Initially, Arizona seemed immune to the housing slump that began plaguing the United States at the end of 2007. But Arizona resident’s rising confidence in their local economy stemming from their state’s apparent economic immunity was quickly snuffed out; as Arizona soon became one of the hardest hit states in the nation. As a result, the state has become a hotbed for investment property.
Is Arizona a Smart Area to Invest In?
You bet. In 2007, when the recession started, Arizona listed 69,970 foreclosures at the end of that year. By the end of 2008, Arizona had the third highest foreclosure rate in the nation. A total of 116,911 homes went into foreclosure in that year. Since 2008, Arizona has continued to remain one of the top three states reporting the highest foreclosure rates in the nation—until 2013. Arizona has finally moved from the top three into the top 10.
With so many home foreclosures, thousands of Arizona homeowners’ have been left with no other choice but to rent. These families aim to remain in their local communities where their kids can attend the same schools and they can continue working and living in the neighborhoods they know and love while trying to recover financially from the stain of a foreclosure on their credit.
Today the Arizona housing market is slowly moving out of its slump. Homes are currently listed at prices not seen in over 10 years. Many of them at or below what it would cost to build them. Interest rates are incredibly low, and the vast majority of homes forced into foreclosure have nothing more than cosmetic damage—quickly, inexpensively, and easily reparable for return on investment within five to 10 years.
Which Arizona Cities Are the Best for Investment Property?
A 2012 HomeVestors survey ‘100 Best U.S. Markets to Invest in Rental Property’ listed the Phoenix-Scottsdale area as #8 on their list and the Tucson area as #22. And things haven’t changed much. The Phoenix area is especially good for short-term investment properties, but in both cities you are very likely to get good return on investment.
Is It Better to Rent or Flip?
Either option is a good choice in the current Arizona economy. It just depends on whether you want long-term cash flow or a quick return on your investment. Home prices are low and rental rates are high. Either way you slice it, an investment home in Arizona is going to pay off.
If you choose to invest in a rental property, it has now become cheaper for Arizona buyers to own than to rent because rental properties are in such high demand. This means that your tenant will pay you more than the mortgage is worth to rent your home. Which translates into you pocketing some extra cash. Plus, operating costs and interest payments on an income property are tax deductible.
If you buy a home to flip you could potentially make a lot of cash. Home prices are incredibly low, often selling at or below cost, and with a few cosmetic fixes you could flip the home for a good profit. The Arizona housing market is projected to significantly improve within the next 10 to 15 years. If you hang onto your property for a few years, you are likely to get an even bigger return on investment.
Before You Take the Plunge
- Look for properties selling at or below cost. This way you will have the highest return on investment possible.
- Know you may have to manage the property for 10 to 15 years. You never know how long it might take to earn the return you want.
- If you are renting, decide whether you can manage it yourself or need to hire someone. If you are investing long distance, it is recommended you hire someone else to manage your property.
- Have financial reserves just in case.
- Determine what you want out of an investment property—long-term cash flow or a quick return on investment.
- Understand that any time you invest there are risks involved, as well as rewards.
If you think you’re ready to buy an investment property, you are making a smart move. Real estate investing is a good way to grow your money when compared to other investment opportunities. In Arizona, you have an especially high chance of success. If you’re seriously considering purchasing an investment property, now is the time and Arizona is the place.
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