Buying Investment Property in Arizona – Part I: Fixing and Flipping

I was in the presence of real estate royalty.  My brother-in-law, Rich Siegmund, had set up the meeting.  It was 2005 – Austin, Texas.  I had flown there from Phoenix to help him get his real estate investment business off the ground.  Rich arranged the lunch meeting at a Macaroni Grill in northwest Austin.  We would be dining with ‘Joe’ the real estate guy.  That’s all I was told.

When we all sat down Joe handed me his business card.  It had a Keller Williams Realty logo on it and beneath that was his name – Joe Williams – Co-founder.  Needless to say, I was impressed.

I took a page of notes during our visit.  The most memorable thing Joe said that day was “there is no such thing as a national housing market; real estate is a local business.”

When my partner Manny Romero and I started our current fix and flip business model last summer Joe’s words kept running through my mind.  We had to stay local and be strategic.  Our buying criteria would be simple, straightforward and easy to implement:

  • Single family homes – no condos or townhouses.
  • Acquisition price under 200K.
  • Minimum 3 bedroom – 2 bathroom – 2 car garage.
  • Tile roof – wood frame construction – stucco exterior.
  • Cosmetic repairs only – paint, carpet, landscaping, appliances, window blinds, light fixtures only – no plumbing, electrical or roof repairs.

Why be that specific?  Because as of today, there are over 47,000 homes for sale on the Arizona Regional Multiple Listing Service (ARMLS).  As many as 1,000 homes or more are auctioned off on the courthouse steps every day.  There’s a lot of inventory in the Phoenix market.  In order to efficiently sift through the opportunities it’s essential to filter your buying criteria. 

You also need a team, including a wholesaler, Realtor, contractor, Title Company and private money lender

The wholesaler will find you bargains at the auction and a Realtor with experience working with investors will help you locate short sale and REO deals listed on the MLS.  The Realtor will also assist you with market analysis, as well as the listing and sale of the home. 

When interviewing Realtors I highly recommend you ask if they have worked with other real estate investors.  A lot of real estate gurus will tell you that you should never work with a Realtor unless they invest in real estate too.  I don’t agree with that.  Do you want your Realtor focused on their deals or yours?    

The contractor will be your eyes and ears on the project.  A good contractor will put money in your pocket, not take it out.  How?  Speed.  Time is money right?  Our contractor can remodel a house in 4 days or less.

It’s also smart to work with a title company that is comfortable working with investors.  I’ve worked with title companies in the past that have killed my deals because of delays and miscommunication.  That is unacceptable.

Finally, having a reliable private money lender on your team is essential.  What is an unreliable private money lender?  A lender with no money.  We work with a private money lender that has been in business for more than 20 years and has over $60 million in funds available.

Is setting this up a lot of work?  Absolutely.  It takes time, effort and a healthy dose of trial and error.  If you are considering getting into get in the game but don’t want to be this involved I recommend you partner with an investor or investment firm that is familiar with the market and has a system already in place.  You may not make as much money but you certainly won’t lose as much because you didn’t have the right systems in place.  If you decide to go this route I recommend you ask the investor or investment firm for this information BEFORE you get started:

  • Executive Summary
  • Business Plan
  • Pro Forma Financials
  • HUD 1 Settlement Statements
  • Private Placement Memorandum (if dealing with a private equity firm)
  • Website
  • Testimonials

It’s important to note here that even with the right buying criteria, team and systems in place you can still lose money fixing and flipping.  There are external forces at work that can adversely affect any real estate market.

I can think of no better example of this that the federal government’s $8,000 tax credit that expired on April 30th.  Our investment firm was buying heavily in an area of town that consisted predominately of first time home buyers.  We purchased two homes at the auction in May and miscalculated how sharply values would decline in this area after the tax credit went away.  We anticipated a drop of about 10% and it turned out to be more like 30%.

The good news is we earned record profits on the other side town, offsetting our losses and increasing our bottom line.  When this happened I couldn’t help but think of my lunch meeting five years ago with Joe Williams.  Real estate truly is a local business.

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2 Comments

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2 responses to “Buying Investment Property in Arizona – Part I: Fixing and Flipping

  1. I went to austin in march 2005. I met a crooked realtor who swindled 100k’s of thousands from myself and other investors on commercial land in austin. If a person meets the wrong realtors it could cost them a fortune. Our values in Sacramento are also declining again since the tax credit went away. http://www.cheapsacramentohouses.com

    • Marty Boardman

      Gordon, there was a lot of fraud taking place in 2005-2007. That’s why the banks are in so much hot water right now. It’s unfortunate and I’m sorry to hear about your loss. Did you have your day in court? Realtors are held to a higher standard and should be held accountable if they engage in any wrongdoing.

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