Investing

Investors are a huge segment of the current buying group gobbling up inventory as if their hunger were insatiable. Every few months I post a graph showing what percentage of the market is investor buyers.  Last time this information was posted it was high: near 22%. Since then that number has increased to as high as 29% as it's at 265 at last count, earlier this month. 

Also over 40% of sales are cash and i'm sure investors make up a greater than 50% of cash sales. Most of our investor clients are cash or combination of cash and loans when they are purchasing multiple homes.

The buyers who are not investors have some resentment toward investors when they learn about these numbers, often comparing this trend to the trend that brought down the

I've been a real estate investor for a while, over a decade now, that's how I got into the real estate industry then into being Realtor full time. Going in I knew it could be a rocky industry and it has been. I also knew there were many ways to generate income as an investor: both passive and active. I'll skip the active here because what that really is is a job in itself, not investing and I want to concentrate on investing and one particular example of how well it can work, especially now.  

The example below is based on an actual property that I personally purchased in the last 6 months. I'm using it because I know all the numbers, inside and out, but I won't disclose the property address and I don't keep real estate in my name either. 

The

Depending on the property water bills will very a lot of a little, but many of the factors are in your control. Most 3-4 unit properties will have this basic set up. Owner pays water - sewer and trash. Anytime a tenant does not pay for something it will be subject to overuse and in some cases abuse. That means if the toilet is leaking it will lower your income and increase expenses, but you're unlikely to know about it for a while since the tenant really has no motivation for letting you know, unless you make it easy for them to do it, or if you ask. 

For a basic property with no grass to water, with desert landscaping, expect bills to run at an average of $40 per unit.  This can rise dramatically if you have grass and it can be enven higher if the

With the improvements in the Phoenix real estate market, investors have increased their activity. The graph below charts sales to investors from 2001 to now. 

The last year has seen about 25% of the properties go into investor's portfolios and the last recorded month that jumped to nearly 30%, that despite the number of properties sold dropping. 

Keep in mind that the only reason the number of properties has dropped is lack of inventory. 

Investors are coming from around the world to take part in Arizona's real estate recovery and the current path the wealth building. 

Just to give you an example of our client base: China, Poland, Australia, New Zealand, Canada plus many investors from different states in the U.S.

I'll say it right out. It makes me nervous when investors come from out of town and want to invest in small multifamily properties like triplexes, fourplexes or even a little larger units with the intent of hiring a management company.

I cringe and almost feel like declining helping them, because I don't want them to get into a situation that most out of town investors get into with hiring management companies.

However it is possible to do this thing, but...  First let me get into the common issues I've seen over and over for many years and I'll follow up with some possible alternatives. 

Common Problems

The common problems you'll notice come across is that the management companies have a different goal then you do and a different way

When buying income multifamily properties most investors prefer to have apartments that are leased. It means instant stability, instant income to cover the expenses and it means less hassle up front with having to market properties for rent, checking tenants out, preparing the units and organizing move in. 

For the most part it's often good to have units leased, but there are cases where it may be better just to have a vacant property.

Note: When buying 2-4 unit properties vacant properties are not worth less then ones with tenants. The value is not as dependent as with large complexes in the commercial realm.

Traditional Sales

When purchasing a property sold traditionally from an owner who has had it a while, many years and is not in

There are different ways to approach income property investing. Some go for the low income high return and high maintenance properties and others prefer low maintenance, good return stable properties and there are many approaches in between. All are good with their own respective pluses and minuses.

The Arcadia area in zip code 85018 has a more premium selection of multifamily properties, it is an in demand area by both renters and home owners and home prices can quickly go well beyond the market average of $86 per square foot the hundreds per square foot. 

A stable income property is even more important for those who are investing with a self directed IRA. Not everyone knows this, buy stocks and commodities are not the only things you can invest

Investors continue to find Phoenix real estate attractive. The data show this and even our business is heavy with investors from all around in fact: Canada, Poland, China, not to mention investors from other states like California, Oregon and Washington to name a few. 

Those little red dots in the above graph show the percentage of homes sold to investors and that number remains, as it has over the last few months, above 25%. So 1 in 4 residential properties sell to an investor. The only reason volume is down is because all of the inventory is down and it's getting harder to find homes to buy.

Interestingly and probably not coincidentally the proportion of properties purchased by cash has also been high. There is a lot of cash out there.

Since many of our clients are investors the state of the rental market is fairly important as it will influence not only the price you pay, but also the return on the investment.

The most recent data via the newely formed Rent Check by the ARMLS shows the following:

Median Lease Price: $1,099

Average Lease Price: $1,271

Average Days On The Market: 41

Below is the partial data from July to December for each year from 2008 to 2011 with the number of units leased.

Many real estate investors gloss over some of the most profitable real estate investment properties simply because they don’t understand them. The either hit the single family home route or just go big, but many times some of the most profitable properties are right in the middle. You don’t have to get the 50, 100, or 150 unit properties to start reaping nice return.

Smaller multifamily properties can be very accessible and very profitable, they are essentially everywhere, they are easier to purchase and sell for that matter.

So let’s define small and medium multifamily properties. Small would be 2-4 units and would even fit into the realm of residential financing which is often easier to get then commercial money with lower down payment