What if you could invest only a percentage of the cost of a home and make a substantial gain on 100% of the home’s value? If you make this gain over a long period of time you build a great deal of wealth.
When you own an investment property you have an increase in equity because your home is appreciating in value and the loan is being paid down by rents collected.
Your positive cash flow is a third source of profit. In addition, there are certain tax advantages due to depreciation and interest paid. Add it all up, and it is the soundest investment you can possibly make.
Four Principles that Make Arizona Real Estate an Outstanding Investment
Leverage – gives you the ability to take advantage of a properties value by only investing your cash at a portion of that value (i.e. zero to 10% or 15% down). Your property is worth $300,000.00 but you have only invested $30,000.00. You are using your leverage and counting on the property appreciating. Let’s say it appreciates by 5% per year. This gives you an appreciation value of $15,000.00 per year base on a $30,000.00 actual investment. Relying only on this strategy could spell disaster as many investors have recently experienced. They have tried to time the market to make a quick profit. This has led to disaster for many investors. The key is to learn how to take advantage of all four of the principles.
Depreciation – is a legal tax requirement for rental property. Currently, for single family homes, the land is valued at 20% of the purchase price and the home at 80%. The estimated value of the house is divided by 27.5 and is depreciated by those equal amounts for 27.5 years. Under certain annual income restrictions, this depreciation is tax deductable. This is a tax advantage for owning rental properties. You will need to check with your professional accountant to see how this would specifically apply to your income level.
Appreciation – is the increasing value of your property based on what people are paying for similar properties. The principle of appreciation tends to get all the glory. Unfortunately, this is often the only reason people invest in rental properties. The function of leverage is often overlooked. To be sure, appreciation will potentially create the greatest return on your investment, but by itself does not insure you have made the wisest investment decision.
Cash Flow – it seems has been largely discarded as an important concept by those who purchased properties as an investment vehicle over the past few years. Most people were only going for the greatest leverage and highest appreciation while essentially ignoring the other two important concepts of depreciation and cash flow. The market quickly became speculative and this led to a “gold rush” mentality. Cash flow is important because it insures that you have a true investment that pays you a return on a consistent basis.
NOW is The Optimum Time to Invest in Arizona Rental Properties
By balancing these four principles, one can make a prudent investment that pays high returns over a long period of time. Since properties can be bought at a price that is very low in the current market, this is the time to make a sound purchase using the wisdom of these four principles.
Steps to Purchasing a Home in Arizona
- Greater Phoenix Arizona First time Home Buyers
- Explore Loan Pre-Qualification
- Your Loan Options
- Choosing the Right Greater Phoenix Arizona Realtor®
- Your Appraisal Value
- First Offer Basics
- Your Home Inspection
- The Closing – Breakdown of Fees
- Title and Escrow
- Review Buyer Documents
- Why Hire a Greater Phoenix Arizona Buyers Agent?
- Free Greater Phoenix Arizona Buyers Agent
- Buying a Short Sale in Geater Phoenix Arizona
- Buying a Foreclosure – REO in Greater Phoenix Arizona
- Glossary of Real Estate Terms
- Handy Financial Calculators
Arizona Real Estate Specialists
If you are considering buying a home in Arizona, our goal is to provide you with expert advice and exceptional customer service every step of the way.
We focus on Arizona real estate in the following areas: