The real estate industry is governed by local, state, and Federal laws and therefore varies not only from state to state, but also country to country with each having its slight differences. The following is meant as a quick reference guide for Canadians (currently buying in Arizona more than in other group) considering the Arizona market.
The number of Canadians investing in Arizona real estate continues to trend upward. And, it is extremely important for these investors to understand the key elements of finding the right property. Even though the housing market in Arizona for Canadians is particularly favorable, the property buying process is important to understand as it may differ slightly from the process north of the border. It is now more important than ever, especially since the market is so saturated with property, to know how to buy to get into a profitable investment property as oppose to a money pit.
The 4 key elements of finding the right property in Arizona are:
1. Method of Acquiring the Property
2. Property Use
4. Finding the Right Real Estate Company
These four key elements are not new concepts and have been practiced for as long as people have been buying property. The challenging part is being able to combine the knowledge of the market with understanding of which method should be used acquire the property. This article will provide a clearer picture into the how, what, and where of finding the right property in Arizona for Canadians taking a step forward and investing outside their home country.
The first key element is to determine which method will be used to acquire the property. Financing or cash? With the recent tightening of the US credit markets, the ability for Canadians to obtain financing to purchase US real estate has limited the number of banks offering the specific program needed. According to the National Association of Realtors (NAR) 2010 Profile of International Home Buying Activity Report, 34% of potential international purchasers were unable to complete a transaction due to financing problems. Typically, the more conventional options require large down payments and are limited to certain transaction types. There are some non-conventional options that allow for more lenient guidelines; however, the trade off is higher interest rates.
Although it is more challenging to obtain financing in Arizona for Canadians looking to purchase, there are options available. Another method used more commonly among Canadian buyers is cash. According to that same report by the National Association of Realtors (NAR), 55% of international purchasers paid cash. The majority of Canadian buyers use cash because it provides flexibility and since it is difficult to obtain financing. There are advantages and disadvantages to each method; however, it is important to pick the one that best fits the investment objective.
Once the decision has been made on how to acquire the property, the second element of finding the right property is to determine the best use for the property. There are really only two main options; second home or investment. According to the previously mentioned report by the NAR, 22% of all international buyers purchase their property as a vacation home for family and friends compared with 14% that use it as an investment. The numbers in Arizona specifically, trend a little higher toward the investment side… Closer to 20%. The use of the property will determine what type of property to acquire. Would you be looking to use their property as a vacation home or an investment home that is all about cash flow.
Its very important for Canadians to remember… How the property is going to be used sets the stage for what a Canadian’s strategy is when it comes to buying because the few programs available for Canadian borrowers may stipulate that the purchase is a second home and not an investment. Largely, Canadians who are buying with cash are drawing money from either their Canadian home equity or Canadian line of credit.
Once the use of the property is decided, the third element is determining the best location. The reason that the use of the property is so important when looking at location is that some areas of Arizona cater more towards vacation homes and recreation whereas other areas are more advantageous for investment properties and may not be where a family would want to spend its days. The popular vacation destinations are in resort-like areas, typically close to one of the many Arizona golf courses. These obviously tend to sell for more, since the areas are more desirable. A few examples of these locations are North Scottsdale or Fountain Hills. If one is looking for investment properties, then prime locations are lower priced homes with a high rent demand. These are typically located closer to the city. Examples are Tempe (near Arizona State University) or North Phoenix. A good real estate broker or agent can provide you with zip code maps which demonstrate rents or sales for a particular area based on zip code alone. A zip code is the same a postal code north of the border. And, Canadians looking to purchase should really develop a good working relationship with an agent on the ground in Arizona prior to buying or even visiting so that time and money is not wasted for either party.
The final element is finding the right real estate company. You will want one with experience working with Canadian buyers. Again, the market in Arizona is different. Look at what could happen if the right company is not chosen. Mis-representation, lack of market knowledge leading to buying a property in the wrong location, paying too much for a property, not identifying what property type that best meets the buyers needs from a mortgage or tax basis… the list goes on and on. But the biggest danger for Canadians is the belief that the real estate market in Arizona is similar to what they are accustomed to north of the border. It isn’t.
So, how is someone unfamiliar with the Arizona market supposed to find the right real estate company? There are several ways to locate real estate companies operating in Arizona. One good way is to speak to your local real estate agent in Canada. They may work with a larger agency that has branch offices throughout North America or have other buyers who have purchased property in Arizona. This is a great way to get feedback on the buyer’s personal experiences with these companies. Also, make sure that any company you work with has a good rating with the Better Business Bureau and Arizona Association of Realtors (AAR). Do the homework. It is much easier to do a little work upfront rather than deal with a potential issue later.
In closing, finding the right property in Arizona for Canadians looking to take advantage of this incredible real estate market may be right for you. Obviously, when it comes to real estate transactions there is no guarantee of a completely smooth event even after following the guidelines set forth in the previous paragraphs. However, following the advice of this article may allow Canadian buyers to minimize the potential issues that could arise and be prepared to deal with them so that they do not disrupt the end result… finding the right property in Arizona