Image of Commercial Real Estate Buildings in Arizona

As Arizona Begins To Re-Open, What Should We Expect From the Commercial Real Estate Industry?

The ongoing coronavirus pandemic has fundamentally changed the world as we know it. As countries around the planet began to shut down, states within the U.S.A.. followed suit. While each state followed its own set of guidelines, the country as a whole experienced a cumulative economic downturn. Now, months later, the state of Arizona is beginning to re-open as life returns to some semblance of normalcy. Unfortunately, life will be anything but normal for the commercial real estate market in the weeks, months, and potentially even years following COVID-19.

Understanding the Impact of COVID-19

While much has been made regarding the discussion of COVID-19s true impact on the country, it is hard to ignore the economic fallout that has taken hold in Arizona’s commercial real estate market. According to a vacancy report detailing post-COVID office vacancies, Arizona’s business sector is sporting Great Recession-levels of vacancy rates within traditional office buildings. A report compiled by the team at Costar projected that vacancy rates in commercial offices will remain between 11% and 15%. Seeing these numbers and understanding their impact are two different things. While only a sliver of the picture, this vacancy number gives us plenty to digest.

Let us briefly chart a few primary ways that the commercial real estate industry in Arizona will shift for the foreseeable future. As the state of Arizona continues to re-open, these expectations should be held for the commercial real estate industry:

  1. Space Requirement Changes – Living in a post-COVID world means acclimating to the new normal. Social distancing, sanitation, and large open spaces will dominate commercial property in the coming months and years. As OSHA and HR reps around the state adjust to these new regulations, expect businesses to need larger spaces for the same amount of work.
  2. Equalizing Rental Rates – As individuals struggle to make ends meet, there is an expectation that rental rates will reach an equalization factor. Landlords who are not beholden to debt or lenders that are offering amenable rates will do what is possible to keep their buildings fully staffed. As landlords compete to retain the best tenants, there is an expectation that flexibility in lending and renting can be met.
  3. Changing Operational Expectations – Industries that rely on call centers will also experience rather large changes in the way that they perform in the post-COVID world. Call centers will be expected to split shifts to reduce the footprint of their employees. Buildings will be reorganized and adjusted for CDC and OSHA regulations which could include the installation of filter systems, sneeze shields, and other sanitary safety measures.

While there is no telling exactly where Arizona will be on the other side of the COVID-19 re-opening, it does appear that the state is primed for a healthy launch. Arizona sports a warm and dry heat thanks to its geographical location. With plenty of room for potential land development and a healthy infrastructure for commercial construction, Arizona is in a primed position to succeed.

Home made of investment money

5 Reasons to Invest in Real Estate instead of Stocks

A good portfolio should be diversified. There’s stocks, bonds… but also real estate. In fact, most investors would be better off investing in real estate rather than other types of investment — for a number of reasons. If the volatility of the market has you hesitating to invest, consider a few of the reasons why real estate might be better.

1. Real estate is a more versatile investment.

You can make money through real estate in a few ways. First, there’s equity: It accrues value over time. Second, you can rent it out. Third, if you don’t want to rent, you can always just flip. Real estate gives you a lot of different opportunities to make money, so even if the market is changing, you’ll still find a way to profit.

2. Real estate fluctuates far less.

Real estate always goes up in value over time, compared to the stock market which frequently goes up and down. If you want an investment that’s never going to give you a heart attack, you want real estate. Even when real estate boomed-and-busted, it was over a comparatively short period of time, and it did rebound.

3. Real estate is something everyone knows a little about.

Most people have bought or sold a home whereas most people have not bought and sold a company. The fundamentals of a business can be very confusing, but most people know a little about what real estate would be considered valuable.

4. Real estate is both physical and finite.

Real estate is valuable for the same reason gold is: There’s a limited amount of it. There will always be a finite amount of real estate, which is why it’s always going to be more valuable than other types of investment.

5. Real estate gives you control over your investment.

You have direct control over real estate. If you want to make it into a business, you can. Your own effort in flipping a house or renting matters. But if you’re just investing in stocks and bonds, there’s very little you can do to influence the ultimate outcome of the investment. You’re at the mercy of the market forces.

That’s not to say you shouldn’t be invested in stocks and bonds, too. But in times of high volatility, it can be better to purchase something a little more secure. Real estate has long been a good investment during tumultuous times for all these reasons.

image of figurines of commercial real estate agents social distancing

Social Distancing Requirements Impacting Commercial Real Estate

When the first case of COVID-19 was diagnosed in the United States in January, it’s fair to say that the vast majority of people never thought it would lead to the nation being effectively shut down for the foreseeable future. Now over halfway through the year and restrictions still in place throughout most of the country, all kinds of businesses are being forced to adapt or go under. The commercial real estate industry is no exception, and it is important for all investors, property managers and building owners to know exactly what they’re dealing with.

It’s worth noting that, depending on the specific business operating out of a commercial space, there will be a variety of unique individual issues that need to be handled. In general, however, these are the social distancing requirements that need to be addressed in order for the space to be open and operational:

Ventilation is a Priority

All commercial spaces must have proper ventilation in order to help prevent Coronavirus spread. This means windows should be able to be opened, and ventilation systems may be in need of an upgrade. Many commercial spaces are also adding in fans and vents where none existed before.

Office Layouts Must Allow for Desk Spacing Requirements

Yes, a lot of offices are still sitting empty, with employees telecommuting from home as they wait out the pandemic. However, many others are going back to work in their office settings in order to increase productivity and communication. In order to do so, they generally must meet social distancing requirements by spacing desks out and seating employees so they face away from each other. Furthermore, cubicles are poised to make a comeback in lieu of the open offices that have become prevalent in recent years. Having divisions between work spaces is important in order to slow the spread of germs

On this note, many companies that are opening back up are even looking to relocate to larger spaces that allow for them to spread out. Conference rooms and walkways must also be expanded, allowing for coworkers to safely pass one another without coming into close personal contact.

Store Space Needs Are Changing

Most retail businesses now must operate at limited capacity and/or provide clear directional walkways for customers. Rather than sacrifice inventory and displays, a lot of retailers are therefore looking to expand their spaces when their leases are up.

On the flip side, other retailers that have been heavily hit by the pandemic are looking to downsize. They are looking for spaces where they can still effectively run their businesses with social distancing requirements in places, but within a smaller setup.

Cleanliness is a Must

All commercial spaces need to be cleaned more frequently now, meaning there must be easy access to cleaning supplies. Sinks are considered a plus, as are bathrooms that can be both easily cleaned and give customers and tenants more space.

Automated Features are a Welcome Bonus

Before 2020, the world was already making a gradual shift toward automation. From lighting to doors opening to even elevators knowing when to stop by themselves, automation has made great strides. Now with the ongoing pandemic, the fewer buttons and surfaces that need to be touched, the better. Automation helps promote as little personal contact and germ-sharing as possible, so it is likely that commercial properties with automated features will become even hotter commodities in the near future.

image of scale for flipping houses and money

4 House Flipping Myths That Could Cost You

Even with all the ups and downs of the real estate market, house flipping remains a lucrative endeavor. That said, anyone who’s been at it for a while will tell you that there are a lot of misunderstandings that could cost newcomers big-time. And the last thing you want is to purchase a house (even at low cost) and then go way outside your budget fixing it up, or worse, not be able to move it come sell-time. If you’re willing to put in a little work and flip houses the right way, here are 4 house flipping myths that must be avoided:

1. It’s a ‘Get Rich Quick’ Process

House flipping is nowhere near as easy as it sounds. The whole reason many houses are able to be purchased for lower costs is because they need quite a bit of work done before they become attractive to the market. It’s important to do your research on each house before buying and evaluating whether or not you are able to devote the time and money needed to fix it up.

2. A Coat of Paint Will Do the Trick

Going along with the above, it’s crucial to take a look at the actual structure and any hidden damage. Simply covering it all up with a fresh coat of paint and some other strictly cosmetic fixes can result in even costlier fixes down the line, or even a lawsuit if you portray the house to be something that it’s not. House flipping really is about fixing existing problems. There may be electrical, plumbing, insulation or other issues that need to be addressed before you can sell.

3. A Foreclosed House is a Great Flipping Option

At a glance, a foreclosed house may seem ideal because it can be purchased for cheap. However, it’s important to do your research first and have an in-depth inspection done. Houses are foreclosed because the people who lived there could not meet their mortgage payments or ran into other financial difficulties. This means they also likely let expensive fixes with the home slide and may have neglected its upkeep. There may even be some hidden issues neither you or an inspector will see right away.

4. You Absolutely Must Sell the Home

Did you know it’s actually just a myth that you need to sell the home at all? It’s important to take a serious look at the local market and gauge what your selling prospects are like. In many cases, it can actually be more lucrative to fix up the house and then rent it out to tenants. While you may not make a profit upfront, renting out the house long-term is means of bringing in steady income and can even result in bigger profits eventually.

The Bottom Line

House flipping is not for everyone, and it is not a project meant to be taken lightly. Many people work in house flipping as a full-time job, while others view it as a part-time job or serious hobby worthy of their time and efforts. If you’re willing to do the same and understand the myths, you can also reap the financial rewards that come down the line. If not, it may be wise to look into other endeavors.

5 Tips for Managing Out of State Rehabs

When you rehab a house in a state you reside in, it is convenient to do it because you live close to it. But how about when you rehab a home where you live far away from it? You will not be able to physically look at the work in progress and even walk through the property whenever you want to monitor that the work is being done as required.

How to Successfully Rehab Property Out of State

Two of the best scenarios you can use to rehab your property out of state is to:

  • Hire a contractor or property manager to rehab your home
  • You manage all the subcontractors, laborers, etc.

You can have a property manager handle all the repairs and rehab for you, or you can manage all the contractors, subcontractors, and laborers yourself.

The following are five tips to follow to ensure you successfully manage out of state rehabs.

1. Trust but Verify Everything

The key to rehab out of state is to trust but verify everything. Talk to your contractors, inspectors, and yard workers of the local area to verify that all the other workers work. You should also verify it with other people. Have before and after pictures of everything in the works send to you. Have your property manager check all the work being done on the property.

People on the ground should know you are checking on them and that you have eyes and ears on the ground for everything going on.

2. Don’t Pay Full Upfront For Work Done by Contractors

You may have heard of stories that a contractor is paid full upfront and he goes away with all the money. To prevent this from happening to you, you should follow a schedule of payment below:

  • Pay 10% of the price upfront for a contractor to get started
  • Paid 1/3 of the balance once a 1/3 of the work is completed
  • Pay another 1/3 of the balance once 2/3 of the work is completed
  • Make the final payment when the whole work is completed and verified

3. Manage Your Property Manager

For out of state rehab, you should have a property manager (PM). Look for the best one you can find, and have alternatives — in case you fire someone along the way.

Have your property manager handle all the repairs. There should never be a lack of communication between you and your property manager. Talk to your PM whenever you feel like to stay on top of your property rehab.

4. Manage Property Yourself

You can find, manage, pay, and verify all the sub-contractors yourself, although it can be hands-on and time-consuming. You can ask for referrals to find good subcontractors or search on the internet. Read reviews to help you decide if you should choose a particular subcontractor.

Call daily a subcontractor to stay on top of each job and get progress reports.

5. Have Proper Documentations for the State

Prepare the paperwork, schedule a meeting, and walkthrough with all parties to have proper documentations signed for the state. This also gives peace of mind that everyone involved is on the same page especially with regards to project details, time frames, and the budget.

To get started, carefully put across your goals and identify which rehab best aligns with your situation. Don’t be afraid to start small. Learn the process before taking on your first project.

5 Ways to Market Your Home Flip

When you buy a house and then sell it for a profit — that is a home flip. For a house to be considered a flip, it must be bought to quickly resell it. You will need a solid real estate marketing plan to attract potential buyers to your home. You can sell the house yourself or through a listing agent, but you have a common goal — to sell the house in the shortest time possible for the highest possible price.

To reach your goal, you need to attract the largest number of potential buyers. This requires you have a market strategy. To come up with a market strategy you will need to answer the following two questions:

  • Where are you likely to find buyers interested to buy your home?
  • Where do buyers look to find homes for sale?

Potential profit only becomes a reality when the rehab is done, the home is resold, and you have the cash in hand. Use the following smart rules they will help you convert opportunities efficiently and consistently.

1. Find a Knowledgeable Real Estate Agent

A good agent will provide the best possible deal for your home, and in the most convenient manner possible. You should look for a real estate agent who has lots of experience, both in the industry and in your local area in particular. A knowledgeable agent will lead you through everything to successfully get a buyer and will answer any questions you have and protect you against any hindrances that may arise.

You can ask around from friends and family for referrals or search through the internet for local agents in your area.

2. Timing Is Key

Spring and summer are often the busiest time for home sales, but that doesn’t mean you should list your house only at those times. Even though winter may have fewer buyers, a couple of factors will motivate them to buy, for example, when they need to move for a job and need to find a new home as soon as possible.

Market conditions are local, so if you invest in an area that has a strong seasonal element, for example, a beach town, consider that into your consideration as well.

3. Spread the Word

Even though your real estate agent will do a great deal to market your home, you can still chip in to help spread the word further. Talk to your friends, family, and colleagues about your home flip. Post pictures of your home on social media, including Instagram, Facebook, and Twitter.

4. Price Wisely

Your real estate agent will advise you on the best price to put on the home sale that will entice buyers, and give you a good return on your investment.   But also look at similar properties in your area to see what price they offer. This will give you a clue — homes that have been on the market for many weeks may be an indication they are priced too high.

5. Negotiations are Key

Agents, mentors, and mastermind groups will help you when it comes to counter, help you to know when to hold firm, and when to accept the buyer’s offer. Listen to their recommendations as they’ve seen it all before.

Make yourself scarce when it is time to show your home, whether by appointment or an open house. Your anxious presence or added comments will add an element of pressure and awkwardness that could discourage buyers. Let your agent handle the case for you.

Drive Personal Wealth With Real Estate Investing

While looking for a great way to drive personal wealth, you may have stumbled across real estate investing. While the learning curve is pretty steep, you can flatten it by doing you research before you jump in with both feet. And, while there are risks involved, it is far less risky than investing in the stock market. Investing in real estate is one of the best ways to further your personal wealth.

Appreciation

Long-term appreciation in property increases your wealth. Even if you live in the property, it will increase in value. If you bought a property for $100,000 and lived in it for 15 or 30 years, depending on the market, it could significantly increase in value.

Depreciation

Depreciation is the amount you can write off on your investment. This saves you money because you won’t have to pay taxes on that amount of income from your investment. If the depreciation amount is higher than the amount of cash you earn from the property, then you avoid paying taxes on your investment.

Inflation

The concept of inflation is difficult for some people to understand, thus they don’t think of inflation when investing in real estate. In a nutshell, inflation is when the value of money decreases but goods and services increase. Since your mortgage amount is fixed – for the most part – for the years you own the property and rents continuously increase, you can see huge results in wealth-building after just a few years.

Cash Flow

Once you buy a property and rent it, your tenants are paying the costs of owning the property. If your rents are higher than your outflows, you have cash flow. Outflows include your mortgage, taxes, insurance and maintenance of the property.

Forced Equity

When you buy a fixer-upper and make the repairs, you increase the value of the property. This is forced equity. With appreciation, you are at the whim of the market, but forced equity uses hard numbers. When you buy a property that is sold at lower than market value because of the repairs it needs, then you make repairs, you add to your equity.

Tax Benefits

Every dollar you don’t have to pay taxes on is another dollar that increases your bottom line. When you have real estate investment properties, you can take certain deductions that lower the amount of taxes you pay. The tax code changes often, so you should always enlist the help of a tax attorney or a CPA. Common tax benefits include deducting the interest on your mortgage and maintenance costs for your investment property.

Paying Down the Loan

Every payment you make on your loan decreases what you owe and increases your net worth. However, the initial payments are mostly interest. If you plan to keep the property for the long-term, you’ll increase your net worth over time. However, if you have the means, you can pay extra on the principal of the loan and increase your net worth much faster. And, because you are not borrowing as much over the 30 years, you’ll save on the interest payments. You can use any one of the mortgage payment calculators out there to see just how much interest you’ll keep in your pocket if you pay extra on the principal every month.

Combine any or all of these wealth-building tactics and, even with one home that you live in, you’ll find that you increase your personal wealth significantly. When you have several rental properties, you’ll find that you can drive personal wealth rather quickly if your initial investments are sound.

Real Estate Investing Tips For Beginners

You can make money in real estate by investing in four different ways: By real estate appreciation on properties you own, via cash flow from rentals, from commissions if you are a real estate agent or broker, and by investing in services offered in commercial buildings such as apartments complexes or businesses you have an interest in.

The Pros and Cons of Real Estate Investing

Buying property is one of the most lucrative aspects of real estate investing. However, there are risks involved. The risk is lower than the stock market and you could have steady cash flow. You also earn tax breaks and benefit from long-term ventures. However, the cons include:

  • Returns are not as high as those in the stock market.
  • You need quite a bit of start-up cash.
  • Properties are not easily liquidated.
  • If you invest in apartment complexes, maintenance and dealing with tenants are often challenges.

Tips for Beginner Real Estate Investors

Before you even start with your first investment, you should do thorough research on investing. These tips are just some of the factors you should know before you plunk down your hard-earned money.

1. Know and Understand the Costs Involved in Any Type of Real Estate Investing

Regardless of how you decide to invest in real estate, know what costs are involved. If you are investing in REITs, know if and what fees you need to pay. If you buy a property to flip it, make sure you know how much you will need to fix that property up so that you can get the best return on the property. For services, you should know what licenses your city, county and state might require. And, with any type of real estate investment, know how your investments will affect your taxes.

2. Determine How You Want to Invest

How you want to invest means you select certain property types. If you want to become a landlord, you can choose apartment complexes, commercial properties, or you can buy several single family homes to rent out.

3. Know Your Location

It’s easy to decide to buy a less expensive home in a less-than-stellar neighborhood. But, you have to take several things into consideration, including the value of the property. If you have to put $60,000 into a property to get it ready to rent or sell, can you get enough to make a profit? If you paid $25,000 for a house and put $60,000 in it, but you can only sell it for $75,000, you’re going to lose out. Furthermore, if you can only rent it for $500 per month, but your mortgage payment is $550, you’ll end up losing out instead of creating an income.

4. Risk Management

As with any business, investing in real estate comes with legal risk because you are dealing with people. Setting up a company helps you mitigate some of that risk. If you set up a corporation and have the properties buy the corporation, those who may want to sue you cannot come after your personal assets as long as you set the corporation up properly. You should always discuss risk mitigation with a business attorney. A company also helps you control and manage your finances since you cannot co-mingle the money with your personal money.

Plan to start out small. While there is a sharp learning curve when going into real estate investments, it doesn’t have to be intimidating. When you start out small and do your research, you’ll be more likely to succeed.

7 Basics of Serving and Selling An Arizona Real Estate Listing

There are a lot of different ways to sell a property, but there are some fundamentals everyone should follow. Whether you’re brand new to the world of real estate or you’re a longtime pro, it’s easy to get caught up in everything going on and miss out on some key details.

Today’s market is as competitive as ever, so make sure you’ve got the basics covered:

1. Price it Realistically

Even seasoned real estate veterans sometimes get over zealous with pricing, or worse, allow clients to get wildly unrealistic with the asking number. But local neighborhood values change every year, as does the market in general. It’s important to get the home appraised and look at actual selling history for the area. Go too cheap, and you’ll lose money. But go too high, and you’ll end up waiting a long time for a buyer to come around. 

2. Don’t Conceal Information

Appraisers will appreciate you be upfront about any potential issues or damage to the home, as well potential buyers. In fact, concealing such things could lead to a lawsuit down the line. Make what small fixes you can, and document the rest to have it on record. Doing so will also help build your reputation if you hope to continue in the Arizona real estate market.

3. Clean and Stage

When people visit the property, they should be able to easily envision what life could be like there. While you should never keep the place cluttered with furniture, it’s a good idea to have some accents here and there to help demonstrate the space for what it could be. Naturally, always clean the place thoroughly before any potential buyers see it. 

4. Don’t Neglect Exteriors

The inside of the property is crucial, but the outside is what potential buyers will see first. Especially in Arizona where so many homes have manicured front yards and stone gardens, an unkempt property sticks out like a sore thumb and won’t be appealing. You don’t have to go all out, but do make sure it is tidy with curb appeal. 

5. Take Photos Seriously

It’s astounding how many photos you can find on real estate websites that show left-out cleaning supplies or garbage, or are even snapped from awkward angles that don’t show off the space. Your listing will stand out and attract the most buyers with clean, clear photos. Arizona is known for its bright, sunny days, so there’s no excuse for snapping photos on a cloudy, dreary one that doesn’t put the property in the best light. Consider hiring a professional for the job.

6. Execute a Marketing Plan

Don’t just stick to one real estate website. Publish detailed listings (photos and all) on multiple high-traffic websites and consider spreading the word via social media. If you are a real estate agent, keep in mind that your marketing endeavors will not only help sell the property, but they will also keep the client happy with your efforts. 

7. Be Flexible

Sometimes potential buyers need to see the property after hours or have a lot of questions about it. Be open to flexibility, and schedule appointments based on the buyer’s interest and likelihood of purchasing, not your own personal schedule. Additionally, be at least somewhat flexible with pricing and know what your minimum acceptable offer is. 

Real Estate Investing Tips During Coronavirus

Over the years, real estate investing has become a popular option to strengthen investment portfolios and to create a passive flow of income. While this aspect of investing is constantly changing, major changes have recently taken place as a result of the Coronavirus. With many areas entering stay at home orders with fewer people venturing out and concerns over the virus in general, many types of businesses have slowed down. As you approach your real estate investing during the aftermath of this pandemic, there are certain tips you need to follow to ensure your investments continue to provide the return you’re looking for.

Don’t Give Up

Although it may feel as if the world has stopped entirely, it’s important not to give up on your real estate investing ventures. In fact, now is a great time to keep going because prices and interest rates will be lower and you’ll be more likely to get the properties you’re interested in. However, this doesn’t mean you shouldn’t make any changes to how you do things. It’s critical to remain flexible, learn how to obtain secure funding and continue to network, even if it’s online.

Increase Your Marketing

Even if it feels as if no one is buying or selling, the truth is a lot of people are in need of money right now. This means they’re more likely to let go of properties they don’t really need or they were holding onto for sentimental reasons for the sake of making money to live. Increasing your marketing efforts will help you reach these people and find properties for sale you might not otherwise encounter.

Buy for Less

Don’t be afraid to offer less than the asking price when you do buy property. Sellers are understanding people will be less willing to pay more for property at this time so they expect to receive these lower offers. However, keep in mind there’s a chance property values may continue to drop for a period of time, so you’ll need to be prepared to absorb that drop or wait until prices rise again before selling.

Complete Virtual Transactions

More companies are going to contactless interactions where they meet through video conferencing and telephone calls, rather than in person. It’s easy to look for properties online or list them for sale online. While people will want to see a property before they buy it, for the most part, you can complete most of the steps involved in buying and selling can be done virtually.

Prepare for Long Periods on the Market

You may be used to buying a property, flipping it and selling it for a profit in a relatively short period of time. However, this isn’t necessarily going to happen at this point in time. For many investors, buying properties you intend to rent out may be more lucrative for the time being. However, if you do choose to purchase a property you intend to sell, be prepared for it to spend a longer amount of time on the market before it sells. Higher priced properties will sell slower than lower priced properties.

Expect More Stringent Lending Requirements

Lenders are also tightening their belts. If the last housing market crash taught them anything, it was to be careful about lending money to individuals who are in a rough financial situation. They aren’t interested in falling victim to this problem again. Therefore, they have made it more difficult to qualify for loans, which can have an impact on your ability to purchase properties.