The three most important words in the real estate industry are location, location and location. A beautiful home next to a busy highway or an office building without the business demand to support are just two quick examples of how the location of a property is extremely important. Choosing what and where to buy are important and since a home or other property purchase will likely be the largest expenditure of your life, it is imperative in understanding how to make the right investment. Now, building off that idea, savvy real estate owners understand that the only time you make money on any real estate deal is at the time of purchase. This means that if you do not buy at the right (low) price, then you cannot expect to see growth (or as much growth as desired) in the value of the investment. As versed Scottsdale AZ real estate agents, we want to give you some tips and direction on the best ways to start thinking about real estate as an investment opportunity and the best ways to do so in the Phoenix market.
In the United States, the Phoenix metropolitan area is the 10th largest by population as of 2019. With some of the fastest-growing suburbs (Mesa, Chandler, Gilbert, Buckeye) in the country, the real estate market in Phoenix is a hotbed of opportunity. With the economy and real estate market bouncing back from the recession back in 2008-2009, more and more individuals are turning to real estate as a sound investment asset that can provide stable growth and long-term value.
Over time, it is interesting to look at the average home values, trends and statistics of the Phoenix market. Back in 2011, the average home price in Arizona was staggeringly low at $131,000, but now the average home price in Phoenix is over $265,000 (according to Zillow) – over 100% growth in less than ten years. Scottsdale, perhaps the most well-known suburb of Phoenix, is known for its high-end shopping, wealthy residents, exciting nightlife and world-class golfing. Comparatively, Scottsdale’s home values are much higher than those of Phoenix, with the average home price of $532,000, according to Zillow. With such diversity in the different submarkets around Phoenix, home buyers and investors alike can find something for any budget.
Arizona Real Estate Investment Tips
For those looking to get into real estate investing, there are some important tips and considerations to think about before signing the documents to purchase the property and locking up a sizable investment.
- Types of Investing – when it comes to residential real estate investing, there are two different methods that investors use. The first is known as flipping, which basically means a quick turnaround from the time that you buy the property to when you sell it. Oftentimes, these purchases require some renovating, updating or some fresh paint or they could be foreclosure properties that have been repossessed that are up for auction. Either way, this strategy works when the property is acquired for a lower price and then “flipped” and sold at a higher price. This type of investing requires a good eye to see the potential value in a property.
The second type is a long-term strategy where investors will hold a property and rent it out to tenants. The annual rent collected from the property is considered to be the rate of return on the investment. In the real estate world, this is referred to as the capitalization rate (cap rate for short). Some investors look for properties to hold for a long time that will generate a solid return as well as growth in the value of the asset over time. For investors looking to take advantage of a tax deferral in the IRS tax code, a 1031 Exchange is a great option. In short, a 1031 Exchange allows investors to avoid paying capital gains taxes on the investments sold if the proceeds are reinvested into a like-kind property of equal or greater value.
- Market Research – to start, evaluating the markets that you are interested in should be one of the first steps that you take when looking for a property in Arizona or anywhere for that matter. Understanding the economic factors and trends as well as the residential demographics, are especially important. Take the Scottsdale, AZ real estate market, for example, the job market is stable (barely impacted by the recession) and the demographics of income are going to be higher than other areas. Because of these factors, property investors looking within Scottsdale are safe to expect consistent growth on their investments, especially in the long term. Phoenix, on the other hand, is a much more diverse market in terms of income, home value and size, which may make it a better fit for an investor looking to buy and flip houses. Another important aspect to look at is the comparable lease or rental rates for various types of residential properties because you want to make sure that you can rent the property for enough to cover the costs (debt and maintenance) and make enough profit to make the investment worthwhile.
- Determine Your Budget – once you have a good understanding of the types of real estate investing and the market you are looking in, you should figure out your budget for purchasing a property. Some investors in the market will be all-cash buyers, which is an advantage for being able to transact quickly rather than having to go through the lending process. However, most first-time investors buying a house in Arizona are going to have to borrow money to finance the investment. Calculating how much money you are comfortable with spending on a down payment and getting pre-approved for a loan is important for determining the price range to begin looking at for an investment property.
- Work with an Experienced Real Estate Agent in Scottsdale – when it comes to buying a home for yourself or as an investment, the process involves a large number of steps and crucial aspects in order for everything to work out. That is where working with an experienced Scottsdale, AZ, real estate agent will be extremely beneficial. Not only will they help you through the process, even for a rental property, but also having a great understanding of the market will definitely be to your advantage. Also, in the world of real estate investing, time is often a significant determining factor and a well-connected real estate agent will often be privy to listings prior to them hitting the market or have connections with listing agents. By being able to provide quick information to their clients (the investors) will be able to move quickly on great opportunities in a competitive market.
Jeff Barchi is the premier real estate agent for those interested in buying a home in Arizona or looking to invest in real estate in one of the many submarkets of Phoenix. Since 1999, Jeff has been helping homeowners throughout the Valley find their next dream home or investment opportunity and has earned the award for Top 40 Realtors Under 40 three times over. Ranking in the top 1% of real estate agents in the country, Jeff has helped his clients in more than 1,000 transactions during his career. With many options to choose from, let the statistics speak for themselves and reach out to Jeff Barchi to learn more how he can be a valuable resource for you as your Phoenix, Scottsdale or Paradise Valley real estate agent.