Buy-Fix-Flip - What is the normal return on investment for a foreclosure property in Phoenix and Scottsdale?

By
Real Estate Agent with Russ Lyon Sotheby’s International Realty AZDRE#SA550358000

If you want to know what is currently the normal return on investment for a foreclosure property in Phoenix and Scottsdale I have the latest news. Investing in real estate is RED hot! Resales recorded in the Arizona Regional MLS (ARMLS) were the highest ever in June 2011 with 11,125 sales compared to June 2010’s 9,809 sales – an increase of 13%! It is estimated that at least 40% of the properties sold were purchased by investors. 

Investor traffic at auctions is growing! “On an average it takes 13 tries to get a property at auction before an investor can purchase one,” due to the amount of competition at the auctions and lower inventory, said Dustin Gaskey of Fidelity National Title.  Gaskey was on a panel of foreclosure auction experts at last week’s NAHREP Arizona Real Estate Marketing Conference.  The panelists talked about their experience with helping investors purchase foreclosure properties at auction and the process of fixing and flipping – and the return on investment for a foreclosure property in Phoenix and Scottsdale.

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Along with Gaskey, the panelists included Frank Gerola with Posted Properties and Bobby Ghisolfo with Vineyard Homes.  Posted Properties helps investors bid on properties at foreclosure auction, along with checking out a property the morning of the sale for an investor, and providing other services like “cash for keys” to motivate an occupant to leave the property once purchased at auction. They partner with Fidelity National Title who checks lien positions, lis pendens, HOA liens, judgments, and IRS tax liens on every property. If there is an IRS tax lien the property cannot be sold until 120 days after investor purchase. Fidelity National Title also offers title insurance after the property is purchased, and the investor will receive a preliminary report before the property is actually purchased.  Vineyard Homes has rehabbed hundreds of properties for investors throughout the years. They will get an estimate on properties within 48 hours. Rehabbing a property can certainly bring an investor more return on his investment for a foreclosure property in Phoenix and Scottsdale.  The average sales-to-list price for an investment property is 102% versus 94% for a non-repaired property. The average price for a property purchased at auction is about $143,000, said Gerola, and a typical investment to rehab might be $20,000 - $30,000.

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Investors will need some capital to do a fix and flip. Buyers at auction can purchase with cash, or get a hard money loan with a typical interest rate of 18% with 20-30% down payment. The normal fee for origination is $800 - $1000, with a 6-month term with no pre-payment penalty. A hard money loan can be a great way to leverage your investment for your foreclosure property in Phoenix and Scottsdale, but you want to be sure to purchase the property right with no big negatives – no power lines nearby, no major roadways; a relatively newer property is ideal (within past 15 years is ideal) and look for one without add-ons to construction (these may not be permitted or done to code), said Bobby Ghisolfo of Vineyard Homes. Ghisolfo said that the average turnaround time for a fix and flip is 45-60 days from acquisition – to rehab – to resale. 

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Current Return on Investment: Investors need to have realistic expectations.  Because of the amount of competition for investment properties in Phoenix and Scottsdale, and the rising prices at auction, whereas investors used to see a 20% or more return on investment a few years ago, now it is more normal and realistic to see an 8% - 10% return on investment, said Gaskey of Fidelity National Title. If an investor would rather buy and hold the property, look for a property with a cap rate of 10%. If you purchase a property for $100,000, you should be able to get $1000 a month for the rent.

Some other interesting information I learned?  “Most homes will have the sale date postponed at the auction 3-4 times before the property actually sells,” said Gerola. And the fastest selling properties are condos and townhomes – many being purchased by Canadians looking for a great little winter retreat.

How can a Realtor help with this process and help you the best return on investment for your foreclosure property in Phoenix and Scottsdale? You need a Realtor who knows the areas and who can tell you the pros and cons of certain neighborhoods; for example, what makes a property on the west side of the street more or less valuable than the one on the east side? Providing accurate comparables and information, and working with someone who will be there for you every step of the way is one of the keys to your success. Call Cari Dandy at Realty Executives Premier Marketing Group at 480-980-3577 for information to help you get the most return on investment for a foreclosure property in Phoenix and Scottsdale.

Comments (2)

Jose Rivas
Nottingham, MD

I was contacted by an investor trying to get 30% ROI. I don't think that is possible in this market but the 8 to 10% is more realistic, sometimes even 15%.

Jul 18, 2011 10:23 AM
Cari Dandy
Russ Lyon Sotheby’s International Realty - Scottsdale, AZ
Homes for Sale - Scottsdale AZ

Yes, I think you're right, Jose! It depends on so many factors - when purchasing a more expensive home the return can go up, but so does the risk! Thanks for checking in!

Jul 18, 2011 10:26 AM