“We are trying to improve the business climate here in Tucson” Mike Letcher, City Manager of Tucson, told the gather of Realtors® last week at the Economic Summit sponsored by the Tucson Association of Realtors®.

“The recovery has caused some painful times,” he said, “but we are getting optimistic.   “We want to make sure we do not miss an opportunity by not being able to take advantage of situations when they present themselves,” he continued.

The goals are to improve the business climate, encourage the economic recovery, and grow the local economy.  The new economy is not driven by rooftops, Letcher said.

The major source of revenue in Tucson is the sales tax, not the property tax as many people think. Tucson is trying to increase the tax base with economic diversity for job creation.

The city has cut back and laid off  employees and cut budgets .  First line supervisors have been told to be more “business friendly.”  This is “critical to the city for it to turn around” Letcher said.

The city along with the other towns represented here today must work as a region, communication between the municipalities is imperative since what one area does impacts other areas.

The Ombudsman Program with the city for business development is cutting the time and paperwork for large construction projects, Letcher said.   This is a portal for businesses and developers.  They have someone to go to who understands the best way to do business with the city.

In an effort to be more business friendly, the city has extended hours and has developed programs to protect developer rights.

“Hopefully we will build a stronger region and a stronger downtown,” Letcher said.

Resources:

City of Tucson

http://cms3.tucsonaz.gov/

City of Tucson Streetcar Project

http://www.tucsontransitstudy.com/

City of Tucson Downtown Development

http://cms3.tucsonaz.gov/rionuevo

  Another aspect to consider when investing in property is whether you, the investor, are skilled and can do repair work in a home.   Today there are thousands of REO properties for sale, real estate owned properties – another term for bank owned properties.  Many of these properties need work. 

    I have often thought a consortium of tradespeople would be an ideal investment group;  a person who knows drywall, a plumber, an electrician, a tile person, and maybe a roofer.   Between these people and someone to put up the initial amount of money, the group  purchases property, fixes it up, and then puts it on the resale market.  (This would have to be an LLC, limited liabiity corporation, with exit strategies defined for group members and legally enforceable.  Consultation with an attorney is advisable.)

    The key is to purchase the property at the correct price, and with today’s pricing, making offers would be the name of the game.  Doing the repairs in a timely manner is critical. The sooner repairs are done, the sooner the property can be put back on the market.  If you buy correctly, the property can be priced in the mid range for the area so the property does not languish on the market.  The sooner the profit can be made the quicker the group can move to the next property.

    A 1031 Tax Deferred Exchange may not work in this instance because the property has not been held for any appreciable period of time.  Short term capital gains tax would have to be calculated prior to determining profit.  Again, here is where a good accountant who also understands the workings of 1031 tax deferred exchanges is necessary.

   Think about a team and who you need on your team to make investing in property profitable and fun! Check professional people with good credentials, too many properties have been fixed up by rank amateurs.  Your goal is to have your property stand out and sell immediately!

       I often look at people who are slim and trim … people who can speak another language…or people who seem to know so much about a particular subject. Then I realize, it is all slow but steady.  Most of these people developed some kind of plan:  eating and working out in a healthy manner; learning new vocabulary and verb conjugations; or studying a particular subject.

   The same is true for that person who owns a 120 unit apartment complex.  It’s a plan.  Generally it does not happen overnight.  It requires homework.  But advanced planning may make it a bit easier.

     In a previous post, I talked about the power of a 1031 Tax Deferred Exchange combined with a good plan of action purchasing investment properties.   Real estate can generate cash flow for your retirement.   And with today’s low interest rates and the numbers of properties on the market, the time is ripe to make a long term plan and begin to implement it for your future.

    People often say they want an investment property which generates good cash flow.  That’s all they know.  They have no philosophy of investing.    As a potential investor, your first decision should be:  What types of properties do you want to purchase?  This may be determined by your price point.

     “A” properties are those properties which are usually the most expensive; townhouses, condos, single or multi family homes in the most expensive areas of town.  They generally command the highest rental prices.

    “B” properties are mid priced properties; townhouses, condos, single and multi family homes in middle class neighborhoods. 

     “C” properties are properties in lower income neighborhoods, but managed properly, can be a solid investment.

      There will always be people who are eager to rent in each type of property.  In a down market, people may move from an “A” property into a “B” property, and people in a “B” property, may move to a “C” property to save money.  Think about the area in which you live and where “A” properties, “B” properties, and “C” properties are located.  Check the areas and the price points of these properties.   

     Condos, townhouses, and single family homes all present different investment strategies.  Often these properties have association fees.  What the fees cover and the management company is important.  Some management companies do a far better job than others and surveying the area for deferred maintenance is important.

   As an investor, do you want to maintain the grounds?  How much are the association fees?  Can you buy a different type of property without association fees and maintain the property yourself or hire a groundskeeper for less than the association fee?      How much time do you want to devote to managing property?  These are important questions for the potential investor to answer honestly.

     I am a firm believer in purchasing properties in the same general area.   When you drive by one property, you can drive by all.   Problems arise when landlords do not know what is transpiring with their property.  Seeing aluminum foil on the windows may tell you something other than the tenant is a day sleeper. Mileage and drive times are costs of owning property and it is important to check your asset on a regular basis.

Tomorrow:  The power of a 1031 Tax Deferred Exchange

Resource:  Qualified 1031 Tax Deferred Exchange Facilitator

http://www.leverageexchange.com/pdf_files/1031%20exchange%20info.pdf

Business Brokerage, Commercial Agent:

http://www.sonoitaproperties.com/