August 23, 2008: Buy low? Sell high? You can't sell high for now, but prices are low enough that a buy-and-hold strategy could pay off handsomely
Last week I met with a potential real estate investor. She's an investor because she's got the money, the credit and the will to dip her toe in the water. She's a potential investor because she hasn't yet been a landlord.
With new investors, I talk about premium suburban single-family rental homes. This is normally the safest, most economical way to start a real estate investment plan in Phoenix. That's especially true right now, when the right rental home will be cash-flow positive from the outset.
But I also talk about other income opportunities in real estate, if only because land-lording is not for everyone. I would not advise a first-time investor to take the plunge in a large multi-family community or a strip mall, but there are plenty of other ways to take advantage of our current market conditions.
An example? Flipping. There never was heard a more discouraging word, but flipping has a horrible reputation because a horde of TV-educated tycoons bought at the top of the market and sold their refurbished masterpieces at auction. Now, when entry prices are low and trending lower, a slow flipping strategy promises nice rewards.
Here's one slow strategy: Find a great flip candidate at a rock-bottom price. Buy it to own as a rental. Hold it in that state -- with the monthly cash-flow covering your costs -- until prices recover to your satisfaction. Then do the refurb and sell.
Here's another one: Buy your cheap refurb candidate and move into it. Redo the home slowly, room by room, especially when the materials for doing a particular room are very cheap. Sell it after you've owned it for five years or more and take the capital gain tax free.
There is a common investment idea behind these strategies: Buy low. Sell high. You can't predict when you'll be able to sell high, but you know for sure you can buy low right now. If the investment property is either self-amortizing or your own residence, you can afford to wait for the market to turn.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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