1650 E. River Road
Why Buying Investment Property Makes Sense Right Now
Buying investment properties in Tucson, Arizona (AZ) makes sense today because the market is in a serious temporary downturn. Thirty-six to forty-eight months from now, I think there will be many people saying, “Wow, three years ago was the time I should have bought that first or tenth rental property.” Here’s the reason I think it makes sense currently.
Right now, buyers control the Tucson real estate marketplace. Many sellers, especially new home builders, are rolling out the red carpet to get buyers to even look at their homes for sale and rewarding them with very substantial discounts that were not even possible 90-120 days ago. When a buyer has this much negotiating power, it should be used to negotiate a great deal on a property. Sellers know the market is down and many fear it will be going down for a long time to come. While this is totally a possibility, keep in mind Arizona is one of the — if not THE — fastest growing state in America. Thousands of people move to Tucson every month and they have to live somewhere, and interest rates over the short term look to be coming down, making homes that have dropped in some areas of Tucson even more affordable. These are my beliefs as to why the market should start to look better in the next couple of years and be back to a healthy historical growth rate of about 6% per year of appreciation. Why specifically do I like the idea of investors buying single-family properties as well as other investment grade residential properties?
In the current marketplace for both Tucson and Phoenix (which I think still has a way to go before the outlook will become better for single family residences), it is expected (but never guaranteed) that the real estate markets will recover and that rental rates (as they already are in Tucson) are due to go up significantly over the next few years as speculators move out of the marketplace. I have first-hand knowledge of this. Properties that I own and manage that I could barely rent for $1050/month are now able to fetch upwards of $1300/month. The reason for this is that there are fewer rental properties available for renters to choose from. In addition, there are a few other factors that will cause this trend to continue. Lending standards over the past 12 months have risen dramatically. This will force would-be buyers into renting for a few more years as they work to save money for down payments, closing costs, and also strengthen their credit to qualify or at least qualify for better rates. This drives more demand for the fewer rental homes available, which should equal higher rents to landlords and also a better pick of potential tenants to occupy the property. Finally, the last big reason I can see rental rates going up in Tucson for the next couple of years is that there have been almost no large apartment complexes built in Tucson for some time now (at least 2-3 years), and most of the apartments that were available 3-4 years ago converted to condos during the boom time of 2004-2005. Only recently have I even seen plans for new apartment developments to be announced, as was the case today when Humberto S. Lopez, co-owner of HSL Properties, announced the plans for a large apartment complex to be constructed near River Road and La Cholla. This complex, as well as any other, will still take a couple of years to be developed. This particular complex is expected to be completed sometime in 2009.