculus—

Item: Inflation hedge

Because rental rates can rise with (and lately, ahead) of inflation rates in general, that constant worry is less of a factor. Investors factor in the real inflation rate (not always the official one) when they look at their portfolio’s performance.

Item: Cash flow

Properly managed, a Phoenix investment property can produce ‘dividends’ that are substantial without diminishing the value of the principal investment. (There’s no board of directors to make sweetheart deals with management, either!).

Item: Predictability

Investors know that no one can guarantee what the future will bring—but it’s harder to picture a time when people won’t need shelter than one where they won’t be bidding up stocks or bonds. The rental performance of any one Phoenix investment property may be more reliable than another (a mid-range apartment complex vs. a top-notch luxury residence, for instance); but in overall predictability, investment property rates highly.

And then there’s one that’s sort of counter-intuitive:

Item: Flexibility

Everyone is familiar with the most obvious inherent drawback to investment properties: namely, their relative lack of liquidity. You can sell stocks or bonds rapidly because their markets are comparatively transparent and active. Capital is ‘stuck’ in real estate until buyers appear. But what that analysis doesn’t take into account is that the equity manifested in Phoenix investment properties can actually serve as a lower-risk springboard for financing other opportunities. Real estate can be relatively easy to borrow against since its value is less volatile than, for instance, that which buying stock on margin entails—especially when ‘iffy’ market conditions suddenly develop. Furthermore, the deductibility of mortgage interest makes this form of financing less expensive.

If this fall finds you reevaluating your own portfolio, I can show you some of Phoenix’s investment properties that offer exciting possibilities. Call me!