How would you create $500/mo in Phoenix?

15 Replies

I have a short term goal to create $500/mo in cash flow in 2016. I live in Scottsdale and am looking at outer areas of Phoenix metro for my first deal. For any of the veterans in the Arizona market, given the current state of things, how would you create $500/mo in cash flow? Some area of interest are San Tan Valley, Central Phoenix, Goodyear, Surprise and Queen Creek. Have access to roughly $40k in cash, lender is on board, and feel confident I could manage a basic rehab given my support network.

Thoughts?

Find a good deal on a modest fixer, buy fixer, fix fixer, move in. Rent or sell your Scottsdale house. $500/mo saved is $500/mo earned. Scottsdale rental may cash flow $500/mo also. Difficult but not impossible with a kid ... sacrifices must be made to get ahead, just a question of which sacrifices.

Originally posted by @David Faulkner :

Find a good deal on a modest fixer, buy fixer, fix fixer, move in. Rent or sell your Scottsdale house. $500/mo saved is $500/mo earned. Scottsdale rental may cash flow $500/mo also. Difficult but not impossible with a kid ... sacrifices must be made to get ahead, just a question of which sacrifices.

 Great response! I house hacked one of my first properties. I didn't mind living in them but they weren't the house I'd choose to live in. I was single at the time so it was much easier than trying to do it today plus I couldn't get away with it now (too many mortgages)

You could probably flow $500 on some of the multifamily properties. Like a duplex with each unit being a 2/1.

@David Faulkner thanks David, I appreciate the advice but this is merely step 1 of a 15 year plan and no way I'm uprooting my life to do that. It also downs t et me to step 2 in 2017, which is another $500/mo. Was more interested in advice from locals on what they think good options are given our specific market conditions.

I lived in the valley from 2002-2009 and have kept a finger on the pulse out there since I moved back to Cleveland. The areas you list are good options. You should back into your cash flow requirements by analyzing properties and determining what your cash flow would be. Getting 500/month of real cash flow on one unit will be tough, but two or three units would get you there. Can you find a 2-4 unit property in the areas you are targeting that you could get into with your 40k down payment? Assuming 10% down you're into a 400k property. Assuming 30% down you're at 133k. I always assume I will cash flow 100-250/month on each unit depending on the area, if you're getting a good property. Hoping for more when you are really putting monies aside for the proper reserves is just unrealistic in my opinion.

@Matt Motil Thanks Matt. I'm leery of multi family units given the explosion of high rise apartments all over the city. The inventory of multi-family I've seen looks pretty C/D class and I don't know I want that much management built in on the the first property. They also don't cash flow very well from what I've seen on MLS. $500 on one unit isn't realistic, so I'm thinking either two or three SFR to get me there....hopefully two. My wife and I both work, have good incomes so we are easily able to save a couple thousand a month to build reserves and capital for the next acquisition.

My initial thoughts in those areas is to find a beat up or off market property I can fix up and then use a BRRR strategy. I've heard anything less than $1000 in rent leaves you open to capex eating away at your profits. So I'm targeting my "sweet spot" at ARV properties of $125-135 that rent for 950+ that I can go all in for at most $105k with rehab. These look like auction and fireclosures as far as I can tell.

Originally posted by @Jeff Bethke :

David Faulkner thanks David, I appreciate the advice but this is merely step 1 of a 15 year plan and no way I'm uprooting my life to do that. It also downs t et me to step 2 in 2017, which is another $500/mo. Was more interested in advice from locals on what they think good options are given our specific market conditions.

I own rental properties all over Phoenix, so quite familiar with the market conditions there. You are going to find it difficult hitting your proposed numbers in the current market, thus my suggestion. Best wishes to you.

Hi Jeff,

I am looking for the exact same property type in the west valley. Seems like most of the MLS listings are closer to 125 -130 that will rent for 1000/month. The 100K/1K rent number will be perfect when you find it, unless I find it first!

Russell

@Jeff Bethke I think you're going to have a really tough time finding $500 cash flow from a SFR. C/D MF is your best route and south and central Phoenix is a good area. Maybe west valley also but I'm not familiar with that area. Factor in a good property manager and you can easily pull $500 from a MF in the $150-$200k range.

San Tan/Quen Creek are cheaper markets but rents are also lower, that's a great area for SFR rentals but it will still be tough attaining $500 with financing.

It will take 2 or 3 SFR's vs. 1 MF. I think the SFR's will take a larger investment to get there.

I was strictly a SFR guy myself for several years, then I moved to Arizona and started managing for other investors who seem to prefer MF. After managing MF for others I've changed my thinking. And if you're in the C/D market, all of the new construction will not affect you because C/D tenants can't afford those newer places.

If you have $40,000 cash and a lender on board 

Invest in 1 SFR at a time building your portfolio over time to 3-8 SFR.

but if your goal is to reach $500 a month in cash flow, I would suggest you redirect your energy into a multi family property. You can reach your cash flow goal quicker and leverage your all your costs to increase cash flow.  

With 40k you can buy a house for cash in the midwest and rent it for decent margins.  

@Jeremy Tillotson and I just bought a house in Fort Wayne, Jeremy found it through his local connections and I funded the purchase, we are all in for @ 46k so a little over your cash amount of 40k but in the ball park.  We currently have it listed for rent for $825 and hope to sign a lease soon, It is not the best time of year to rent in the midwest, If we were renting during a busier time of year we would bump the rent.

As a rental It will cash flow $500 a month, or we can sell it with owner financing and be free of the management process.  Once we place tenants we will look to see it they are a good prospect for owner financing which will also generate north of $500 a month of income for 20-30 years depending on the deal.