3 Rules for Buy and Hold Real Estate Investing in Arizona

If you’re interested in getting involved with real estate investing, you have a vast number of ways to go about it. Today, one of the biggest trends in real estate investing is purchasing cheaper properties in order to make renovations and flip them for a profit. However, one of the long-standing methods of purchasing properties with the intention of renting them out to generate a steady flow of income continues to be popular. Before you embark on this type of investment, there are several rules you need to learn so you can be successful in your real estate investment venture.

Establish an Exit Strategy

Although buy and hold real estate investing is intended to be used for longer term gains, it’s still important to have an exit strategy in mind, even before you begin buying property. By creating a plan for how or when you are likely to exit this type of investment, you can clearly get an idea of whether this type of investment is the right choice for you. It also ensures you have done your research and are fully prepared for your duties as a landlord. Be sure to consider what you will do if the housing market experiences another crash or what you intend to do if the property isn’t turning a profit as expected.

Utilize Your IRA

While most people try to get a traditional mortgage loan in order to fund their buy and hold real estate investments, this may not be your wisest choice. If you have a self-directed IRA, you are able to choose the ways your money is invested, including buying investment properties. You may be able to purchase residential or commercial property, as well as undeveloped land, as part of your investment portfolio through this type of IRA. However, it’s important to proceed carefully because you could incur tax penalties that aren’t worth the investments you’re trying to make. Keep in mind you won’t be able to live in the property if you take this path and you must have a balance in your IRA that can also cover future expenses, such as repairs and taxes. You also cannot give yourself a salary for managing the property yourself.

Evaluate the Property’s Potential

Just as you would carefully consider all factors before buying a home to live in with your family, it’s important to put the same amount of consideration into buying rental properties. After all, you don’t want to invest money into a property that is in a poor location that is unable to perform in a way that not only gets back the money you’ve spent, but also turns a profit. When you’re purchasing commercial properties to rent out, you will need to evaluate traffic patterns and ensure the right number of people have access to that property in order to attract customers. Residential properties should be located in areas in high demand and with reasonable average rent prices in order to be successful. These are all factors any lenders will also look at before they approve you for a loan.

Purchasing property as a buy and hold real estate investment can be a lucrative option, especially if you’re more focused on longer term investments. However, this isn’t a process that should be taken lightly. In fact, there are rules that should be followed and considerations to make to ensure you’re getting the best possible return on your investment.

10 Reasons the Arizona Vacation Property Market Is Attractive

If you’re looking to make some substantial side income or even switch careers to something more self-sufficient, then investing in vacation rental properties may be just the thing for you. And by taking the time to invest in a good property (and the right vacation rental management group to increase your renting ability), you’ll be able to not only earn a good income but also build property value, expand your net worth and just have some actual fun with work!

Of course, it all starts with knowing where to invest. Currently, one of the most promising markets in the country is Arizona. Here are 10 reasons why the vacation property market here is particularly attractive:

1. Affordable Property Tax

Arizona property taxes vary depending on property size and location, but in most cases they come out to an average 1.3 percent of the market value (most taxes fall between 0.87 percent and 1.5 percent). This is relatively low compared to other states (New Jersey has an average property tax of 2.44 percent!)

2. Lower Utility Costs

Property taxes aren’t the only things you’ll be saving money on. Monthly utility costs also tend to run low in Arizona, which is a huge benefit for rental property owners. Part of this is due to the fact that it costs a lot more to heat a home than to cool it down, and it’s no secret that heat just isn’t needed very often in Arizona homes, if at all.

3. Warm Weather Throughout the Year

Whereas other areas of the country are limited to welcoming high amounts of tourists only during peak summer and winter months, the weather in Arizona means it is a desirable location year-round! Our state gets some of the most hours of sun each year, and in fact, Yuma, AZ is officially the sunniest place in the U.S.

4. Growing Population 

Arizona has been undergoing a population boom in recent years, and now in 2020 it is the 6th fastest-growing state in the nation! This is leading to a stronger economy with an ever-growing amount of restaurants, bars and tourism destinations. And in addition to drawing outsides, it also means more Arizona residents that are interested in traveling around their state.

5. High Repeat Visitors

Once people visit Arizona, they want to keep coming back. Really, the term “Arizona Snowbird” exists for a reason!

6. Access to Property Management Companies

Especially if you are investing in more than one property, enlisting the help of a good vacation property management company is crucial to success. And thanks to the growing population and economy of Arizona, there are plenty to choose from. The right company will help your property get more exposure and build trust with renters.

7. Variety in Investment Opportunities

Whether you’re looking for an exotic desert getaway, a small valley cabin or a vibrant metro home, Arizona has it all. Price points and opportunities vary across the state, so you have an abundance of strategies to choose from.

8. Low Cost of Living

People love coming to Arizona because the day-to-day costs are often much lower than in other states. These lower costs will also help you furnish and fix up your vacation rental property into a desirable getaway without breaking the bank.

9. Transportation Options

Tourists and locals alike have more transportation options than ever before these days. Not only are there numerous car rental places just about everywhere, but Uber and Lyft are also very active in most cities. Buses also run throughout the state.

10. Proximity to Desirable Destinations

The Grand Canyon is particularly high on the list, but don’t forget about the plethora of other nature destinations here. Both Las Vegas and Los Angeles are also very accessible.

Differences in Arizona Fix and Flip Loans

Fixing up and flipping a house can be a lucrative investment, but first you need the investment. In the state of Arizona, many savvy investors use what are known as “fix and flip” loans to purchase and then quickly renovate a property to get ready for sale.

Keep reading to learn more about fix and flip loans and to determine what type may be the right choice for you and your project.

Why a ‘Fix and Flip’ Loan?

You may be wondering why you should consider a fix and flip loan as opposed to a regular bank loan. Well, fix and flip loans actually come with many advantages over traditional loans.

To start, fix and flip loans are intended for shorter designated periods of time and can even be approved faster than traditional bank loans. Experienced fix and flip lenders also do not require as much background investigation or have as stringent qualification standards as traditional banks, giving people a greater likelihood of getting approved.

Types of Fix and Flip Loans

There are three main types of fix and flip loans in Arizona. These include the following:

  • Hard Money Loan – this is highly convenient type of loan that is intended for people of all skill and experience levels (when it comes to flipping houses). Funds are approved (within 24 hours) and received quickly, allowing projects to get underway fast. While these types of loans do often come with higher interest rates, they usually include shorter terms that many people use to make a profit off of their house quickly.
  • Home Equity Line of Credit loan – A Home Equity Line of Credit or “HELOC” loan works kind of like a credit card. The investor is given a designated line of credit that is based on their existing property’s value. While the project is underway, interest is only charged on the amount borrowed during the credit line period. Now, it is important to note that this type of loan usually comes with repayment terms that may not be right for everyone: interest-only payment for the initial 5-10 years, followed by both interest and principal payment. Furthermore, while interest rates are lower, approval can take up to a month or longer.
  • Bridge Loan – This is a temporary short loan that is used only during the gap between real estate transactions. In other words, you can purchase a house you intend to flip without having to sell another property first. Interest rates are usually mid-range, but it’s worth pointing out that this type of loan often results in the investor having to pay two mortgages at once. And while the loan period is shorter, approval time may still take a bit longer than a hard money loan.

Which Loan is Right for Me?

The right kind of fix and flip loan for you will depend on a few different factors, namely your personal experience in flipping houses, the amount of time you have and the type of property. For example, those who need to close extremely quickly may benefit from a bridge loan, while those who need longer terms may look to a HELOC loan.

Nevertheless, hard money loans will be the right way to go for many due to this type of loan’s lenient requirements and fast approval / fund delivery. If you already have your project planned out and need financial assistance fast, this will likely be the best choice for you.

Are you ready to learn more about how a fix and flip loan can get your project underway? Contact the experts at Barrett Financial Group today!

Understanding Hard Money Lending in Arizona

Most people are well familiar with the traditional types of bank lending many individuals use to finance purchases like homes and vehicles. However, when you’re interested in real estate investing, there are other options you should explore. In Arizona, hard money lending is a viable option to help you more easily purchase the properties you want to use as either rental properties or to renovate and flip for a profit. Regardless of what type of real estate investing you’re interested in getting involved in, it’s essential to have a firm understanding of what hard money lending is and how it can benefit you.

What Is Hard Money Lending?

Traditional loans often require extensive credit checks and income verifications in order to be approved for the loan. This is where hard money loans are different. These loans are typically asset based and simply require you to have a valid property to put down as collateral. Hard money loans are most often obtained from individual investors or companies that specialize in this type of lending, rather than more traditional banking institutions. This means they aren’t likely to complete any of the income verifications and credit checks typically used to determine loan eligibility. Instead, they will look at the property you are interested in buying and put money up to fund the project as an investment. You are able to get the funds more quickly than traditional bank loans, but it’s essential to remember hard money loans are used for a shorter time, making them ideal for those who purchase properties, fix them up and sell them for a profit. In most situations, they are used to increase the value of the property.

How Do They Work?

When you’re ready to take on one of these real estate projects, you’ll need to put together a proposal that includes current details about the property, such as the purchase price and what type of property it is. This information must be presented to a prospective lender in order to let them see what they are investing in. However, it’s not just about the current state of the property. They will also want to know what types of improvements will be made, how much those will cost and a projection of the increase in value. This can help them decide whether your project is worth the investment. Rather than being concerned about your financial ability to pay back the loan through credit checks and income verification, they are far more interested in the value of the property and what kind of turnaround it will see. Because of the way these hard money loans are set up, if you fail to pay back the loan in the agreed upon timeframe, they are able to seize the property and sell it themselves to regain the money they’ve lost. This is why a collateral-based hard money loan can be beneficial to all involved without worrying about credit and income guidelines usually used to determine loan eligibility.

It’s important to note hard money loans typically only last between a few months and three years, giving you enough time to improve a property and sell it for a profit. Because the timeframe is so short, you can also expect higher interest rates, ranging between 10 and 18 percent. While this may seem like a disadvantage, the potential in this real estate investment opportunity far outweighs the interest rates.

Do You Need a Real Estate License to Flip Houses in Arizona?

The hit TV house flipping shows make it look so easy. You’ve probably thought to yourself; I can do that. However, don’t be fooled; flipping houses and making a profit doing it is not as easy as they make it seem on TV. That’s why it’s important to know as much about the business before going into it. For example, you’re probably wondering if you need a real estate license to flip houses in Arizona. Technically, no. There is no legal necessity for you to take the realtor exam before you can flip a house.

However, with that said, it is important to consider either teaming up with a realtor who has flipping experience or just going ahead and getting the license yourself. Why? Because, as we mentioned, house flipping isn’t as easy as it seems and you’ll want as much knowledge and as many skills behind you before you take a hammer to the wall, especially if you plan on doing this full-time.

How is Success Measured When Flipping Houses?

You won’t get rich overnight flipping houses. In fact, a flipper considers a flip a success when they get a 10 to 15 percent gross profit margin. Make a mistake that costs thousands and watch those numbers shrink. Make another costly mistake and you might not even see a profit. That’s why it’s recommended to do it right by getting a real estate license before going in.

Benefits of Getting Your Real Estate License to Flip Houses in Arizona

It really only makes sense to get your real estate license if you plan on doing this as a career. Otherwise, if you plan to flip a house or two and then move on to something else, there’s no need. However, if this is your new, chosen career, here are some benefits of getting a real estate license that ends in success.

No Agent Commissions

Without your own real estate license, you’ll have to pay a real estate agent commissions on the sale of the property, which can be anywhere from 5 to 6 percent.

You’ll Have a Better Understanding

There’s a lot to know about flipping houses, like getting permits, understanding disclosures, housing discrimination, and more. This can all get confusing to someone who doesn’t know the real estate business. However, when you get your license, you’ll have all this knowledge tucked away inside your brain ready and waiting for you to use at a moment’s notice.

Get Access to the Multiple Listing Service (MLS)

In order to have direct access to the MLS, you need to be a registered real estate agent in Arizona. You’ll want access to the MLS to find houses to flip in a competitive market. The hardest part of flipping a house is not the actual work done, it’s finding the right property to flip. When you have access to the MLS, you can set up notifications that alert you when a new, hot property is up for sale. This gives you an advantage in the market.

Networking

As a working real estate agent who flips houses, you’re going to meet all kinds of people in this business, like contractors and other professionals. The more you people you meet and the more houses you flip will build your network and you’ll start getting word-of-mouth opportunities across your path.

Buyer Trust

When it comes time to sell your flipped property, buyers will put more trust in you when they know you have a real estate license. The majority of Americans prefer to use a real estate agent to purchase a home than go it alone.

How to Get Your Real Estate License

States follow the same basic process for obtaining a real estate license, which includes ensuring your eligibility (age and citizenship requirements), taking the pre-licensing course, passing the state licensing exam, and then activating your license, which costs between $200 and $400. You will also have to pay for access to the MLS on an annual basis. In Arizona, this is about $225.00 per year.

Arizona Construction Loans: The Benefits of Short to Permanent Financing

Arizona Construction Loans: The Benefits of Short to Permanent Financing

If you’re like most people with a construction project (either in mind or already underway), there’s a good chance you need to secure a loan in order to get it all done. But just when you think you’ve gotten it all figured out, you notice that your loan options are anything but straightforward. In fact, most of them are downright confusing!

What’s makes the average construction loan so complicated? Well to start, a single construction loan is often not singular at all, but rather multiple loans (with different purposes) all tangled up. This is because the first portion of a construction loan typically only is used to cover the cost of the project itself (construction tools and equipment, labor, etc.), but other costs (like refinancing) are put into a separate loan later on that acts more like a conventional mortgage. Because the refinancing terms often fluctuate upon the project being completed, interest rates can fluctuate wildly.

The risk here is that borrowers often end up paying multiple closing costs and fees on these different loans. Likewise, the terms may be stricter for construction projects that don’t go exactly according to plan, and borrowers may have to take out additional loans as a result (or even face penalties). And let’s face it, most construction projects definitely come with unforeseen circumstances and the occasional surprise! In many cases, it means developers having to charge higher costs to new tenants upon the project’s completion, and they may not be able to refinance with the initial lender due to the initial terms being “broken”.

So, what’s the alternative?

Though you’d be hard-pressed to find a lot of information out there on short to permanent financing options (many lenders will push hard on traditional loan options because it’s how they make the most revenue), the truth is that this is the ideal form of construction project financing for many.

What is a Short to Permanent Loan?

Like other construction loans, a short to permanent loan is essentially two loans. However, they are put neatly into a single package that allows the terms to be more clear (or at least way more clear than the average construction financing plan). The first loan or “short” loan is used to pay for the construction, while the second or “permanent” loan is used as the mortgage for refinancing. The loan package all comes from the same lender, allowing for there to be less confusion.

In a nutshell, short to permanent or simply, “short to perm” loans have refinancing already built in, so there are no questions later on. This is crucial, as many other types of construction lenders change the refinancing terms during the project or they will not approach refinancing until the project is already been complete.

Benefits of Short to Permanent Loans

One of the biggest benefits with this kind of loan is that the risk is far less great when refinancing is already built into the loan package. That said, here are the key benefits that come with short to permanent loans:

  • Refinancing rates already set, so they will not risk going up should other circumstances change
  • Flexible terms that accommodate for construction projects that take longer than planned or go in a slightly different direction than initially planned
  • Usually a single closing cost for the loan package as a whole (rather than having them spread out through various loans)
  • Often lower fees (as a result of the single closing cost and neat loan package)
  • Protects you from financial ruin should the project not go according to plan, as refinancing terms are already set

For all of these reasons, we anticipate that an increasing amount of developers and construction companies will be turning to this lending option in the future. Interested in learning more about your short to permanent loan or other construction financing options? Contact the lending experts at Barret Financial Group today!

3 Things to Successfully Flip Luxury Homes in Arizona

Flipping homes has become a popular and lucrative investment for individuals across the country. While many people purchase cheaper homes to flip and sell, flipping luxury homes has been growing in popularity. In order to be successful in this branch of real estate investment, it’s critical to consider the following obstacles that are unique to flipping luxury homes. Read more

Buying, Selling and Holding Arizona Apartments at the Top of the Market

The Phoenix metro area is currently one of the healthiest real estate markets in the country. It’s particularly a great time to invest in a residential property with multiple units (apartment building) right now, especially if you plan on flipping that property for a profit or holding it and renting the units out to tenants. Here are a few tips worth following to make sure you’ll always stay at the top of the market when it comes to Arizona apartments:

Take the Current Climate into Consideration

Though our real estate economy is strong right now, the current climate is very much a “sellers market”. This means there is a lot of demand to purchase apartments, and so as a seller you are able to price your property higher and get more gross profit in return. If you are fixing up a property and plan on selling it, make sure you do so relatively quickly because things will not always stay this way. Depending on your current financial situation, you may want to consider doing a 1031 exchange to delay your tax liability.

Likewise, if you are planning to buy, you should be prepared to shell out a bit more than you might have originally intended because you’re buying in a sellers market. You also need to do your research to make sure you’re still paying an appropriate amount and will meet your ROI (return on investment) goals if your intention is to buy and sell or rent out. That said, while it may seem like a good idea to wait to purchase until prices go down, the truth is that there’s no telling exactly when that will happen. Besides, wait too long, and there’s the very real risk of losing the property to another buyer.

Know That It’s All About Location

Even though Phoenix is a strong real estate market overall, not every piece of property here is a worthwhile investment. The “hottest” areas to sell in are those that already have been established as a longtme desirable location or those that are “up and coming” or “transitioning” neighborhoods. Renters and buyers will always be most drawn to areas they can see a future in.

If you currently have a property you are interested in selling or renting out, take a look at the surrounding area and recent real estate sales history. This will give you a more realistic look at what you can sell the property for. In many cases, it may be higher than you initially thought! In situations where the estimates are lower, you may be able to save yourself from doing some expensive renovations that are otherwise unnecessary.

Make Sure You Have the Right Financial Backing

Whether you’re buying apartments, looking to fix up and sell apartments or are simply looking to increase the value of your current property, it’s important to make sure you have the funds to do so. After all, the last thing you want is to get caught in the middle of a project without the financial means to finish it! Waiting too long to finish can even mean missing out on the current sellers climate. Getting a bank loan is one way to remedy the problem, but it takes a lot of time to apply and get approved. Even upon approval, there may be stringent rules of the loan that you have to follow.

It’s therefore worth considering far more flexible and fast-approval options, like a hard money loan. Contact the Barrett Group today to learn more about your hard money loan options and how we can help you achieve your real estate goals.