The city of Phoenix is centrally located in beautiful Arizona. The community is thriving and growing, has a stable economy and plenty of real estate investment opportunities. With over 300 days a year of sunshine, the area attracts many newcomers who want to avoid the cold and want to feel like they’re on vacation all the time. There’s so much to do and see in Phoenix. Owning a Phoenix triplex is an excellent investment for those looking to start or add to their portfolio. 

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Phoenix, AZ, is a beautiful city with plenty of opportunities for real estate investors. It’s a thriving city centrally located in the state, and over 1.6 million people live there. It’s full of sunshine, plenty of activities, and great amenities. The economy is thriving, and many people choose to relocate to the area, especially if they don’t love winter weather. There’s always something to do and see. Real estate investors love purchasing multi-family properties in the city due to the lifestyle it affords them and the perks of owning a Phoenix duplex. 

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Investing in real estate can provide you with an abundance of opportunities like financial growth and security. When choosing to invest, there are endless possibilities like single-dwelling properties, condo buildings, commercial and more. It is essential to understand the differences between each type of real estate. Commercial is a property someone usually rents from the owner to make a profit by selling consumer goods and services. Single dwelling refers to single detached; sometimes bungalow homes. When looking into multifamily properties to invest in, you will notice that this includes housing where multiple separate units are within one building, such as the condominium, as mentioned above. Let’s take a look at the top 10 reasons you will want to invest in real estate, focusing on multi-family housing locations.

Easier Finance

When you compare the prices of single detached homes to those of multiple dwellings, you might want to turn the other way instantly. Investors looking to get a loan to purchase the properties of investment will find that your lender is more likely to approve a request when these funds are going towards a multi-family property.

Lenders tend to look over your income, among other things, when making the decision to approve potential loan holders. When you bring forward a property like an apartment building with 100 units or more, this will show the lender you are likely to have a steady form of cash flow. This proves your loan has the potential of not being a risky investment.

Potential for Extra Help

Homeowners know the upkeep of their home, and the land it lays on can be time-consuming at times. You also have maintenance issues like fridge and stove repairs, painting, to name a few; the same goes for your investment properties. In fact, it may be more of a task if you have new renters annually. Landlord etiquette will include fresh paint and a clean house for the new tenant, and any extra repairs the previous tenants may have left. Being the owner of a multi-family home offers the ability for you to take advantage of additional funds you will be receiving every month.

Some of these advantages include hiring a property management company. When you bring on these companies, they usually get a percentage of the monthly income your investment generates. In return, they take care of all upkeep and maintenance. If a unit has a stove that breaks down, your property managers will be called, and they take on the responsibility of finding a contractor to come in and make any needed repairs. Buildings such as condos and apartment buildings will have lawn care and snow removal, which will also now be the responsibility of the property managers. This added benefit allows you more time to search for other investment properties and handle the logistics of your business.

Lowered Risk

Investing can be a gamble, more so when investing in the stock market, bonds, and more. Real estate, on the other hand, is usually more secure. Multi-family homes add security because of the multiple units a building may offer. The economy isn’t a guarantee and when it is going down, being an owner of a multi-unit property allows you to offer to house to many individuals. We are a species that needs a roof provided to us.

During recessions, many are forced to sell their homes and are looking for rental options, which gives you an advantage as an investor.  Rather than having to sell, you can provide members of your community a place to live. So even during an economic crash, chances are you will be receiving a steady income.

Tax Benefits

American Opportunity Tax Credit, Lifetime Learning Credit, and Savers Tax Credit are just some of the few benefits Americans could qualify for. Being an owner of multi-family homes gives you the added benefit of increased deductions. Accountants can take off the interest paid in mortgage during the last fiscal year, which tends to be higher in the first year as your loan will begin to amortize. In addition to interest deductions, you also have the ability to claim depreciation value. You will be allowed to use this as a deduction for a 27.5-year period. As someone who is claiming their taxes, you can use your depreciation value to offset a significant portion of your income you made off the rentals each year.

Multiple Investment Partners

A reason people gravitate towards multi-family investments is because of the countless one can do this. There can be a group of investors when discussing ways to invest in a property with multiple units to rent out. This allows you to invest via syndication, which is the transfer of something for control or management by a group of individuals or organizations. This will enable investors to reap the benefits while taking on a more passive role in the partnership.

You can also invest in a multi-family fund that has the potential to invest in properties all over the country. There are more ways to invest in such properties, so it is essential to do your research to find the perfect investment opportunity for you.

Related Post: The Ultimate Guide to Buying a Phoenix Investment Property

Diverse Portfolio

It is important to diversify one’s portfolio to lower your risk. This allows you to put your eggs in more than one basket, so to speak, so you don’t create any unwanted risk to your capital. This will keep your investments protected by companies that aren’t necessarily doing their best.

High Appreciation

People may think they should steer clear of real estate investing because they worry about the length of time before seeing profits. This may be especially true for people looking at a property with more than two units that came with a high price tag. It is essential to know that while you will wait for your return on investment, the appreciation value of multi-family homes is higher than those of a single dwelling.

When we think about investing in real estate, looking at the different options can be intimidating and nerve-wracking. We have discussed several reasons to invest in a multi-family property but let’s take a look at further options someone can obtain.

Other types of residential real estate include our single-dwelling homes. You will find many added benefits that include some of the following:

Equity

Homeowners get the luxury of building equity. Equity can be defined as the difference between what you owe on your mortgage and what the house is currently worth. Let's say you owe $150,000 and your home is worth $200,000, then you will have an equity of $50,000. Over time the value of your home can increase and be worth more, especially if you do renovations, add a pool, etc. Once the value of the property increases and your balance owing decreases, your equity will rise.

Equity can be used as leverage when looking for another loan to invest in more property, purchase a car, among other things. When having equity to leverage and the ability to invest in more homes for extra income, you are adding cash flow and wealth—a win-win for investors.

Inflation Hedge

Real estate is considered one of the investments that are an inflation hedge, making it so appealing. Economies are expanding, which allows for an increase in rent prices, giving you higher capital values.

How inflation hedges work:

They help protect the value of your investment. Real estate tends to bring investors a great return, but inflation increases, you could be at a loss. When an asset is an inflation hedge, you generally keep the value of the investment high while the intrinsic value is lower.

Improvable

Homes are tangible assets made up of several products: Wood, brick, Glass, and more. Making changes to your property is sure to increase the value. Cosmetic changes that can have your home looking beautiful and modern can increase the value of your investment. Changing the paint, adding modern light fixtures, updating kitchen cabinets, floors, and basic hardware are some of the less inexpensive ways to make cosmetic changes. A new roof is a prime example of structural repairs that can be done to increase the value. Having the freedom to improve your tangible assets is a reason many find real estate investment so attractive.

Many people gravitate towards real estate investing because of the many added benefits and the return on investment you get with such minimal risk. You can start small and gradually work your way up the ladder when investing in multi-family homes while reaping in all the benefits, which makes this a well-loved way to increase your monthly cash flow.  

Whether you’re looking for an affordable family home or perhaps an investment opportunity, multi-family homes are an excellent option that can be found among the real estate listings. A multi-family home is a classification of housing that is composed of two or more units within one residential building. This guide will go into more detail about the different types of multi-family dwellings. 

Other great tidbits that can be found within this article include where to find multi-family residences, some things to keep in mind when choosing a home, and a helpful list of questions you may want to ask before you make any purchases. 

The goal of this guide is to hopefully provide you with a better idea of whether or not a multi-family home is the right fit for you and your specific lifestyle. If you’re considering jumping into the world of multi-family dwellings, read on to further understand all about this particular form of real estate. 

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Understand the different types of multi-family homes. 

One of the most important factors to consider when you’re purchasing any sort of real estate is to know what you’re looking for. Multi-family homes, also known as multi-dwelling units or MDUs, come in all shapes and sizes. The main characteristic of these properties is the multiple units contained within one residential building, but this can look different with each establishment. Sometimes, these buildings are grouped together to form an entire community or neighborhood, such is the case with many townhome developments. 

To actually qualify as an MDU, the property must be made up of at least two adjacent housing units. These units can be set up vertically or horizontally, as long as they reside within the same building. The following list outlines some examples of multi-family homes. 

• Apartment Buildings and Condominiums: Apartments and condos are some of the most common types of multi-family buildings. These properties are typically made up of many units situated on a number of floors. These buildings come in the form of low-rise to high-rise buildings and can have anywhere from a handful to hundreds of homes on the premises. The most popular location for apartment and condo buildings is busy cities, particularly where lots are smaller in size so the buildings must build up vertically rather than horizontally. 
• Townhomes: A townhome is similar to a detached, single-family home in many ways except for one. Townhouses are set up as a development consisting of multiple houses attached side-by-side. Each home includes an individual entrance from the outside but they share a common wall with the home beside them. In the case of multiple townhomes, three or more, situated alongside each other, the development is referred to as row homes. 
• Duplex: Many duplex homes started out as one single-family home but have been converted to consist of two separate units. These units can either be split up side-by-side or by the story. Each unit consists of a separate entrance, similar to a townhome. The difference between a townhouse and a duplex is that duplexes only ever share one wall with their neighbor while a townhome has the potential to share a wall on each side of the home. 
• Mixed-Use Building: This particular type of multi-family dwelling consists of not only residential units, but can also include commercial, institutional, or industrial units. Many of these buildings can be found in downtown areas of cities or towns, hosting retail shops in the bottom units lining the streets and offering apartment units up on top. These are great buildings to invest in if you’re looking to rent out retail or industrial real estate while living right up above the units. 

Where can you find multi-family homes? 

Just like the traditional detached, single-family homes, MDUs can be found among the standard real estate listings. If you’re beginning your search online, you can filter your search results not only to the specific location that you’re looking at, but you can also filter your search results to show you only multi-family real estate options. 

When you first begin your search for the perfect multi-family dwelling, you can let your real estate agent know that you would like to tour these types of homes. The same goes if you’re looking for an investment property. Be sure that your realtor is experienced with the area you’re looking to invest in and they will be able to guide you during the process and let you know where the hotspots of town can be found. An experienced real estate agent will also be able to let you in on real estate opportunities that have not yet been showcased online. 

As with any type of real estate, commercial or residential, detached homes or multi-family dwellings, you need to do your research. Take your time, figure out exactly what you want, and check out homes that are within your price range. 

Some questions to ask before making a purchase. 

Before you sign the documents or agree to any contracts, you’re going to want all the details pertaining to your potential property. Sometimes it helps to jot down a few questions to ask when you go to tour a potential home. Here are some examples of what you may want to inquire about:

• What’s the deal with the parking? When it comes to parking, detached, single-family homes usually have a very clear driveway. Multi-family homes can be a little more difficult to determine the parking situation. Some buildings, such as townhomes and duplexes, have access to private driveways. Other buildings, such as apartment buildings and condominiums, offer plenty of parking in their own private parking lot. It’s important to ask about parking upfront, as some buildings will charge additional parking fees or passes, and some offer access to underground parking lots. 
• Do I need any special insurance? Most residential properties have a standard setup when it comes to insurance. However, if you’re planning on purchasing a multi-family dwelling to rent out the space to other tenants, you’ll need to look into additional insurance coverages. This includes factors such as loss-of-rent coverage as well as liability coverage. 
• Will I still need to have a home inspection completed? During the typical process of purchasing a free-standing home, it’s incredibly important to receive a report on the condition of the homes before you make any official agreements. This includes the state of the roof, the electrical system, and the condition of the septic or sewer system. When you’re purchasing a multi-family home, it’s up to the owner of the building to keep the building in top condition and up to date. Make sure you ask your real estate agent about any additional inspections you should have ordered. 
• Should I expect any additional costs? There’s always the possibility of unexpected costs when you purchase a new home. Many first-time buyers don’t factor these costs into their budget and can get into trouble as a result. Before you sign any paperwork, be sure to factor in any repairs or renovations you may want to have done, including painting and appliance upgrades, as well as the possibility of any homeowner association fees. 

Related Post: Is Now a Good Time To Sell Your Multi-Family Property In Arizona?

What else is there to consider? 

Buying a home is one of the biggest decisions you’ll make in your life. To make sure you’re getting the most out of the experience, it’s best to enter into this stage prepared and well-informed. After you’ve figured out what your budget will look like and you’ve found a suitable real estate agent to work with, your next step is actually determining what you’re looking for. If you’re leaning towards a multi-family development, here are a few things you’ll want to consider: 

Location, location, location! This phrase couldn’t be more true when it comes to purchasing any form of real estate. When you begin your search for the perfect multi-family dwelling, you may find your options are slightly more limited than a standard, free-standing home. If you’re seeking a quiet, rural oasis, you may have a hard time finding an MDU outside of the more urban areas of a city. Multi-family homes are primarily found within busy cities and lined up in various subdivisions. 

If you’re looking to invest in a multi-family residential building, you’ll need to take into consideration the popularity of the location you’re looking at. Potential tenants will want a home that is in a more desirable area of town, close to the local amenities and attractions. The more attractive the location, the easier it’ll be to fill your building with tenants and keep a steady income. 

An affordable option. A multi-family home is an affordable option for those looking to break into the housing market, particularly for first-time homebuyers. Housing prices are a constant yo-yo over the years, switching between a buyer’s and a seller’s market. One thing that is consistent is the fact that MDUs are typically a more affordable option as opposed to a free-standing, single-family home. This is because you’re buying a single unit rather than an entire building. Land factors into the price as well, many multi-family homes are situated on smaller plots of land, which will decrease your property tax and maintenance fees. 

One of the first steps to purchasing a home is to sort out what kind of budget you’re looking at. Sitting down with your financial advisor or a mortgage broker will give you an idea of what sort of down payment you can afford and the overall budget you’ll need to stick to while touring homes. 

Gaining a sense of community. One of the benefits of being a part of a multi-family development is that you are not only gaining a home, but you’re also gaining access to a tight-knit community. Many apartment buildings and condominiums offer a common space where residents can get to know each other. Some neighborhoods offer communal amenities such as playgrounds and pools that are perfect for socializing and gathering with your neighbors. 

There are so many fantastic reasons to purchase a multi-family home, whether you’re simply searching for your next living space or you’re looking to dive into the landlord position. MDUs can suit a variety of lifestyles including first-time homebuyers, bustling urban dwellers, and retirees looking to downsize in a charming community. Multi-family dwellings can be found all over the country in countless amazing cities so no matter where you’re looking to settle down, you can rest assured that you’ll be able to find an ideal housing development to suit your needs. These developments are an excellent real estate opportunity and are definitely worth your consideration! 

Phoenix is a beautiful city in, and the state capital of, Arizona. Home to nearly 1.7 million residents Phoenix is also the most populated city within the state. The exciting and vibrant city is home to an array of amenities which include restaurants, shopping districts, entertainment venues, medical facilities and top rated schools. 

With such a large population, Phoenix has a large educational system which is administered through a total of 33 school districts. Of those districts, 4 are high school districts, of which, 3 only partially serve the city. Regardless of which district you reside in, the city is filled with many excellent educational facilities which serve students for their high school years. 

View All Homes For Sale in Phoenix, Arizona >>>

Phoenix, Arizona is a thriving and diverse city which is not only the state capital but the most populated city as well. Being home to over 1.5 million residents, Phoenix is filled with many amazing features which include amenities, schools, entertainment venues, business districts and much more. 

Some of the best neighborhoods in Arizona can be found in the exciting city of Phoenix. From family friendly suburbs to hip and cool urban centers, Phoenix offers an eclectic mix of communities which suit each and every walk of life. 

Below is a snapshot of 10 of the best neighborhoods located in Phoenix, Arizona and a few of the reasons why residents have come to love calling them home. 

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Do you Really Want a Rental Property?

Investment properties in Phoenix are extremely popular.

There are many reasons why you may want to purchase a rental property.

Suppose you have a child attending college in Arizona. It may make more sense to purchase a property versus having them rent for four years or longer. Owning the property can provide your child with stable accommodation and save money in the long run.

Suppose you’re looking to become a real estate investor in Phoenix and start to build your portfolio and generate additional income. Suppose you’ve decided that you’re ready to take on the role of landlord and you want to own a rental property in Phoenix. In that case, the first step is finding a reputable realtor who is an area expert with experience with rental properties.

Goals and Objectives

First, you should consider your goals.

 Are you looking for a short-term or long-term investment?

 What is your objective?

 Do you want to purchase a fixer-upper at a lower price, or do you want to have it move-in ready immediately?

 What is your budget?

Things to Consider

Suppose you decide to fix up your property and flip it. In that case, it’s not considered an investment, which does not qualify as a 1031 tax-deferred exchange or other tax breaks.

A 1031 Exchange is a way for sellers to part with their investment property and roll the profits into another investment property sale. A 1031 can be used for residential and commercial properties, but the investor must follow the rules outlined by the 1031 Exchange.

Choosing a real estate professional who has plenty of experience with this exchange is essential for tax purposes.

Something you may want to consider is having a buyer consultation. Many realtors offer a free consultation to discuss your wants and needs as a buyer. If you’re a new investor, this can be helpful for both you and your realtor, or if you’re a seasoned investor, you likely know what you’re looking for.

An investment property is slightly different from meeting with a realtor about a home you’re looking to live in. A home for your family needs to meet your needs and align with your lifestyle. A rental property looks a bit different, as it should consider maintenance levels, cash flow, what needs to be upgraded immediately and should make sense as an investment.

An investment home doesn’t need to be a property that you have an emotional attachment to or adore. It is more of a financial transaction.

Your Budget

Determining your budget is more than just how much money you’ll be putting down on the property or paying cash.

If you decide to pay cash, you will be required to show proof of funds from your bank statements. You will also need a letter from your financial institution as proof that you have the liquid funds for the transaction.

If you’re looking to finance your investment property, you will decide based on your down payment, HOA fees, and other fees you’re comfortable paying on a monthly basis. You will need to be comfortable covering those payments when the rental is vacant, or there are issues with tenants being unable to pay on time.

The Current Market

Before you start house hunting, it’s essential to understand the current market.

Your realtor will know whether it’s a buyer’s, seller’s, or balanced market, but knowing what the landscape is is important.

If it’s a seller’s market, you won’t be able to make lowball offers to get a steal of a price. In a buyer’s market, you are in control, and it’s likely you’ll be able to get your new investment property in Phoenix for lower than what the seller is offering.

Your agent should be able to provide you with a CMA, or Comparable Market Analysis, to help you understand if a seller’s home is priced fairly based on the market.

A CMA is an analysis of similar properties in a given area and comparable areas. Reputable realtors will offer a CMA to determine the listing price of their clients’ homes or buyers looking to get a reasonable price on a property.

While no two properties are the same, even if they have a similar floor plan or same square footage, the numbers are relatively accurate and can be a beneficial tool in the process.

A CMA compares homes that are currently listed, under contract, and recently sold homes. Adjustments can be made for renovations, similar to an appraiser.

How to Choose an Excellent Property

Here are some of the most important factors when choosing the right property for you.

Age
Choosing a newer property will likely result in less immediate upgrades, building code issues, or other issues. While this isn’t always foolproof, as newer buildings can also have issues, it’s less likely.

Location
Home investors in Phoenix have a better chance of renting their properties in traffic-heavy areas. Choosing a home close to transit, amenities, or popular businesses will be much easier to rent out.

Neighborhood
If the neighborhood is established or up-and-coming, you’ll have an easier time renting out your home if the community is growing. With the addition of terrific amenities, it becomes more desirable.

Schools
Choosing a home close to excellent schools will allow you to get a better price for rent.

Home Prices
If you have the budget, choosing a more expensive home as a rental property could be the right move. Renters want desirable home options, so more expensive homes that they may not have a downpayment for might still be an option for them as rentals.

Low Maintenance
If you want to be a hands-off real estate investor in Phoenix, you want to choose a home that is relatively low maintenance. All homes will require maintenance, but there are high-maintenance building materials that could be avoided. If you’re concerned about the level of maintenance, you can ask to see previous records. Ensure you do a comprehensive inspection as well.

Account for all Expenses
Try to figure out every single expense you may encounter to ensure you have a positive cash flow from the get-go. Researching and paying close attention to insurance costs, property taxes, and HOA fees. It would be best if you also had money set aside for repairs and maintenance.

Rental History
If the property is already a rental, ask to see the rental history and assess how long residents typically stay and if they pay on time. If there is no history, your realtor may be able to assess the area.

Once you’ve chosen your perfect property, your agent will do the Comparable Market Analysis to have some information to discuss the offer. Your offer will include the price you’re willing to pay for the home and the closing date, which is also the possession date.

Typically, there is a 30-day closing period, but it depends on the buyer and the seller’s scale and circumstances. This time frame allows for the loan to be processed, the inspection to be completed, and time for the seller to move out.

Once the offer has reached the seller, you may be in a situation where you are negotiating. If they accept your offer, then great! You’re almost there. If not, they will provide a counter-offer asking for a higher price, a different closing date, or other stipulations. Sellers in Phoenix are able to counter-offer on any part of your initial offer.

Once you receive the counter-offer, you can either accept the offer or return another counter offer.

Once you both have agreed, you have a binding purchase contract.

Inspection

Once you’ve reached your agreement with the seller and you’re about to become the proud homeowner of a Phoenix investment property, you need to schedule your inspection.

The standard timeframe for the State of Arizona is ten days for the buyer. It would be best to have a reputable inspector inspect the home within ten days of the sale. Your inspector will check for severe structural damage, issues that impact the home’s safety, or the soundness of the home.

In Arizona, you will also be required to have a termite inspection completed as well.

It’s prevalent in Arizona for homes to have termites at some point if the home hasn’t had them already. The subterranean termites are a problem for Arizona homeowners, but they are easy to treat, and they move slowly.

Once your inspection is complete, you can ask the seller for repairs. Depending on how significant the issues are, you may want to ask the seller to take care of them before taking possession. If they are minor issues that you planned on changing anyway, you may just continue the process.

In the contract, there are certain items like electrical, pool equipment, or plumbing are warranted. If there’s significant damage to the roof, you may ask for it to be repaired before moving in. Of course, you are purchasing a home that has been lived in, and there will be normal wear and tear, so cosmetic damage isn’t typically written into the contract.

Once you’ve both agreed to any repairs and they’ve been written into the contract, you are almost ready to close.

Appraisal

When you’re financing your new Phoenix investment property, your financial institution will require an appraisal for the property. A professional appraiser will come by the house, measure each room, take photos, and compare to three similar properties that have closed within the last three months and three still actively for sale.

The appraiser will determine based on the comparison to similar homes whether your home comes in above or below the purchase price and deliver directly to the lender. If the appraisal is lower than the contract price, the seller will be asked to lower the price. If the seller refuses, you are back to negotiating, and you can pay the difference between the appraisal and the price, or cancel and head back to house hunting.

Your Loan

Once your appraisal is matched and sorted, the lender will submit your loan to get final approval through underwriting.

Once the loan documents request is sent, the title company can prepare all the buyer and loan documents for you to sign.

Once you’ve signed your life away, you will have your loan funded. The documents are reviewed to ensure nothing was missed, and every spot was signed. Your lender will wire the funds to the title company on the closing day.

On your closing day, the funds will be confirmed to have been received, the title company releases the file to the county, and homeownership is transferred.

Once this is completed, your agent will give you your new keys!

What Now?

Now that you’re the proud homeowner and real estate investor in Phoenix, you need to decide how you will manage your property.

If you’re renting out the home to one of your kids attending college, you likely don’t have to do much to manage the property.

If your kids want roommates, they can help you find suitable ones, or if they have friends who also need accommodations, that’s even better for you.

If your home is being rented out to tenants, and you live in the Phoenix area, you can manage it as a landlord, or you can outsource to a property management company.

Depending on how busy you are and how hands-on you’d like to be for this investment, you may find investing with the help of a professional is worth it. They typically have access to running credit and background checks. Your realtor likely has some excellent contacts for professional property management companies in the area.

If you don’t live in the Phoenix area, a property management team can take care of issues, like late rent collection, repairs and maintenance, and scheduling cleanings in between residents.

Investing in a Phoenix rental property is an amazing opportunity for many people, and it’s the perfect way to start your real estate investment journey.

One complication that comes with owning multifamily property is the capital gains and other tax consequences of your investment. While it's the goal of every real estate investor to eventually upgrade to more valuable properties eventually, conventional property sales carry a high enough tax burden that it often isn't worth doing, especially for properties only a little more valuable than what you have now. You can defer this tax with a special kind of real estate transaction, called a 1031 exchange, that might bring those marginally more valuable multifamily properties within range and make a potentially complicated transaction simple enough to do for investors of any size.

What is a 1031 Exchange?

The 1031 exchange is a special kind of real estate transaction that can let you defer the normal costs of property sales and acquisition. Named for section 1031 of the tax code, these exchanges permit you to skip paying the capital gains tax on a property you're selling, if you buy another investment property within 180 days. You can also roll forward your depreciation, which can be an enormous help if your multifamily property winds up selling for more than you paid for it.

Who Can Use a 1031 Exchange?

Any real estate investor can take advantage of section 1031. If you own a multifamily property in Arizona, 1031 exchanges can help you climb the property ladder without incurring prohibitive taxes every time you transfer ownership. While the specifics get complicated, even by the standards of the tax code, you can generally use a 1031 to sell and buy properties you're holding for an investment. This includes multifamily apartment complexes, duplexes, single-family houses, commercial buildings and even empty lots, though you're generally expected to hold your acquisitions for at least two years before selling again. The 1031 deferment is not for private residences you plan to live in, nor is it for a commercial or industrial site you're working at, as opposed to owning for the property value or rent itself. You also cannot use a 1031 to exchange real estate for anything other than other properties, which must be "of like kind," as opposed to selling your multifamily property and buying gold or savings bonds with the proceeds.

How Does the 1031 Process Work?

To get the full advantage from a 1031 exchange, it is extremely important to go through the steps the IRS has laid out. Getting professional help with the process is a very good idea, since this is usually a major transaction and taxes owed from a mistake along the way can wipe out the profit you make from selling your property.

Federal law requires 1031 sales to go through a qualified intermediary. Find the most experienced brokerage you can for this, since the timing of the sales and payment are very important.

List your multifamily property as you normally would but be sure to mention that you are looking to do a 1031 exchange. Notify any interested buyers of your arrangements in writing as early as you can.

Negotiate the sale price as you normally would. This part of the exchange is not significantly different from any other investment property sale, except that the buyer pays the intermediary, not your company.

Once the sale closes, you have 45 days to give the intermediary three new property listings you're looking into. Make sure the sellers of these properties know you're doing a 1031, and that time is short to close.

Sign the contract with your first-choice property. You can sign contracts on all three to be safe, but make sure you have contingency clauses to back out if your preferred deal closes first.

Once you've agreed to a deal with the seller(s) of your new property, you have up to 180 days to close escrow and wrap up the deal. Keep your deadlines in mind, since the IRS can both charge you capital gains tax and recover the depreciation you've been writing off if the deal takes too long.

Trading properties through a 1031 exchange takes patience and attention to detail. It also takes an aggressive REALTOR® that knows the Phoenix market well and has experience representing owners of multifamily properties in Arizona. Patrick O’Sullivan with Cap CORE Real Estate can help you manage the property transfer when completing a 1031 exchange on your multifamily property. Call us today at (602) 366-5078 to speak to a Patrick today.

Are you looking to sell your multi-family property in Arizona? Perhaps you’re wondering about the best time to sell it. As compared to homes, selling multi-family properties are more complex as you have to consider there are likely tenants involved. It also means that there are several things you need to put into consideration before you can decide to sell the property.

Although there are many factors, timing is everything when selling any property. Whatever your reasons for selling your multi-family property, keep reading to discover the best time to sell your unit, key requirements, and how you can maximize returns on your investment.

1.    Market Timing

As mentioned earlier, timing is fundamental to selling any real estate property. You must know where in the real estate cycle you are in and ensure your property is cash flowing to obtain the highest price. 

One significant indicator is when the market shifts in favor of the sellers more than buyers. If sellers begin to sell more, it might be a pretty good opportunity to put your multi-family property on sale. However, it is also imperative to note that there might be a considerable divergence between the replacement property cost and the existing property.

2.    Have All the Documents Ready

If you own a multi-family unit in Arizona, it is likely you purchased it as an investment. Therefore, being prepared with the necessary documentation is critical. What’s more? Ensure your property is in top-notch condition. If there are repairs that need to be addressed, if you are able to, do complete them before putting it on the market so that you make an excellent first impression.

When it’s time to sell your property, gather all the necessary due diligence materials, including a current rent roll, lease agreements, financial details and any other relevant documents and information that might contain pertinent information.

3.    Pricing Is Critical

How much are you selling your multi-family property for? Is the price too high or too low? Conducting a thorough sale analysis will ensure you are pricing your property right. By research the sub market, including its cap rates, rental rates and the recent sales activity, you should be able to know where your property stands.

If you price your property too high, it might take longer to sell. The longer it takes to sell, the less attractive it will be to your potential customers. Alternatively, you can incorporate the services of a professional multi-family broker to help you settle on a reasonable price.

4.    Familiarize Yourself with the Rules of Selling Your Property

Of course, upon going through all the above steps, the last thing you would wish for is a setback. It might be not only costly but also time-consuming. Ensure you are aware of the rules and regulations before putting your property on sale. You can also hire a real estate agent that specializes in multi-family for a smooth and quick sale. That way, you can also avoid other setbacks associated with property selling.

Besides, a multi-family real estate agent can also act as a professional liaison between you and the buyer. He or she should be capable of coming up with a strategy that will get you the highest price for your property. Preferably, you should hire a professional real estate agent or broker who is familiar with the local real estate market and has experience working with multi-family sellers.

The Best Time to Sell Your Property

So, when is the best time to sell your multi-family property in Arizona? Although most sellers consider the time of the year, but the best time depends more on research and proper planning than just the month of the year. Take this into consideration and there is no doubt you will successfully sell your property and maximize your returns. 

Do you plan to sell your multi family property? Contact us for a free consultation and let us ensure you get the right buyer in the shortest time possible.