This is from my Arizona Republic column (permanent link):
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.
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Sam Chapman says:
Thank you for a sensible post. Too many “investors” just don’t use what should be common sense. They watch the infomercials and look for “deals” or want to flip and they won’t listen to good agents. I just wish info like what you posted would find a way to get out to more people.
August 23, 2008 — 8:33 am
Joe Manausa - Tallahassee Real Estate says:
Greg, I agree with you that most real estate strategies are back in play now with prices so low and interest rates at a level that we might not get to enjoy much longer.
I personally favor the buy and hold strategy. Use fair leverage, turn it over to a great property manager, and ten years from now you’ll look like a genius. That is my message to investors today, and has been for the past 17 years. As you mentioned, the TV show “flipping” mentality has hurt an investment vehicle that has served generations for many years.
Keep up the great work. I will keep enjoying your blog from afar….
August 23, 2008 — 12:09 pm
Jeff in Hawaii says:
Hey Greg – That is excellent advice with a lot of common sense. I always buy something that can be rented out long term and not dependant on the market conditions.
Can you really get properties in Arizona with cash flow? If so, how much down is required to achieve this? I am going to be jumping in and buying investments within the next year. I am in Hawaii and it is very hard to do that.
One more question: What is the Arizona property tax rate?
I look forward to your response.
September 1, 2008 — 5:02 pm
japan real estate says:
some very good advice on strategy. we have found the amount of successful flip sales have been dropping over the last few years as consumers catch on.
November 4, 2008 — 2:33 am