I wanted to post a question to all of you that know the phoenix market well. I currently own a tri in Sunnyslope; it performed moderately well considering I went through all of the tenants in the first 9 months that the PM had placed and had to evic one of three. Let's just say I'm hoping for a better year in 2014.
That being said, I would like to add several more Phoenix mf properties (2-4units) this year. Can anyone throw out some areas that have potential upside but most importantly cash flow (between the 1%-2% rule)?
I hear Queen Creek & San Tan Valley areas are good and doing pretty well right now? Too far away from me...
The big problem in 2 to 4 units in the phoenix market place, is that they have not build any 2 to 4 units properties in maybe the last 40 years, due to the increase of the land cost for multi-family units. All of the units are going to be in older areas. My suggestion would be to buy single family units until you have made enough money then enter into apartment units in the 25 to 50 unit range. They also will be older areas, but you will find some of them in better locations.
I mirror @John Miller 's comments above. The multi-family market is rough right now in the valley. There isn't a lot of inventory, and of what does exist in decent areas, you won't be making the 2% rule. 1% is possible, but those margins are too tight for multifamily in my opinion.
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This may be a silly question, but why does it matter if the quads are old? I'm guessing the underlying issue you are addressing is consumer choices? I.e., if I can rent this old unit in a quad for $550, but right down the street there is a brand new apartment complex with all the amenities for $625, then why would I choose the older one?
Do you have any insight into the vacancy trends of these older 2-4 plexes versus the newer, larger communities? I am curious because I have family in AZ and am considering investing there because there seem to be so many more options on the market than where I live in the DC area, where average incomes/prices are much higher. An extra $50-$150 may be insignificant here in DC when considering apartment options, but I could imagine that the same marginal investment for an AZ consumer may be a much weightier decision - so are the newer apartment communities eating away at the market for the lower end and older 2-4 plex units?
Interested to hear your thoughts.
On a side note, I am a Realtor in DC/VA/MD, and am very seriously considering taking my CCIM education and making the long term investment to get into commercial, preferably multifamily. I've met a CCIM in person at an investor meetup here in DC, and have read a few comments by other CCIMs in blogs/forums - you guys seem to be at another level in terms of real estate professionalism and know-how, which I aim to be at one day myself.
Thanks for the compliment about my education level.
I grew up in the Washington DC area. Just about everything there is old. Comparing a old triplex there to an old triplex in Phoenix is night and day. In the DC area there is no new land that can be developed into new apartments, so what happens is after some of the older apartment units get in bad shape someone buys them tears them down and builds a new apartment complex. The Phoenix area generally always has had more ground in a new area to build new developments. People in nature then go to the new areas. The older apartments just get older and the tenant mix just gets tufter. Apartment Builders in Phoenix rarely build a new complex next or near an older one. There are some exceptions Tempe because there is no new land. Now don't take me wrong about older duplex and triplex units there are a lot of guys who make a lot of money owning and renting these units, they are in general very hands on management. The newer units are not taking business away from the duplex and triplex market It is two very different types of tenants. Hope that helps.
CCIM. I have had a lot of years of experience in commercial real estate and have taken many college and other classes. In my option taking just one of the week long classes with the CCIM Institute will teach someone new coming into the business more in a week than they could learn in 2 years in any other place.
John Miller CCIM
@Derek P. I own a small private real estate company here in Phoenix, Arizona. Just to give you some background, so you know we are serious here, I will share our experience. Since the turn of the century, we have been privately sourcing homes, condos, multifamily and land in the Phoenix area, primarily for investors and investment groups. In total, a little over 2000 individual transactions. Due to my personal focus, I am acutely aware of what is going on in the multifamily market in Phoenix, specifically in the C class units. Given that background, I want to caution you on the use of the 2% rule as a hard and fast rule for evaluating property. Following what others have shared on this thread, you may find good investment opportunity that does not fit into the 2% rule, but still makes great sense to purchase. Certainly, the 2% rule is a good tool, but I would advise you to not get married to it.
As it relates to area, the one you have in Sunnyslope is in a good area for income. That is a C to C- area, and with good management, should provide a better return than units in most areas of Phoenix. The area you choose will dictate what kind of potential appreciation is in play for you down the road as well. For example, if you were to purchase a similar property 5 miles east of Sunnyslope, you would pay almost twice as much per unit for only a third more rent per unit. (certainly would not make the 2% rule) However, those type of properties are in much more demand from larger buyers who are in the business of holding for a very long time and have access to cheaper capital. Therefore, as the market heats up, there is a higher likelihood of appreciation in the those nicer areas. It all comes down to your investment goals: Cash flow or appreciation over time?
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