Why I’m Betting on the Arizona Real Estate Market (Over the Midwest)

Why I’m Betting on the Arizona Real Estate Market (Over the Midwest)

4 min read
Ben Leybovich Read More

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Some of you may have noticed my relative absence from this blog in the past month and a half. Indeed, I’ve been busy. Buying a home to live in, rehabbing it, and moving in tends to occupy a lot of time — and we are still not finished.

But having sold our primary in Lima, OH and purchasing another in Chandler, AZ, I’ve gained an interesting cross-country perspective on the dynamics of the marketplace. Long story short, I am very bullish on Arizona, and I’ll provide you with some broad strokes as to why in this piece. I hope you find my experiences from the last 6 months helpful in formulating your own perspective and strategy.

Selling My Primary Residence in Lima

I built our Lima home in 2006. It was a well-built house with 3 beds and 2 baths. Though not large, at 1,560 sq.ft., there were hardwoods throughout, good quality windows, and a well-appointed kitchen with electric cooktop and double ovens. It did not, however, have granite countertops in kitchens and baths. Nor were there tile surrounds. “Clean but fiberglass” was the name of that game. My property taxes for this home ran about $2,500/annum in 2016 when we sold the house.

The biggest drawback with this house was the location. It’s funny, but a friend and I went out for steak last night at this place called The Keg Steakhouse — which is fabulous and I recommend if you are ever in Chandler — and the server tells as she grew up in Dublin, OH (suburb of Columbus). Likely overhearing our real estate talk, she chimed in (’cause everyone is a real estate expert, you know). According to her, Columbus is the only place worth anything in Ohio — everything else is, as she put it, is the “armpit of the world.” Be honest now — how many times have you heard me say this!? It’s true, and the bartender was right, with the only obvious exception, naturally, of Toledo. (Yep, I went there.)

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Ohio Pricing (Michigan, Indiana, North Carolina)

I sold my 1,560 sq.ft clean-but-no-frills house in Lima for $174,000, meaning I sold it for $111.50/sq.ft. Here’s the thing — you pick that house up and move it to Upper Arlington, Dublin, Gahanna, or any other suburb of Columbus with decent school districts, and without changing a single screw in the house, it immediately becomes worth $225,000 or more. The same is true of any part of Cincinnati, Indianapolis, or Charlotte you’d want to live in.

In other words, from $111/sq.ft., we’d have to jump up to about $140/sq.ft. in order to be in a more affluent, more convenient, larger market with decent educational opportunities for children. This is without changing anything about the amenity package in the house itself. You add granite countertops, stainless steel appliances, travertine on the shower walls, etc., and you are looking at another $15/sq.ft., putting you at a $155/sq.ft. valuation.

The above means that in order to relocate to a better market in the Midwest, I’d have had to spend $240,000-$250,000 to replace my exact house. If I were wanting to add a bit of square footage, say 2,400 sq.ft., I’d need to spend $372,000 at $155/st.ft. Additionally, that $2,500 of annual property taxes that I was paying in Lima would instantly double and triple (NC) in a larger market in Midwest.

Intrinsic Value

What I described above can be referred to as the intrinsic value of housing. Simply put, folks who want to live in these markets pay this money for the privilege. Naturally, there are fluctuations, but all and all, things cost what they cost — intrinsic value.

And for this money, here’s a list of things that I could buy in the Midwest:

  • Messed up roads and infrastructure
  • High property taxes
  • Cold six months out of the year
  • Snow/sleet
  • The particular pleasure of scraping windows on my car for four months out of the year
  • Aging and declining population
  • Stagnant incomes
  • And all the rest of the nonsense

Phoenix MSA

I just bought a house in gorgeous Chandler, AZ — about 20 minutes from Sky Harbor Airport and the stadium where just a few days ago Clemson handed Ohio State their butt. Guess how much I paid?

I paid $150/sq.ft., for this 2,400 sq.ft 2005 home. I am spending $10/sq.ft. on upgrades, and at $160/sq.ft., I’ll have a private pool, travertine on all 3 baths, granite in both kitchens and baths, with a bonus of sunshine, blue skies, and the highest-rated school system in the United States (google Basis Charter Schools). My property taxes here are $2,400/annum, which is less than I was paying for a house half the size in Lima, OH — and much less than I’d be paying in Columbus or Charlotte. And to top it off, there is an interesting feature in this house that I’ll talk about in a future article.

For now, understand, I am living in Chandler, AZ — 12 minute drive from Intel, PayPal, Wells Fargo, and thousands of tech jobs in the works. I am looking at blue skies and palm trees, with every modern convenience known to man within 10 minutes from the house, and most within 2 minutes (you have no idea how much dead time we spent getting to and from things while in Lima).

And here’s the kicker — I am getting all of this at intrinsic value. I am getting all of this for $160/sq.ft — the same $160/sq.ft it would have cost me to stay in the Midwest.

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Is Phoenix Inflated?

I could have bought this house for $100,000 less 5 years ago. I didn’t! Today, prices have recovered toward intrinsic value. Considering the explosion of population in Phoenix MSA, considering the employment dynamics, and considering the fact that housing cost the same here as it does in Ohio, it is very hard to say that it is inflated.

In fact, lots of people expect Phoenix MSA to be the #1 performing market in 2017, and if we experienced 8%-9% YOY appreciation, I would be neither surprised nor alarmed. Maricopa County ranked posted population growth of 1.9% in 2015 according to the Census — second only to Houston. The fundamentals here are strong — much stronger than the Midwest,– but pricing levels today are the same.

Just my uninformed firsthand take. Hope you find it helpful!

What markets are YOU finding to be most promising?

Let me know your thoughts with a comment.