These are the two most common ways to make a profit in residential real estate. We are experienced Investor Agents and have a great track record of assisting our clients with both of these strategies. Currently our market is geared towards a “buy and hold” cash flow strategy with the inventory levels being at such a low level, and rents still increasing. Here’s a general summary of the advantages and disadvantages of each investment method:
A few advantages of a property flip in Arizona are as follows:
1) Profit is quick and liquid. Property management is removed from the equation making this an attractive option for an investor looking to “make a profit and move on to the next deal”.
2) Flipping can be more exciting and interesting for certain investors. Generally the risk is a bit higher, but so are the rewards.
3) Flip properties can be easier to find in the right market. Look for a high demand area (TIP: I recommend a “move up” neighborhood as first time buyer areas tend to generate a smaller profit margin), then focus on the homes that need the most renovation. Homes with “good bones” generally need more of just a cosmetic fix up and have key elements that buyers want.
Some disadvantages to a flip property in Arizona are:
1) Flipping properties in Arizona is not a “one shot” approach, meaning that successful Arizona real estate investors do not retire on one sale…this is a game in which you must keep moving properties. Not every home will be a winner, and successful property flippers are set up to manage the loser properties, as they will come up from time to time. We try to manage as much risk as possible, but obtaining these types of homes means quick decisions, and not every potential issue can always be accounted for.
2) Taxes are higher when you sell a flip property. The profit you receive will be taxed as ordinary income which could be as high as 40% of your profit.
Some advantages of holding a cash flow investment property in Arizona are:
1) Positive cash flow is abundant in our market currently. Most of our investors average about a 10% return AFTER expenses. Not only are many of these homes being bought at less than half of their value several years back, but many require little renovation to get them rent ready (we use a strategy called Perfect 10’s).
2) Good renters are abundant. Many people lost their homes during our real estate crash and MUST be more diligent in their current situation. Evictions are rare, and we have a great track record of finding good, quality tenants for our clients.
3) Arizona has landlord/tenant laws that are set up in favor of the property owner. If a landlord ever needs to evict a tenant, the process is generally quick and decisive.
4) Foreign investors have an even greater advantage with cash flow properties in Arizona. With the decline of the US Dollar, not only are they obtaining cheap properties with great returns, but they are also making a profit from the currency exchange alone. There may never be a better time for foreign investors to purchase cash flow properties in Arizona.
5) Cash flow is readily available in our current Arizona real estate market, and does not take years to generate as it did before. Also, consult your CPA about tax advantages of depreciating your Arizona cash flow investment property.
The main disadvantage with cash flow properties is generally the return takes longer than with a flip, and requires more long term attention. Still, getting a solid 10% return on a tangible asset, in a market that appears to be making a turn for the better is a pretty attractive option for the savvy Arizona real estate investor. If you are looking for a solid 3-5 year investment, Arizona cash flow properties are worth investigating. Let us show you how our Arizona cash flow real estate investors are putting their money to work for them, both in the single family and condo markets alike. The Arizona real estate market is going through some changes, and these opportunities may not be as attractive as they are currently for much longer.
Ask us about HUD Homes in the following areas: Phoenix, Peoria, Glendale, Surprise, El Mirage, Youngtown, Sun City, Anthem, Wittman, Cave Creek, Scottsdale, Fountain Hills, Carefree, Rio Verde, Paradise Valley, Buckeye, Goodyear, Tolleson, Avondale, Laveen, Litchfield Park, Awatukee, Tempe, Mesa, Apache Junction, Gold Canyon, Chandler, Gilbert, Queen Creek, Maricopa, and Florence
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