I am a real estate agent in CA looking to buy rentals in Arizona. What would you say is a hot city for rentals? I am doing my research but will love to hear from real people and investors.
Thank you all in advance for your answers.
Depends on your budget. Scottsdale, Sedona and some pockets in phoenix. A good site to list vacation rentals on is Tripz.com as well
@Claudia Almaraz I manage Properties in Mesa, Gilbert, Queen Creek, San Tan Valley, Chandler, Maricopa, Tempe, Scottsdale and Phoenix and currently have zero vacancies.
I would say demand is high in the SE Valley. Picking the right City will depend some on your budget and what numbers you are looking for.
What is your main goal, cash flow or appreciation?
I would agree that it really depends on your budget and what type of property you are looking for. I would recommend looking into south Scottsdale - 85257/85251. I have a single family property in 85257 and an investor friend has one in 85251, both cash flow very well and generate a ton of interest when we need to rent them.
Originally posted by @Claudia Almaraz :
We are looking to purchase a home for less than $200,000 to have at least of $300 passive income after expenses. We can not find anything here in California and was hoping to have better luck in AZ.
My criteria is identical to yours and i'm having a hard time finding a property in which the numbers make sense and the cash flow is there. Right now i'm getting reports from my agent and am focusing on the central corridor, scottsdale and tempe/ASU area.
In those areas, most properties in that price point are apartments/condos and the HOA fees eat into your bottom line and make the deal a bad one.
I like these areas so i will continue to look but i may need to expand my search criteria in order to find something. Good luck!
Thank you @Mike Malfitani , we have to continue to look :)
@Claudia Almaraz I would have to echo what @Doug McVinua asked, would this be for cash flow or for appreciation and would you be buying with cash or getting a 75% loan on the property? All this will need to be taken into consideration when buying a property.
@Trisha Thornton You say you are cash flowing in scottsdale. I would love to see the numbers that you are getting in there. We don’t invest there because we haven’t seen the numbers work but if you are able to get the numbers to work then I’d love to know what those numbers are. Thanks.
While you won't be able to purchase at that price point in my neck of the woods, I would be happy to point you towards some great realtors in the Cave Creek, or general Phoenix area, where you should be able to find something.
@Shiloh Lundahl I'd be happy to give you any numbers. I think the biggest factor is that we have no problem renting them at $2,400+/month (3/2 and 4/2 single families).
In Phoenix you cannot go wrong in just about any area ( however doing research is optimal to yielding the best possible return).
I currently have a very successful short term platform for rental properties in the Old Town Scottsdale market that yield 14-16% annual ROI. However, with that said, it’s not an “easy return”. I am a hands on owner/ manager.
I represent a wide range of out of state/ counter buyers where I have found them successful long term rental investments as well. I LOVE ocotillo lakes area of Chandler (85248). Nestled roughly 1-2 miles away from Intel, I sold a house here for 324k where we had multiple offers to rent it $1,900 plus. This low- mid 300 price point is very attraction considering all you get out of the buy.
I also love Tempe (85281,85282,85283 due to proximity to ASU) and no shortage of renters. My favorite gem is Gilbert which is seeing lots of growth, especially with the growth of the entertainment district area. It is a spinning replica of Old Town Scottsdale and will continue to see healthy appreciation.
Just wanted to chime in and give my two cents, and any further questions feel free to reach out! I know the market very well.
Thank you @George Mevawala the information is so helpful. I will be in touch once we decide to purchase in the area
@Claudia Almaraz - I'm new to the world of REI, but I live in downtown Gilbert area (Heritage District) and there is a ton of new development happening here. My primary residence was actually a remodel - purchased in Nov. 2016 and the value has gone up since then. Lots of opportunity, I think, in this area as rehab opportunities come on the market. I think the only downside is the number of investors trying to snatch them up. I'm hoping to get some rentals in this area (long term and/or short term)... if I can be of help in any way as boots on the ground, feel free to connect!
@Doug McVinua - Sounds like you've built up an awesome portfolio locally. I'd love to connect at some point and hear more about your journey. Any broad advice for a new investor in the area looking for buy and hold rental opportunities?
@Jordan Duvall The Heritage District is hot and looks to continue that streak! The college building just got another new tenant and a 2nd parking ramp is in the works to accommodate the parking needs.
Gilbert overall is fantastic, the bust is the purchase price of the properties don't always generate the cash flow some desire. Long term looks great.
Short term we sometimes look just beyond Power in Mesa and Queen Creek or south to find the lower purchase point and still strong rents. If you are able and willing to do a little work (paint and carpet) it also really helps reduce the competition of regular buyers. Sometimes its that property that needs a little work but not enough to attack the flippers works for rentals.
@Claudia Almaraz You can have $300+ cash flow, OR you can have a cost of entry at $200K or below. Rarely will they be the same.
The problem with hearing everyone's samples of what they have and what they get is unless you can purchase the exact same thing right now, it isn't applicable to your situation. This is what frustrates me with posters and their success stories sometimes. It gives false hope or sets up false expectations for what other investors can get in that same market. To be clear, there ARE deals like the ones mentioned, but they are far and few between, and usually come with much higher price points.
Your price point is going to limit you to specific areas. You may be able to get a small single family in North central Phx to West Phx, but not in Scottsdale. No way. There isn't anything in Scottsdale (North or South) for retail under $275K at this time, at least not a single family. You may be able to find a condo in Scottsdale, but it MAY be cost prohibitive because of the HOA fees. In fact, many of the HOA fees in Old Town Scottsdale area are $300+ per month. Not all, but many of them, so be aware.
However, Scottsdale is not the only area in the Greater Phx market that can provide good a solid rentals. The Southeast Valley has opportunities, the North Phx rental market is hot right now, even parts of the West Valley have good finds.
In terms of cash flow on your $200K purchase, it really depends on how much you intend to put down. If you are financing 75-80% LTV, and your analysis includes capex, vacancy, repairs and other expenses whether used or not (to build a reserve), $300 cash flow after all expenses is going to be a narrow window. IF you are considering cash flow anything over your PITI payment and potential PM fee, then you MAY be able to make something like that work.
Just to give you an idea of a real life example at this point in time....
Peoria Condo - $150K -
$644 P&I (20% down with 5% rate)
$177 HOA (includes walls out insurance coverage)
$43.75 Taxes ($525 Annually)
$30 Insurance ($360 Insurance (Walls in coverage only))
$120 Prop Mgr
Rental Rate - @ $1,250
$1,250 Rental Rate minus Expenses ($1,014.75) - $235.25
Note: There is no capex included, so you will have to calculate that. There is also no vacancy calculated. This particular area/property has less frequent vacancy as units often turnover from one to the other without any loss of days. Usually a waitlist.
Many investors are putting more down to increase cash flow, or looking for other off market opportunities like wholesale lists or trustee sales. I just got a wholesale deal today in North Scottsdale that has an ARV at about $850K-$900K (depending on finishes) that is wholesaling for $650K. The rental rate on that property is $5,000. So, even after you figure $2800 for P&I, you still have so much room for other expenses, and still have cash flow. That's why many of these examples that people are giving you where they make $500+ per month in cash flow, don't include their cost of entry, which may also be higher. Obviously higher cost of entry has a bigger potential to yield higher cash flow numbers.
Anyway, hope this helps!
@Claudia Almaraz I am an agent that works mostly with investors. I am getting 20%+ cash on cash return. The properties are about 325K-350K though, so it may not fit your budget. If you would like more info feel free to DM me.
The lakeside/pinetop area of Arizona is really good. I have a couple rentals there and the demand is extremely high. My last vacancy had 30 applicants in 24 hours. Because it is in the pines, I don’t have ACs to worry about. A lot of good rental properties there won’t have those. Obviously the higher end homes will. The overall cost of the homes will be much less with a 3/2 house renting for $1200-$1500.
Tucson is developing and makes an argument for rental rate growth.
See the following post by another BP member: https://www.biggerpockets.com/forums/601/topics/55...
There are properties under 200K and $300 cash-flow, but they're like golden eggs, and may be in bad areas. I've heard people have them, but just like many markets now, they're difficult to source (in good locations) and are mainly found through relationships or marketing.
@Claudia Almaraz I like to invest in real estate the same way I win at Monopoly, I buy the light blue properties in C class neighborhoods that give me the greatest cash on cash return. Then I use that cash to then purchase properties in B- neighborhoods for more long term sustained cash flow to win the game. See example below:
Considering the fact that everyone starts out with only $1500 at the start of the game, the best option with the greatest returns would be to buy in the C class areas until you gain enough cash flow to then buy in the B- areas. Anything above that gets a lower rate of return except for Boardwalk, however, to build on Boardwalk takes a lot of capital (almost twice as much as you start out the game with). When I play the game it usually only takes me about 30 - 45 minutes to win if people don't dilly dally and are quick on their turn.
In other words, I buy low end properties in C class areas, when the cash flow is at the highest return. "But don't low end properties come with more tenant drama" you may ask. Not necessarily. In order to cut down on the drama, we sell the properties on 5-year lease options to where the tenant takes care of the property maintenance and is working towards home ownership. This also makes it so we don't need to budget for Cap-Ex since we rehab the properties before they move in and everything is in new condition or working order when the tenants move in (and if we find out something isn't working right at the beginning then we have it fixed and include it in the original cost of the rehab). We also don't need to budget for vacancy or turn over since we are selling the property to the end buyer that we are putting into the property as a renter. And if they decide not to purchase the property then we will put in a couple of thousand to fix the property back up and then we will get reimbursed by the option fee from the new lease option buyer that comes in next (our tenants show a lot of interest in purchasing the properties and we put tenants in the properties that have a high likelihood of being able to purchase the property in the next 2-5 years).
This model allows us to sell a property for about 5-10% above current market value and cut out realtor fees and closing costs (which are minimal and are paid for by the buyer at closing). We are able to collect a premium rent, usually about $50 above market rent and since the tenant takes care of all the maintenance, we don't need to budget for property management since the tenants take care of most maintenance issues anyway. Otherwise I have my assistants that help with my other businesses take care of the property management part.
We also try to find properties that, after we have rehabbed them, our all in is about 75% of the market value. That way we can get all of our money back out of the property when we refinance with a bank (following the BRRRR model). This then gives us on average about $200 a door in monthly cash flow because they are commercial loans at 20 year amortized 5-year fixed rates.
To follow along with what @Cara Lonsdale pointed out, the price point is important to create cash flow. The price points to where this model works best for us is when our all in is less then 150k. This model works best in cities where you can get B- or C class properties for 150K or less after the rehab.
I agree with what @Doug McVinua pointed out about picking the right city. We like to find these types of properties in:
Apache Junction, Arizona
San Tan Valley, Arizona
Casa Grande, Arizona
and Phoenix, Arizona (although we historically have stuck more to the East Valley).
We find that the rent to cost works best with these numbers. When people are mentioning purchasing properties in Scottsdale or Gilbert, or even in many areas of Chandler, those numbers wouldn't work as well for our model and a lot of the time the investor has to keep a significant amount of capital in the property to make it cash flow, thus lowering considerably the cash on cash return. We try to have between 0 and 6k total in our properties and get 100% or more cash on cash returns on average each year, over a 5 year period of time when you include the profit from the sale.
@Mike Malfitani and @Jordan Duvall since you are both newer (or appear to be newer, I hope not to offend) I wanted to bring you into this post so that you could see a model that works in Arizona. This is the actual model that we use and these are actual numbers we shoot for. Last year we followed this model with over a dozen properties and we hope to add 10 more to this model this year.
I would echo most of the voices that say Phoenix area rentals is ALL hot. A lot of the people like the east valley, particularly South East valley (tempe, chandler, mesa, gilbert), probably because they live in the east valley. I'm sure the west valley investors are just as happy with their investments.
If you are just looking at the MLS for your purchases, then highly likely the ratio of monthly rent to purchase prices is around .5%-.6%. Very difficult to find stuff on MLS greater than that. Then if you are going to leverage, you will essentially break even. To get $300 cashflow a month with a purchase price under 200K is possible with short term rentals, but that involves much more work and potentially start up capital(cost of furnishing a unit).
@Shiloh Lundahl has a specific strategy that he works much like everyone else. We all have our strategies/niches. My niche just no longer exists in the Phoenix area. So I'm looking elsewhere.
@Preston Wengert mentioned pinetop lakeside. We have a rental there as well and had no issues getting it rented out, however you have to know that the area is a summer getaway and most of the industry is tailored around tourism and healthcare for retirees who live up there full time.
To sum up, you just need to be clear with your strategy/niche, what your desired Cash on Cash return required, what your desired monthly cashflow. For example, when I'm investing out of state, I need to get 10% COC returns and $400 a month cashflow.
Thank you all for the great advice, I am pretty sure others with the same dilemma will benefit from it. I am already making notes and working my niche to make sure I pick the right market.
just an example you can get a duplex in Yuma for 160-170 that’ll rent for 1600. Nothing high end, but a great rental market down here. Feel free to pm me with any questions about the area.
I looked into Phoenix and surrounding areas last year but numbers did not make sense. Numbers are little better than California. This is why I started investing in Atlanta and Dallas.
@Robert McDonnell I was looking into that market myself, plus is close to me.
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