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Hi there and welcome back to The Wealth Wagon, I hope you had an amazing weekend and are ready for a great week. What’s a better way to start the week then with real estate. Enjoy!

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Real Estate Investing

Market Snapshot:

Phoenix continues to be one of the hottest real estate markets in the U.S. due to its growing population and tech sector expansion.

• Median Home Price: $420,000 (as of September 2024)

• Year-Over-Year Growth: 8%

• Rental Market: High demand with average rental prices up 5%, making it an investor’s haven for rental properties.

• Vacancy Rate: 2.9%, indicating strong demand for housing in both the residential and commercial sectors.

Deal Of The Day:

• Property Type: 4-Unit Multi-Family Property

• Price: $1.1 million

• Gross Rental Income: $89,000/year

• Cap Rate: 7.5%

• Highlights: Located near downtown Austin, this property is fully vacant and has recently undergone a $70,000 renovation, making it a great turnkey investment. With Austin’s booming tech industry and population growth, this property offers strong appreciation potential.

Real Estate Tip:

Investment Strategy:

A sandwich lease option is a strategy where you lease a property from a homeowner with an option to buy and then sublease it to a tenant-buyer.

• How It Works:

  • Step 1: You sign a lease agreement with a homeowner that includes an option to purchase the property at a set price within a certain timeframe (e.g., 2-3 years).

  • Step 2: You then find a tenant who leases the property from you with a similar option to purchase.

  • Profit Margin: You earn the difference between the rent you pay the homeowner and what you charge the tenant, plus any potential appreciation if the tenant exercises the option to buy.

  • Key Benefit: This allows you to control a property without needing a large down payment, minimizing your upfront risk.

Current Interest Rates:

• 30-Year Fixed Residential Mortgage: 7.35%

• Commercial Loan (5-Year Fixed): 6.85%

• Investment Property Loans: 7.60% for 20% down

• Phoenix, AZ Local Rate: 7.20% for residential homes
  Rising interest rates continue to make it harder for first-time buyers, but they’re also providing cash-flow opportunities for well-capitalized investors seeking higher rental yields.

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• Expertise: Our knowledgeable team knows the ins and outs of the real estate market.

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Economic Conditions

• Unemployment: National unemployment sits at 3.8%, but in key markets like Phoenix and Austin, it's lower at 3.4% due to strong tech and real estate sectors.

• GDP Growth: The U.S. economy grew by 2.1% in Q3 2024, reflecting steady recovery from inflationary pressures.

• Inflation Impact: Rising construction costs, up 6% year-over-year, are squeezing developer profits but pushing rental prices higher, benefiting buy-and-hold investors.

How Rising Interest Rates Are Shifting Investor Strategies

The rising interest rates have created both challenges and opportunities for real estate investors. While higher borrowing costs—now sitting at 7.35% for 30-year fixed mortgages—have made financing more expensive, this shift is also weeding out inexperienced investors, leaving more opportunities for seasoned pros. Savvy investors are looking toward cash-flow properties and creative financing options like seller financing and lease options to hedge against high borrowing costs.

Many investors are turning their focus to multi-family properties, where rising rents can offset higher interest expenses. In markets like Phoenix and Austin, where rental demand remains high, cash-on-cash returns are still attractive despite increased financing costs. As interest rates continue to rise, finding ways to maximize rental income or lock in longer-term fixed-rate financing will be key strategies.

Key Takeaways:

• Phoenix Market Insight: Growing demand with home prices up 8% year-over-year.

• Deal of the Day: Austin multi-family, $1.2M, 7.5% cap rate, fully renovated.

• Tip: Keep 3-6 months in reserves for unexpected expenses.

• Strategy: Sandwich Lease Option — control property with minimal upfront cost.

• Interest Rates: Rising rates (7.35% for 30-year fixed) are making financing more expensive but increasing rental demand.

• Economic Conditions: Inflation is pushing up rents and construction costs, but key markets remain strong for investors.

Subscriber Q&A

Q: What are the key financial benefits of owning a home versus renting? - Subscriber
A: Owning a home allows you to build equity over time as you pay down your mortgage and the property potentially appreciates in value. Homeowners also enjoy tax benefits, like mortgage interest deductions, and the ability to borrow against home equity. Renters, on the other hand, don’t build equity but may have more flexibility without the costs of maintenance or property taxes.

Q: How do interest rates affect the real estate market? - Subscriber
A: Higher interest rates make mortgages more expensive, which can reduce demand for homes and lower prices. On the other hand, lower interest rates make borrowing cheaper, leading to higher demand and potentially driving up home prices.

If you have a questions regarding real estate reply to this email or email us at [email protected] 

That’s All For Today

I hope you enjoyed today’s issue. If you have any questions regarding today’s issue or future issues feel free to ask. Come back tomorrow for information on how to grow your income and wealth. I hope to see you.

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