One of the most attractive attributes of real estate investing is the number of different ways in which you can profit from different strategies and involvement. If you're considering real estate as an investment class in Arizona, or if you're already into real estate but exploring strategies, below is a ladder of risk and reward of the most popular strategies.
LOWEST RISK: Rental Property Ready-to-Rent
LOW TO MODERATE RISK: Real Estate Wholesaling to Investors
This risk profile is based on proper execution of the process. This means having one or more buyers whose requirements you know that are ready to take the Arizona property off your hands quickly. You're selling it as you found it, no fixing, just a buy-and-sell transaction. By cultivating your buyer list, you are just taking orders for properties they want for a fix and flip or rental investing.
MODERATE RISK: Real Estate Fix and Flip
This investor, like a wholesaler, is usually selling to another investor. In this strategy, it's usually a rental property investor who wants a rent-ready home. The fix and flip investor knows what his buyers want and their preferred neighborhoods.
Moderate to High Risk: Fix and Flip to a Rental Hold
You're buying and fixing up a property, but you're doing it for yourself. The reason for the higher risk is the number of variables you're throwing into your process and strategy. First, you must do the rental analysis of the local market. Once you know what type of property will rent and for approximately how much, you have these variables for challenges:
- You need to locate properties in need of repairs, often extensive, that will have an ARV, After Repair Value that works for your rental property plan.
- Your costs of rehab, including funding, project timing and duration, and a tight project budget, are all tricky and you need to handle them well.
- Negotiation skills to get the property at a price that allows for the rehab at total costs below the current market value of the property.
- Skill in project management or in budgeting for skilled management to get the work done on time and under budget.
The lowest risk strategy in this article is buying a ready-to-rent property in Arizona. Your skills at estimating value and rental income and expenses are the basic requirements, as well as buying at the right price. The other higher levels of risk in the ladder have to do with others you involve in the process and extra steps and project budgeting.