A great investment property is one that has the potential to provide strong returns and appreciation over time. Here are some key factors to consider when evaluating an investment property in Arizona.
- Location: Location is often the most critical factor in real estate investment. Look for properties in areas with strong demand, such as proximity to schools, job centers, public transportation, and desirable amenities.
Lindsay Fleet adds, “I have found successful investment properties are located in communities that out-of-state clients know by name such as Grayhawk, DC Ranch, McDowell Mountain Ranch, McCormick Ranch, Gainey Ranch. Scottsdale and Paradise Valley tend to be the two most popular cities that are sought out for vacation rentals due to their close proximity to the airport, activities, restaurants and shopping. While AirBnB's do well and are still very popular, I personally feel stronger about a longer term, ‘snow bird’ situation if you’re looking to invest, i.e. people who are looking to stay for the winter months in gated communities that offer amenities.
- Property type: The type of property you invest in, such as single-family homes, multi-family units, commercial buildings, or vacation rentals, should align with your investment goals and risk tolerance.
- Market conditions: Analyze the current and future market conditions in the area where you're considering investing. Look at factors like job growth, population trends, and the local economy to assess the potential for property appreciation and rental income.
- Property condition: Consider the property's current condition and any necessary repairs or renovations. Calculate the cost of these improvements and how they will impact your overall return on investment (ROI).
- Cash flow: Calculate the potential rental income and expenses, including property management, taxes, insurance, and maintenance costs. A positive cash flow property generates more income than expenses.
Steve Kanefsky offers “Investors need to move quickly once they have the property, especially if improvements need to be made. The longer they carry the property, the more it will cost them in carrying costs and reduce their profit margins. The property needs to be well under market value for an investor to be profitable. The budget needs to include a future sales price with enough room for 3 things: profit, improvements, and closing costs."
- Financing options: Evaluate your financing options, including mortgage interest rates and terms. The cost of financing can significantly affect your investment's profitability, so a cash purchase can be the safer investment.
- Appreciation potential: Look for properties with strong appreciation potential, which can increase the property's value over time. Historical data and market trends can provide insights into potential future appreciation.
- Market rental rates: Research the local rental market to understand typical rental rates for properties similar to the one you're considering. Ensure that your property can command competitive rent.
- Property management: Consider whether you will manage the property yourself or hire a property management company. Efficient property management can save time and reduce stress.
- Risk assessment: Assess the risks associated with the property, such as potential vacancies, market fluctuations, and legal considerations. Diversifying your investment portfolio can help spread risk.
- Long-term goals: Define your investment objectives, whether they involve short-term cash flow, long-term appreciation, or a combination of both. Your goals should guide your investment decisions.
- Tax implications: Understand the tax implications of your investment, including property taxes, depreciation, and any tax benefits like deductions and credits.
- Exit strategy: Plan your exit strategy in advance. Whether you intend to hold the property long-term or flip it for a profit, having a clear strategy is essential.
- Due diligence: Conduct thorough due diligence, which may include property inspections, title searches, and a review of all financial documents and contracts related to the property.
- Market knowledge: Stay informed about real estate market trends and local regulations, as they can impact your investment's performance.
Last but certainly a very important factor: Profitability. Andy Schiesl notes, "Historically our investors have looked for a 10% net annualized return for their rental properties. In the last 2 years, the returns on virtually risk-free money market investments and CDs have gone up dramatically to the range of 5% - 6%. This has resulted in rental property investors seeking a higher annualized return of 15%. It is critical that if you are considering a rental property investment, you seek the advice of a real estate firm that has a lot of experience with these types of transactions to ensure that the profitability will meet or exceed financial expectations".
Remember that what makes a great investment property can vary based on your individual financial situation and investment goals. It's essential to conduct thorough research and work with professionals like real estate agents, lenders, and inspectors who are knowledgeable about the Scottsdale market. Additionally, consult with an attorney or tax advisor to understand local laws, regulations, and tax implications related to investment properties in Scottsdale.
