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Excerpt from:  Phoenix Real Estate Investments
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15% Return Cash on Cash On Phoenix Real Estate

November 21, 2009

Easy money in real estate is an illusion and don't let a $1,000 plus real estate course tell you otherwise, especially if they tell you someone else will do all the work.

Did you just take a class on real estate investing?  You were told to look for properties with a cash on cash return of 15% on a none leveraged property and to gather 3 of each, title company, lenders, real estate brokers, inspectors, and so on? That Phoenix may is a good place to find these properties in plenty?

Here are the common requests.

  • A good property in a decent to good neighborhood or better.
  • Light cosmetic fix up.
  • Property management included in analysis.
  • Before tax return of 15% cash on cash.
  • No appreciation included in the analysis.
  • Un-leveraged purchase: Cash.

Please don't expect anyone else to find such a good deal for you, because a property that gets you that much of a return with the above characteristics is so good and rare that anyone that will pass it along to you is out of their mind: it's that good of a find. 

Is it possible?  Yes, but...  Yes it's possible to get such high returns and 15% is very high for a real estate asset just based on pre-tax cash flow.  That is a gold mine.  The but of it is that you'll have to look really hard to do it and your unlikely to find it on the open market and especially on the MLS through a Realtor: it will not be a regular purchase.

Those kind of returns take some savvy work and knowledge: that means going to the public auction, buying directly from distressed not caring owners, buying in bulk, or a complete dump with tons of fix up, amongst others. 

Now if you leverage then yes you can get closer to 15% cash on cash the second year, though more likely it will be 10-12% in a very good situation.  You can get it by buying a foreclosure at the auction, flipping it, wholesaling it or holding it, but your not going to get it easily, because you're not the only one looking for it and there is a limited supply at any one time.

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Comments
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RE: 15% Return Cash on Cash On Phoenix Real Estate

to received that return on cash you need to really work hard on it.
by Ask Mr. Cash Flow | November 23, 2009 | link to this
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Illusions of grand opportunities in Phoenix

Artur and Joanna,

I have been following your blog for sometime and find it to be the best I have seen in the Phoenix market.  I appreciate your knowledge and the fact that you share it with all of us. 

This article hits on a real illusion that many people have about the Phoenix market and should hopefully open people's eyes to the reality of this market and investing. 

Keep posting and I will keep reading and learning.

Ken


by Ken Flynn | November 23, 2009 | link to this
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Investment Returns in Phoenix

Ken,

Thank you for the kind comments.  Really what we want to do is for our readers to be better informed about buying and selling real estate and as it often happens people from other states don't really know the reality here: good or bad.  This is so for the culture, the lifestyle, the weather as it is for the investment opportunities.  

What prompted this articles is the many calls I've received form investors in other states and Canada that see this as a land of opportunity for easy money, that returns are high and easy with minimal work.  Yes, there is money to be made here.  What's wrong with a 7 cash on cash return with the criteria noted above.  That is a really good return in a flat market and can be a good catalyst for building wealth over time with minimal risk.  

You can make more.  A friend just picked up a property at a trustee sale for cash, re-furbished it and sold it resulting in a 70% cash on cash return, annualized, but he did much of the work, he organized, found, and worked hard on it, not someone else.  So the real return even then is lower when you consider the value of his time which should be considered an expense.
by Artur Ciesielski | November 23, 2009 | link to this
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