How do I determine the best strategy for my city?

Question

Hi!

I'm trying to invest in Tucson, Arizona as the price point aligns with what I can afford and it's relatively close to me (San Diego). I'm trying to decide, however, what the best strategy is for any given city (specifically for me, it'd be Tucson) but general advice is fine!

I was going to do student housing, but my realtor said it's not the best strategy for the city, as most students live in apartment complexes or on campus. I'm considering instead:

- Medium term rentals

- Airbnb

- small multifamily, long term rental

But curious how you picked a strategy for your city. Thanks!

Joey Banasihan · Answer

@Mary Ainsworth great question, but my question to you is "what is your goal?" First, lets start with your realtor and the misinformation around student housing. As someone who worked in student housing and residential life for 6 years with a MA in higher education, I can tell you students are looking for all sorts of housing situations and Single Family homes room to room rentals for college students are an untapped strategy.  At University of Arizona there are ~34,000 students and only ~7400 can live on campus, which means the rest are needing housing.  If you find a 4/2 SFH, with adding some furnishings (bed/matress, dress, and desks in each room) you could potentially rent it room by room for ~$950-~$1100 per room (you may need to dive deeper into this range; this is based on student room to room rentals for Boise State University students that rent in this area). Apologies for my rant but you may need to interview other realtors ;)

Next, I think it comes down to your goals (realistically). Everyone and their mother wants a cashflowing asset (me too) but the most wealthiest folks that I know personally have gotten their through the equity/appreciation of their assest over a long period of time. And for some, the most important goal is to just get started and purchase the 1-3 properties.

Finally, I have picked Househacking, MTRs, and ADU/DADU.  Currently doing all three in the home I am in (built an ADU within the basement and renting it as a MTR 2BR/1BA for ~$2k a month). The income is paying down our HELOC which we opened to consolidate the money we borrowed to purchase and fix the rental. So it doesn't offset our mortgage or give us cash flow, but does pay down our HELOC and onces it is paid off, we will use that for the next property.

Hope this sorta helps haha and I hope you are able to solidify your next steps! Please reach out if you ever want to process more!

Josh Young · Answer

@Mary Ainsworth you need to ask your Realtor for the best strategy for their city, it is their job to be the expert.  If you are out of state you also want a Realtor who can manage the property for you too, so they are analyzing the deal for you and know what kind of revenue you can expect.  I will let you know that mid-term rentals, STR, and rent by the room are all more of an active business and have much higher management fees, so the net returns aren't necessarily any higher for you as an out of state investor.  Small multi-family properties can be good, but with added supply of new apartments coming online rents have started to drop a little, and there is very limited supply of these small multi-family properties, so they tend to be overpriced relative to the rental income. The best deal is if you go north of Tucson into Casa Grande or even Florence, Coolidge, or Maricopa you can buy a new build for just over $300k and will rent for just under $2k per month, you are able to get a lower interest rate on these than you can on anything else because the builders have their own lenders that will buy your rate down, so you can break even on cash flow in year one if you put 30% down.  Full Disclosure, I am an investor friendly agent and property manager and I help my out of state clients find, buy, analyze, and manage properties using this exact strategy.

Emily And Eric Erickson · Answer

Mary

Tucson has many types of strategies that work, including student housing. The more important question is what strategy works best for you and your style and capacity. Being in San Diego should be a factor on which of the below makes sense for you

Student housing is definitely not for the faint of heart as you are managing 18-22 y/o's and their long distance parents and you definitely need a strong maintenance team and ability to turn units quickly every year. As noted before, they have higher rents and have higher service needs and with the UofA in the middle of town, there is lots of interest and competition in this niche. It is definitely NOT an untapped strategy for Tucson with big money condo builders doing all they can to squeeze out single family rentals that are farther from campus.

Medium term rentals have a place here as well with a large hospital network and retired population. Key here is location and doing the legwork on which marketing works best to keep them filled

Airbnb is also very lucrative in Tucson, and I have one unit myself. Turnover management and booking strategy are the keys of success for this type where you essentially running your own small hotel. For Airbnb areas in Tucson, check out my more in depth post on it here: https://www.biggerpockets.com/forums/530/topics/1036147-str-...

Long term investing is where I have put the majority of my personal investment focus into. The initial set up can be quite intensive but once filled, are a predictable source of cash flow. High interest rates and prices are putting a significant squeeze on cash flow numbers currently for this class, so finding the right deal does require more patience

Which of the above seems like a good fit for you?

Julien Jeannot · Answer

I find it is mighty helpful to start with the goals in mind, assess your current situation and plot a course to bridge the two.

Goals

• Start building a rental portfolio
• Needed a place to live and did not want to rent
• Safe location
• Subsidized living (house hack)
• Garage
• Privacy
• Able to commute to work
• Value add play that I could do myself or hire a contractor without breaking the bank

Solution

• Property: Duplex
• Condition: Cosmetic rehab & rents under market
• Neighborhood: 1970ish, safe, long but doable commute
• Garage, big yard & sub dividable – will build DADU eventually
• Did not match any of the "standard" rules.

Results over time (5+ yrs)

• 2x equity
• Cash flows $1500/mo
• Fully rehabbed
• Used a HELOC to finance another property’s rehab

Mary Ainsworth · Answer

Thanks Joey! appreciate this, you're right I at least need to talk to more people in the area and see if that's how other people feel too

How do I determine the best strategy for my city?

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