Phoenix real estate opportunities

[Scott A Holman Jr.]

Hey BiggerPocketers!

My wife and I are interested in building our real estate portfolio staring from zero. We’re in Phoenix/Scottsdale area and I had the idea of killing two birds with one stone, mainly to wet my wife’s appetite for money, income, and FI. I suggested to her that we buy a home for her father (my father-in-law), have he and I do the rehab, and he’ll live in it after rehab, we should be able to get a small amount of cash flow once done. Alternatively, buy a fixer-upper, rehab it, then 1031 the profits into something nicer for him. I have lots of ideas but no real direction. Help?!?! Don’t know where to start. Where are there opportunities in out “hot/inflated” market?

So much appreciated,

Scott

[Doug McVinua]

@Scott A Holman Jr. Scott, I applaud you for the general direction you are pursuing!

One of the first areas I would recommend exploring is how much cash do you have available that you are willing to part with for this venture? The quantity of cash matters for financing as an owner-occupied property will require far less cash out of pocket than an investment property. The other piece is the cash required for rehab, is that going to come from existing cash or be structured into the purchase/financing.

What does rehab mean for you? For some that can mean salvaging a piece of the slab and for others it can mean a fresh coat of paint? What skills do you have in doing the work or managing others? Again money generally comes into play in this section.

Rehab also comes into play for financing, properties generally need to be pretty livable to get conventional financing. An appraiser will view the property and if the repairs are extensive they can be called out and create challenges. Appraisers don't generally care about cosmetic items, it could have the ugliest cabinets, counters, tiles etc as long as they function. When you get into heavier rehab's some buyers end up using hard money (higher priced) for the purchase with the intention of refinancing into a loan product that is much more long term or selling quickly. Hard money has its place but generally, that's not for long term, it will eat you alive long term.

Lot's of ways to approach this and many of the avenues work, what is best for your situation? Frankly, I often find many virgins (been watching the bachelor too long with my wife) will purchase the first one as a primary residence, rehab it and then rent it out after a year or so. It's a great way to get in at a lower cash outlay if the parties are willing to endure living in the construction and also the property as it won't likely be your dream home.

Just my 2 cents! Congratulations on entering the path!!!