Lender · Mesa, AZ · Member since 2015 · 13 posts · 4 votes
I live in the Phoenix area and I've been looking for a 2-4 unit property here with the intentions of buying it through FHA and living in it for a year or two and then moving out.
I'm running in to a number of problems:
1) There are not many 2-4 unit properties in the Phoenix area relative to areas like the midwest and/or east coast and for the most part the multi-family homes here seem to be located in less than desirable areas.
2) It seems to be very difficult to find one that will cash flow. I don't necessarily want to live in a mulit-family home but I would do so for a year or 2 if I can find something where the numbers work.
I'm sure if I look long enough I will find something that makes sense and if I do I will definitely jump on it but I'm also considering investing out of state in a market I am very familiar with and where I have a few trusted contacts. I believe I can find properties quicker there that will cash flow and the purchase price is about a 1/3rd on average of what I would pay in the Phoenix area.
I know I'm far from the 1st person here to run in to this issue so I guess my question would be if you're in a market where you're having a hard time finding properties to buy and hold that cash flow did you ultimately invest out of state and how has it worked out for you?
@Joe W., I feel like you're exactly where I was a year ago.
I am in Los Angeles. Like Phoenix, it perfectly fits your description of "a market where you're having a hard time finding properties to buy and hold that cash flow."
Like you as a mortgage underwriter, I have many years of experience being a professional supporting real estate investors as a CPA, but I now wanted to become a real estate investor myself.
In late November of last year, like you're doing this November, I wrestled with the question of investing locally with a 4-unit purchased with FHA financing vs. investing out-of-state and got a lot of great advice.
Like you, my goal is to retire within the next 10-15 years via real estate investing.
As a result of some of the advice I've read through the forums (I would recommend you pay attention to guys who have been in real estate for decades like @Jay Hinrichs rather than the younger folks who are often just pushing their turnkey products) and speaking to investors at local real estate groups, I decided that given my place in life I would be wiser to place my bets on California appreciation over the next 20-30 years rather than investing in some beat-down property in Cleveland for an extra $400 or whatever in cash flow per month.
Given the facts that (1) I could get into a property for a measly 3.5% down, which would free up cash to invest in other places if I so chose, (2) I was already throwing away rent every month such that I could still be cash flow negative of $650/month (what I was paying in rent) and still be better off because a portion of my monthly payment would be building my equity and the rest would be tax deductible, and (3) I'm in my 20s and have the time to take a long-term view of appreciation potential, it was a no-brainer to go the FHA 4-plex route in LA, despite the fact that it is one of the most expensive markets in the country.
This isn't to say that the process was easy. It took time. I just closed in September. But I eventually found my property on the MLS. This was the listing. Purchase price was $435,000, and the seller gave me a credit for $15,000 to cover various repair costs, particularly roofwork in anticipation of El Ni
@Joe W., I feel like you're exactly where I was a year ago.
I am in Los Angeles. Like Phoenix, it perfectly fits your description of "a market where you're having a hard time finding properties to buy and hold that cash flow."
Like you as a mortgage underwriter, I have many years of experience being a professional supporting real estate investors as a CPA, but I now wanted to become a real estate investor myself.
In late November of last year, like you're doing this November, I wrestled with the question of investing locally with a 4-unit purchased with FHA financing vs. investing out-of-state and got a lot of great advice.
Like you, my goal is to retire within the next 10-15 years via real estate investing.
As a result of some of the advice I've read through the forums (I would recommend you pay attention to guys who have been in real estate for decades like @Jay Hinrichs rather than the younger folks who are often just pushing their turnkey products) and speaking to investors at local real estate groups, I decided that given my place in life I would be wiser to place my bets on California appreciation over the next 20-30 years rather than investing in some beat-down property in Cleveland for an extra $400 or whatever in cash flow per month.
Given the facts that (1) I could get into a property for a measly 3.5% down, which would free up cash to invest in other places if I so chose, (2) I was already throwing away rent every month such that I could still be cash flow negative of $650/month (what I was paying in rent) and still be better off because a portion of my monthly payment would be building my equity and the rest would be tax deductible, and (3) I'm in my 20s and have the time to take a long-term view of appreciation potential, it was a no-brainer to go the FHA 4-plex route in LA, despite the fact that it is one of the most expensive markets in the country.
This isn't to say that the process was easy. It took time. I just closed in September. But I eventually found my property on the MLS. This was the listing. Purchase price was $435,000, and the seller gave me a credit for $15,000 to cover various repair costs, particularly roofwork in anticipation of El Ni
@Logan Allec there are thousands of 4 plexs in PHX many went through foreclosure about 5 to 6 years ago and were trading for less than 100k per 4 plex with rents at 2400 gross.
these are probably bounced back to about 150 to 200k... they peaked in 07 at 350k FYI
I knew many bay area folks who bought them at 350.. .there was a RE agent in PHX Linda Gercheck who brought her RE broker team to the bay area and did fly buy program and as stated she killed it in 05 to 07..
There are great deals all over the US.. just depends on where you want to be and what your risk tolerances are... the house hack 4 plex for the under 30 crowd on the west coast in my mind is a total no BRAINER ....
Thanks for the detailed reply. I really appreciate it and I'm going to take a look @ everything you've linked to and I'm sure I'll be reaching out to you in the not too distant future.
One follow up question... What is your plan going forward in terms of acquiring additional properties?
Are you content to spend nearly a year attempting to locate your next property in the LA market or do you have a plan to accelerate that process? --- I would wonder if the temptation of the "Clevelands" of the world might still tempt you.
@Joe W., I feel like you're exactly where I was a year ago.
I am in Los Angeles. Like Phoenix, it perfectly fits your description of "a market where you're having a hard time finding properties to buy and hold that cash flow."
Like you as a mortgage underwriter, I have many years of experience being a professional supporting real estate investors as a CPA, but I now wanted to become a real estate investor myself.
In late November of last year, like you're doing this November, I wrestled with the question of investing locally with a 4-unit purchased with FHA financing vs. investing out-of-state and got a lot of great advice.
Like you, my goal is to retire within the next 10-15 years via real estate investing.
As a result of some of the advice I've read through the forums (I would recommend you pay attention to guys who have been in real estate for decades like @Jay Hinrichs rather than the younger folks who are often just pushing their turnkey products) and speaking to investors at local real estate groups, I decided that given my place in life I would be wiser to place my bets on California appreciation over the next 20-30 years rather than investing in some beat-down property in Cleveland for an extra $400 or whatever in cash flow per month.
Given the facts that (1) I could get into a property for a measly 3.5% down, which would free up cash to invest in other places if I so chose, (2) I was already throwing away rent every month such that I could still be cash flow negative of $650/month (what I was paying in rent) and still be better off because a portion of my monthly payment would be building my equity and the rest would be tax deductible, and (3) I'm in my 20s and have the time to take a long-term view of appreciation potential, it was a no-brainer to go the FHA 4-plex route in LA, despite the fact that it is one of the most expensive markets in the country.
This isn't to say that the process was easy. It took time. I just closed in September. But I eventually found my property on the MLS. This was the listing. Purchase price was $435,000, and the seller gave me a credit for $15,000 to cover various repair costs, particularly roofwork in anticipation of El Ni
I'm somewhat confused by the foreclosures on the multi-plex's in Phoenix. Was this just a case of lazy or upset investors regarding the value of the property (say going from $300k to $100k)? I guess I don't understand why someone would let a property go even if the value of the property was down so long as it was cash-flowing.
@Joe W. well sometimes we have short memeories or your young enough to just be getting starting in RE business.
2 things happened in phX that tanked those values..
1. politics kicking the illegals out.
2. building stopped tenants left
Much of this housing was and is hispanics they were fleeing back to mexico for political reasons and because new contruction stopped loss of job was huge.
so you had 4 plex's go vacant or only have one or 2 tenants.
And of course the dreaded turn over which always cost money along with under capitalized owners in many cases could not afford negative cash flow along with turn over expenses led to a melt down.
things have rebounded... same thing happned in Vegas with the 4 plex's there.
@Joe W., my second property was purchased with cash from a motivated seller in a less-expensive part of Southern California called Antelope Valley. I found the seller through sending out yellow letters. He had purchased the property for $210,000 back in 2006. The tenant had stopped paying rent, and the elderly seller just didn't want to deal with it any more. I have removed the non-paying tenant, and now two great tenants with good jobs and are very handy (they do all the repair labor for me; I just pay for materials) live there paying $700/month (this is a bit below market, but I'm OK with that since they help me out with repairs).
My plan is to keep on doing some necessary repairs--just cosmetic stuff like replacing the broken blinds and replacing the smoke detectors, etc., since there's nothing major that needs to be done (otherwise I would use contractors rather than the tenants)--and then sell it to a local investor for $85,000ish who wants cash flow but doesn't want to go out-of-state or just refinance and keep it as a cash-flowing rental and then use the money from the refinance (or the sale) to, depending on how the market's looking, collect additional cash-flowing properties in the Antelope Valley or simply sit on cash until we have another correction. Thanks for asking!
I live in the Phoenix area and I've been looking for a 2-4 unit property here with the intentions of buying it through FHA and living in it for a year or two and then moving out.
I'm running in to a number of problems:
1) There are not many 2-4 unit properties in the Phoenix area relative to areas like the midwest and/or east coast and for the most part the multi-family homes here seem to be located in less than desirable areas.
2) It seems to be very difficult to find one that will cash flow. I don't necessarily want to live in a mulit-family home but I would do so for a year or 2 if I can find something where the numbers work.
I'm sure if I look long enough I will find something that makes sense and if I do I will definitely jump on it but I'm also considering investing out of state in a market I am very familiar with and where I have a few trusted contacts. I believe I can find properties quicker there that will cash flow and the purchase price is about a 1/3rd on average of what I would pay in the Phoenix area.
I know I'm far from the 1st person here to run in to this issue so I guess my question would be if you're in a market where you're having a hard time finding properties to buy and hold that cash flow did you ultimately invest out of state and how has it worked out for you?
Joe, great decision, not only should you consider buying using FHA, perhaps consider buying a fixer upper and using a FHA203k Loan to acquire and renovate at the same time. I am not certain based on what you have written if you have employed this tactic yet, if you have not, this can be a very easy way to achieve your goals.
If you are considering of living in the multi, you will achieve ultimate financial benefit of having a decreased living exposure, this should be the goal. If you have the ability to do multi I say do it!
Out of state investing can be very successful as long as you have a good reliable contact or team in place.
Your question poses a good argument, if you can define something in your hyper local market that is a multi, you do not mind living in it, even perhaps buying a fixer upper, I think you can make it work anywhere you live. The next phase of your investing may have to extend out of state, if the housing cost are to high in your immediate local market, their are ample markets where housing is very affordable and investment opportunities can be very fruitful. I think that risk spread os a major component to a successful investment portfolio. Yes, maybe you can buy (1) or (2) in your local market, but, if you can get some high quality turnkey or investment assets in alternate out of state markets where you can purchase 2-4, 6-12 etc. assets, you have what should be a safer play. It all comes back to not placing all your eggs in one basket.
I think you will find a lot of wise arguments on BP, just note, its all about the team, individual, contact that you have in place that is a reliable, trustworthy, and transparent contact, so do your homework complete your due diligence, all people and assets are not alike.
@Joe W., I feel like you're exactly where I was a year ago.
I am in Los Angeles. Like Phoenix, it perfectly fits your description of "a market where you're having a hard time finding properties to buy and hold that cash flow."
Like you as a mortgage underwriter, I have many years of experience being a professional supporting real estate investors as a CPA, but I now wanted to become a real estate investor myself.
In late November of last year, like you're doing this November, I wrestled with the question of investing locally with a 4-unit purchased with FHA financing vs. investing out-of-state and got a lot of great advice.
Like you, my goal is to retire within the next 10-15 years via real estate investing.
As a result of some of the advice I've read through the forums (I would recommend you pay attention to guys who have been in real estate for decades like @Jay Hinrichs rather than the younger folks who are often just pushing their turnkey products) and speaking to investors at local real estate groups, I decided that given my place in life I would be wiser to place my bets on California appreciation over the next 20-30 years rather than investing in some beat-down property in Cleveland for an extra $400 or whatever in cash flow per month.
Given the facts that (1) I could get into a property for a measly 3.5% down, which would free up cash to invest in other places if I so chose, (2) I was already throwing away rent every month such that I could still be cash flow negative of $650/month (what I was paying in rent) and still be better off because a portion of my monthly payment would be building my equity and the rest would be tax deductible, and (3) I'm in my 20s and have the time to take a long-term view of appreciation potential, it was a no-brainer to go the FHA 4-plex route in LA, despite the fact that it is one of the most expensive markets in the country.
This isn't to say that the process was easy. It took time. I just closed in September. But I eventually found my property on the MLS. This was the listing. Purchase price was $435,000, and the seller gave me a credit for $15,000 to cover various repair costs, particularly roofwork in anticipation of El Ni
Logan, all great points, I think that the local 4-plex move is the way to go! In-fact, I think it is a good move in any territory, regardless of where you are in the country (LA, PHX, NY, CLE, etc.) it is a good way to build wealth long-term, hopefully reduce the cost of your living and begin building wealth for a very low cost relative to your purchase price. You may want to consider even using a FHA Renovation Loan and seeking out a fixer upper.
I cannot agree with you anymore that people like @Jay Hinrichs are extraordinary resources. I can assure you though, that some of the young guys on BP really know what they are talking about, especially when discussing their hyper local markets. Being a young guy out of Cleveland, with more than 1,000+ RE SFR & Multi transactions, in numerous capacities completed, my track record is vast and knowledge capacity is wide. I think your vision statement in your response was narrow. You have picked Cleveland as the victim city in your response, Cleveland is a strong RE Investment space, it all boils down to the same logic as anything else, no matter where you are in the country, you need to have a good plan, team, asset in place for your out of state investment to be a success. Yes, do I beef in turnkey, yes I do, because it can work if the process in place with your operator is correct.
Buying a local multi to live in, collect rent and use your spare cash to invest out of state. Spread your risk, if you are young, experienced, old, novice does not matter RE investing is all about doing your homework, working with a good contact, partner, operator. Many different ways you can do it, if you do want to invest out of state, outside of your personal hyper local space, why not work with a reliable and experienced operator / Turnkey Company.
Turnkey brings you efficiency, experience, knowledge, capacity, savings, security and beyond all in one package, if you want to be passive RE investor building wealth, you can use a reputable Turnkey operator to do your dirty work for you and collect your passive income. Build your wealth, spread your risk, use the economies of scale of local operators to make more ROI.
I really think you may want to take another look at Cleveland and reconsider, we are an amazing space:
Did you know:
CLE - home to the 2016 Republican National Convention
CLE - Superman was created here
CLE - Cleveland Clinic #1 Heart Surgery Center in the World
CLE - Over a dizen Fortune 500 Companies
CLE - Second largest theatre district in the Country
CLE - Epicenter for BioMed Research & Development
CLE - A great place for the WHOLE family/
CLE - A great place for investing come check out the beautiful things CLE has.
It should go like this, "Cleveland, at least we are not Detroit."
Mark
Mark, good one! Actually, I think you hit it right on the head with this one, we are not Detroit, we are CLE "Cleveland"
Our housing stock and rental market is lush with fruitful inventory, we have been a workhorse during tough times and a stallion during good times, I recommend checking out some of my other posts about CLE, and I encourage you to come visit us, I assure you that you will develop a whole new perception of our great city and everything it has to offer. We have thriving development and resurgence in all areas of the Greater Cleveland area.
Check us out, give us a chance we are NOT Detroit.
It should go like this, "Cleveland, at least we are not Detroit."
Mark
Mark, good one! Actually, I think you hit it right on the head with this one, we are not Detroit, we are CLE "Cleveland"
Our housing stock and rental market is lush with fruitful inventory, we have been a workhorse during tough times and a stallion during good times, I recommend checking out some of my other posts about CLE, and I encourage you to come visit us, I assure you that you will develop a whole new perception of our great city and everything it has to offer. We have thriving development and resurgence in all areas of the Greater Cleveland area.
Check us out, give us a chance we are NOT Detroit.
It should go like this, "Cleveland, at least we are not Detroit."
Mark
Mark, good one! Actually, I think you hit it right on the head with this one, we are not Detroit, we are CLE "Cleveland"
Our housing stock and rental market is lush with fruitful inventory, we have been a workhorse during tough times and a stallion during good times, I recommend checking out some of my other posts about CLE, and I encourage you to come visit us, I assure you that you will develop a whole new perception of our great city and everything it has to offer. We have thriving development and resurgence in all areas of the Greater Cleveland area.
Check us out, give us a chance we are NOT Detroit.
It should go like this, "Cleveland, at least we are not Detroit."
Mark
Nothing to be ashamed of, If they work on it they can accomplish great things like Detroit has!
Did you happen to notice that Dan Gilbert had to make more than $1,000,000,000.00 investing in Detroit Michigan before he could afford to convince LeBron James to come back to the city of Cleveland?
As LeBron says "You have to focus if you want to take it to the next level."
@Joe W.when I was living in NYC for 10 years I had the same problem. I was in a market that had lots of money but not many cash-flowing deals. I ended up doing research and picked DFW as a good buy-and-hold market for cash flow. It's worked out pretty well.
I recommend finding a market that has the following:
good employment trends (it should beat the national unemployment rate)
job diversity (no one industry makes up more than 40% of the economy - the lower the % the better)
good supply and demand - check out the availability of homes compared to the # of people looking (it's called the Absorption rate)
a good team that is experienced and you trust (probably the most important because the money is in the execution of the biz plan, not creating the biz plan)
Phoenix is a FANTASTIC rental market when politics don't get on the way. We have owned property there, which has doubled in value within a few years and keeps going up! The area has seen much redevelopment in the last 15 years. A high percentage of the population is Hispanic and some politics don't like that. When politics kick out the immigrants, off it goes prosperity, redevelopment and all of your tenants, ALL at once. Some people should read recent economic history books and reviews occasionally.
Remember that your FIRST property is always the hardest to acquire - your own doubts and inexperience get on the way all the time, just as you wondered about foreclosures. As a first time property owner, I would also recommend you to STAY LOCAL! We own property internationally and there is a bit of a stress when you get a call from London or NY on a flooding leak - no matter how much you trust your local property managers or how long you've been in real estate.
You should get the advice of an experienced local broker, who can help you find a property, find rental comparables, and also refer you to reasonable contractors. Sometimes landlords don't raise rents for years on fear of losing good paying tenants. Those are the landlords that tend to procrastinate on property maintenance. If you buy a property that needs work, you should see nice upside in rents, once you renovate. With an FHA loan, you can leverage on the existing and projected rents nicely.
I'm in LA so same problem here, and I've always bought out-of-state and prefer it. If you do it, it's all about the teams you work with as they are the ones who will really make or break your investments. Before that, just knowing market fundamentals and all that jazz are important in getting a decent property. But once you have all that in place, it can work great! (and even all that isn't too hard)
