March 6th, 2009 by Michael Oliver

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With the current Great Recession in full swing where do you put your money? That’s a tough call because it seems like every “investment” is losing money I have an investor client that made a lot of sense to me the other day when he told me to find him a great investment property that he could buy with cash. I found him a 1261sf bank owned home that was only 4 years old in Sahuarita. The bank had installed new carpeting and re-painted the whole inside so with some other minor repairs this home was ready to rent. The property was really nice and priced very reasonably at 118k with his cash offer and some negotiation we got the bank to give it away to him for $99,500! That doesn’t happen in 99/100 negotiations but with the right offer and the right agent banks will break down to make a deal which is what happened here.

Anyway the point of all this is that when I asked him why he wanted to buy a home? (Which I do a lot to make sure the clients actually has a good reason and not trying to do it “just because”) He told me:

“What else am I going to do with it?” “Put it in the stock markets and watch it diminish in value?”

I said: “That’s a pretty good point, I guess you’re right.”(How can I argue this logic?)

And here’s why its really smart watch the numbers here: The client bought this home for $99,500 its ready to rent minus about $750 in miscellaneous expenses. The rents will bring in $800-$900 (easy) so assuming he keeps it rented at least 11 months a year. (This is very conservative but allows for a month of vacancy for new tenants and all of that.)

$850 (rent) X 11 = $9350/ year

That’s (in simple terms remember there will be other expenses but where also not giving credit for 12 months of rents which would be closer to reality or more like out of 24 months the property “should” be rented 23 of those months.)

So that’s a (in simple terms) 9.4% return on investment! (ON the super, super safe side)

You tell me who’s getting 9.4% return right now? Even Bernie Madoff’s “fund” only grossed 9% and we all have seen how legit his set-up was.

Now of course it’s not just that easy you have to find good properties paying cash keeps the investment much more stable but it also helps negotiations with the banks. This power is somewhat not as understood as it only works on bank owned homes it seems other sellers don’t care about cash too much (in my experiences) but banks do for sure.

So if you have cash and want a decently safe (keep in mind nothing is really “safe” everything runs a risk) Tucson area real estate maybe just that safety net that also throws out decent returns with the right approach….Something to think about anyway.