Investing in Arizona Real Estate
By guest blogger Shane Cook, ABR®, CIPS, GRI, ePRO®
I was recently asked if investing in real estate was as good an idea now, as it was when I started.
Well, I got started in 1998 with a $400,000 private investor loan at 12-percent and my father as a mentor. That business grew and changed over the years before reaching about $21 million in private investor funds, $40 million in bank lines of credit and wholesaling foreclosure properties in six western states before the bubble burst.
Today, we are in a very similar place to where I started off, maybe a little further along in the cycle, but close. Statistically, a lot of Arizona homes under $250K bottomed out around September 2011. Certainly the late 1980’s and early 1990’s were a much worse real estate atmosphere than the late 90’s; interest rates were relatively low then and they are at historical lows now.
Mortgage lenders are once again loosening up their underwriting criteria and creating riskier paper than they were two years ago. I have heard that many of the small and larger portfolio buyers from 2009-2012 will begin liquidating them now that some are looking at doubling their investment already.
I am currently working with a buyer on a small portfolio that fits exactly that scenario. An investor acquired homes from 2009-2011 for mostly cash in various ways, he sold to another group for a healthy profit and carried the note for $700K+ in 2011.
The current sellers are grossing over $300K on a $1M rental-pool purchase and sale, on top of the income they made the last five years from rentals — and the original note holder is going to rewrite the note for the new buyer at a better loan-to-value ratio and rate. Everyone is happy and my buyer is also.
They plan to hold for at least two years from purchase before potentially liquidating the portfolio for additional appreciation capture and the positive cash flow between now and then. They certainly believe it is a great time to be investing in residential rental real estate assets in Arizona. I would have to agree!
Rates are very low and if you qualify for rental purchases, that is a big deal — it is one of the main factors in determining your expenses and profitability. Prices have still not returned to pre-bubble levels and many of the portfolio sellers will have the capability to be lenders on the sale of their assets. Now is a great time to find positive cash flow investments with institutional or seller financing.
There are certainly other factors to a good return on your real estate investment like who and how your repairs are done, how the properties are managed, how the properties are prepared for sale, or how you manage your financing.
During my research for this article, I was introduced to a concept called “chunking” that I found fascinating. If you have income and equity in a property, use a home equity line of credit (HELOC) to pay off/down the amortized mortgage instead of refinancing.
The difference between simple interest in the HELOC and amortized interest in the mortgage can really add up over time, especially if you pay more than just the interest on the HELOC and then reboot or withdraw from the HELOC every so often to pay down additional amortized principal.
Some of the scenarios I ran paid off a 30-year mortgage in 15 years and saved more than $10,000 in interest.
Related story: What? You’re Not Investing in Real Estate? – REALTOR®Mag (Nov. 22, 2016)
Commercial & Residential REALTOR® Shane Cook was 2015 SEVRAR REALTOR® of the Year, serves on the 2016 AAR Board of Directors and sells for UBG in Chandler. Tags: chunking, first homebuyers, HELOC, investing, investor, loan-to-value, LTV, Shane Cook