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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.

Complying with Arizona HOA Rules on an Investment Property

Those who are members of an HOA often pay close attention to following the rules, especially if they are currently living in the home. However, if you invest in property that is under the governance of an HOA, it can be more difficult to keep up with the regulations and make sure your tenants are keeping up with the rules so you don’t get in trouble. After all, it’s the homeowner who is responsible for making sure the HOA regulations are followed precisely. In addition, it’s important to make sure you understand what’s required if you intend to make any changes to the property.

Keep a Record of the Rules

When you first purchase a property, you should get a copy of the HOA rules to read through so you understand what’s expected of you. It’s important to always keep a copy of this list on hand so you can reference it and determine if there is an issue that needs to be addressed with your property. This is especially important if you purchase the property with the intent to flip it and resell it. In this situation, it’s important to know whether you are allowed to park a dumpster at the property for your demolition needs and what types of changes you can make, as well as whether approval is needed before you proceed. If you do intend to rent out the property, be sure you supply your tenants with a copy of the HOA terms, so they are more likely to follow them.

Understand the Fees

Every HOA operates differently so you’ll need to carefully read the terms to ensure you understand how often the fees should be paid and how much they are. Some homeowner’s associations charge the fees once per year, making it easy to pay them and forget about it until the bill comes the following year. However, others may charge on a quarterly or even monthly basis. If you intend to flip and sell the property, you may end up not having to pay much in terms of the HOA, but if you will be renting out the property, this is an obligation you’ll have to meet, whether you require your tenants to pay it or you pay it yourself. It’s important to determine how you will handle this aspect before you make the purchase and begin the process of investing in property.

Make Sure the Home Meets Codes

In many situations, the codes set forth in the HOA guidelines vary from the safety codes put in place by the government when it comes to building a home. This is why it’s critical to read through the HOA documents so you know what you are capable of doing to change the home. In fact, it’s important to remember just because you purchased a home that falls under an HOA doesn’t mean it is currently fully compliant with the regulations. Sometimes homeowners make changes that aren’t approved by the HOA, but they haven’t been uncovered at the time. If the HOA determines the house is outside their regulations while you are in possession of the home, you are the one who will get in trouble, not the previous owner. Therefore, in addition to making sure any future changes you intend to make are in compliance, you should go through the home with a checklist to ensure everything is up to the proper standard, making note of any changes you must make to achieve that goal.

Purchasing an investment property that is covered under an HOA has plenty of advantages, but it can also be difficult to make sure it remains under compliance, especially if you plan to make changes or you will be renting out the property. Be sure you read through your copy of the HOA terms carefully and ask any questions before you buy the property, so you don’t face any surprises later down the road.