Arizona's Top Five Real Estate Investing Options

This is part III (the final section) of a series I wrote for publication regarding the Phoenix real estate investor market. I was asked the question: What are the best opportunities for real estate investment, why?

I responded that my clients are currently finding most success in these sectors:

Any area in which there is positive cash flow potential. Wherever an investor’s income exceeds expenses you’re going to have a viable market. It’s remarkable to me that so few pay attention to this detail. Of the many homes on the market today a minority have positive cashflow potential. I’m always on the lookout for these properties. Of course, I also advise the client to look for equity potential. Cash flow is good but you also want to be able to have a rise in equity over time. Some cash flow properties may offer minimal equity growth.

Homes near Arizona State University. Students need housing and the elderly also find amenities near colleges. If you look at the “days on market” and pricing at homes near major universities you’ll see that these areas have great potential- it simply requires due diligence to see which neighborhoods are better bets. Homes that are within "walking distance" are performing better than those that are within driving distance. The wild card in this is light rail. Some properties near light rail are beginning to "perform" as investment opportunities.

New Homes. Large builders quit simply have to sell sufficient quantities to satisfy their shareholders. The larger builders, those which are publicly traded, will tend to more aggressively price their homes. A drop in stock value of a few dollars could make for a dramatic devaluation of market worth so builder will do whatever they need to do to appear to be beating the odds… this includes discounting, incentives and allowing investors to purchase new homes. Whenever builders discount there are two opportunities: first time home buyers can enter the market. In some cases they’ll find that their mortgage is less than rent (even without factoring in the terrific tax advantages.) Investors, where allowed by builders, also discover an advantage … it’s sometimes possible to purchase new homes that rent for prices greater than their expenses. So… they have cashflow as well as a potential for an equity-build when the market corrects itself. Also- new homes come with warranties… there’s a lower likelihood of receiving that 3 a.m. phone call about the leaking pipes or other concerns.

Homes located closer to work. Arizona has become a commuter state. We weren’t that way before but it has become our new reality. People have become amenable to driving a greater distance if it meant they could get more-house-for-their-money. This is changing for many as higher gas prices and longer commute times become a part of the picture. I’m showing more homes in the heart of the valley than I was two months ago. In the well maintained urban areas I’m seeing that prices are beginning to rise and homes are selling more quickly. The competition has heated up and buyers are far less likely to make low offers. It’s too soon to know if this is a market correction or a short term trend but I’m guessing we’ll see more of this for the next few months.

Land- In my opinion, this is the biggest speculative area right now. For those who have cash and can afford to sit and wait there are some bargains out there. For those who need to borrow they’ll discover one thing: banks don’t quite know how to value land right now. They’re far more comfortable assessing the value of land with a building. Then they can compare the use against similar residential properties or business. Land without tenants, or a commercial purpose, are a wild card. I’ve seen appraisals come in with prices that are all over the map. Large scale investors have been buying up land as secretively as possible in the past year. Although there are many bargains out there as some cash strapped people are selling off property … land near fast growing cities, and highways (current and planned) are becoming harder to find at a low price.

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Looking for property in Arizona? Search the MLS at my site: www.AZvest.com