Guide to Real Estate Investment Risk-Reward in Arizona

Real Estate Investment Risk-Reward Ladder in Ariona

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

There is risk in every investment, and rental real estate isn't any different. However, the least amount of risk is in buying a rental property either already in rental service or with a full projection of rental income and expenses.
 
If you can locate or evaluate a promising residential real estate unit that will cash flow with positive monthly income and appreciate in value over time, there is little risk in this Arizona investment. Your structure is insured for replacement cost, and the land is yours even if the structure is destroyed. You have little interest rate risk, as your mortgage is at a fixed rate. You have little inflation risk, as inflation drives up home prices which usually does the same for rents.
 
Our real estate team has been in the West Valley for 40+ years. If you need help locating the right low risk investment property in Buckeye, Scottsdale, Phoenix or other surrounding suburbs call 623-386-8762.



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.

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Because you know what they want and what they're willing to pay, you can lock up the sell side simultaneously or even before the purchase. This greatly reduces your risk, as you don't do the deal unless and until you have the right buy and sell prices to take your profit.



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.


The higher risk comes from the time between purchase and sale and the extra risk of developing a realistic budget for the renovation and getting the rehab done on time and within budget. Your buyer waits for completion, and there is more time for changes in their plans or errors in your project.
 


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.


The good news is that the profit potential rises with the risk if you're doing things right. The more risk, the higher the reward. Some strategies also turn the profit quickly, not long-term investing. It's up to you on how to proceed, but at least you understand the risks and rewards of the different strategies.
 
Richard Real Estate in Buckeye, Arizona, can not only help you locate the best rental property investment, but manage your property too! We are one of the most reputable property management companies in the West Valley. Plus, our team is family. Because we were born and raised here, our Arizona agents are in tune with local real estate trends, city growth, and investment hot spots.
 
So the next time you're in the Valley of the Sun and are considering a real estate investment,  call 623-386-8762! We'd love to help. 
 

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