Multi-Family and Apartment Investing

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Out-of-state Multifamily Investment in Phoenix, AZ or Denver,CO?

Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Posted Jun 7 2022, 23:40

Hi,

I'm fairly new to BP and at the very beginning of my Out-of-State investment journey based in the Bay Area California. I have been considering Phoenix, AZ and Denver,CO as my options so far. I have compared population growth, rent growth, average income, and vacancy rate and they seem similar to each other on a high level. Denver seems to be more expensive and have higher median rents.

I know a good Cash-flow market is hard to go after right now and I'm going for the long game so would like to get appreciation and a positive cash-flow. I would like to get your opinion on what other factors I should consider to narrow down my search and pick a location out of those two(or any new locations you'd recommend to look after)

Thanks in advance.

Ali

Denver, Colorado

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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
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Taylor L.
  • Multifamily and Self Storage Investor
  • Richmond, VA
Replied Jun 8 2022, 04:35

I like Phoenix for larger multis. We're doing apartment deals there because overall it has strong fundamentals and a lot of in-migration. Denver is going to have more snow to deal with, so be ready for that maintenance.

The downside is that they're both highly competitive for investors. Be sure to consider landlord friendliness, job growth, and new housing starts in your numbers.

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Peter Nikic
  • Investor
  • New York
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Peter Nikic
  • Investor
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Replied Jun 8 2022, 05:49

@Ali Mirabzadeh I would add that Denver is the bigger transportation hub which could be better for many reasons.

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Scott E.
  • Developer
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Scott E.
  • Developer
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Replied Jun 8 2022, 06:55

The Phoenix market is very expensive, and very competitive. Expect to pay $350k+ per door and a pro-forma cap rate of 4% if you're buying in a desirable area.

It's my opinion that the rent growth we've seen around here is not sustainable even with heavy migration into the state, so I wouldn't be a multi-family buyer in the Phoenix market today. 6 months from now, that might be another story...

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Ryan Williams
  • Real Estate Broker
  • Denver
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Ryan Williams
  • Real Estate Broker
  • Denver
Replied Jun 8 2022, 07:33

Hi @Ali Mirabzadeh, you are looking at two great markets and all the reasons you mentioned above is why you have seen so much capital flow into these areas over the past 5-10 years. 

I'm based in Denver and don't know AZ as well (side note*** I know a lot of people have moved to Phoenix/Scottsdale, but I don't get the appeal! It's a desert and cars/bicycles literally melt on the streets lol)

I think you are thinking about it well, especially looking at a long term approach, in a city like Denver that has good population growth, rent growth, average income, and vacancy rate like you mentioned is a still a great play if you are satisfied with just breaking even for a while, and seeing future profits/appreciation. 

What you also said is true, in Denver, it's hard to find cash flowing properties right now. The only other factor you many consider is incorporating a short term rental strategy combined with multifamily to see some healthy cash flow. There is for sure more work involved with that, but that is where people are seeing some good returns in our current market. 

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Evan Polaski
  • Cincinnati, OH
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Evan Polaski
  • Cincinnati, OH
Replied Jun 8 2022, 07:45

@Ali Mirabzadeh, how does lack of available water effect your ability to rent a property?  :)  I am mostly joking about this, but it came up on another thread here the other day, speaking more of Las Vegas, but the issues are the same.

I do believe both have their pros and cons, but in reality, like all investing, it comes down to submarkets within each.  Additionally, one factor I rarely see people taking into account is ease of travel.  This has a bigger effect on smaller deals, but unless you plan to blindly trust your team in either market, I would pick the one that you either a) prefer to go to anyways and/or b) is easier/cheaper to get to.  Even a once/yr visit will cost you $1,000 in flight, hotel, food, car/uber for a quick trip.  And if you only own a single asset property in that market, that can be a fairly large part of your income.  

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Adam Lacey
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Adam Lacey
  • Investor
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Replied Jun 8 2022, 08:20

@Ali Mirabzadeh those are two great options for long-term appreciation plays. I live in the Denver area and would be happy to connect and answer any questions that you have about the market. Feel free to message me to set something up if you're interested.

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Wale Lawal
  • Realtor | Buy & Hold Investor
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Wale Lawal
  • Realtor | Buy & Hold Investor
  • Houston | Austin | Dallas, TX
Replied Jun 8 2022, 09:16

Welcome to BP Ali, 

As an Investor-Agent myself, I have had several conversations on this topic with my clients and customers. Everyone has different goals and investment criteria, so this is not a size fit all kind of situation.

I will suggest that you clearly define what you what and do some research then go from there.

A local Investor-Agent can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.

Real Estate Agent Texas (#736740)

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Mike Dymski#3 Investor Psychology Contributor
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Mike Dymski#3 Investor Psychology Contributor
  • Investor
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Replied Jun 8 2022, 20:35
Quote from @Scott E.:

The Phoenix market is very expensive, and very competitive. Expect to pay $350k+ per door and a pro-forma cap rate of 4% if you're buying in a desirable area.

It's my opinion that the rent growth we've seen around here is not sustainable even with heavy migration into the state, so I wouldn't be a multi-family buyer in the Phoenix market today. 6 months from now, that might be another story...

@Scott E.if you don't mind me asking, based on your thoughts on the PHX market, what are you doing with your existing portfolio and near future acquisitions?

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 8 2022, 22:51
Quote from @Taylor L.:

I like Phoenix for larger multis. We're doing apartment deals there because overall it has strong fundamentals and a lot of in-migration. Denver is going to have more snow to deal with, so be ready for that maintenance.

The downside is that they're both highly competitive for investors. Be sure to consider landlord friendliness, job growth, and new housing starts in your numbers.

Thank you Taylor for providing this information.
For starting, I'd like to start with a duplex and expand to 4 units then larter units. So my goal is to get more familiar with sub-markets and expand. At least for the next 3-5 years.

1. How I can put myself ahead in these competitive markets, having a buyer agent to help me find MLS deals?
2. How do you measure/track "landlord friendliness"?

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 8 2022, 22:52
Quote from @Peter Nikic:

@Ali Mirabzadeh I would add that Denver is the bigger transportation hub which could be better for many reasons.


 Hi Peter, 
Also on top of that, seems a lot of tech companies have a base there so I assume a lot of younger generations would move there and look for rental properties.

Do you know which submarkets are good to look for?  Also have you invested in Denver?

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 8 2022, 22:55
Quote from @Scott E.:

The Phoenix market is very expensive, and very competitive. Expect to pay $350k+ per door and a pro-forma cap rate of 4% if you're buying in a desirable area.

It's my opinion that the rent growth we've seen around here is not sustainable even with heavy migration into the state, so I wouldn't be a multi-family buyer in the Phoenix market today. 6 months from now, that might be another story...


 Hi Scott,

Thanks for providing this. How do you measure the sustainability of the rent growth. From some online research that I have done, it's 8th fastest-growing major city in the United State and I assume that should drive some of the rent growth?

You recommend Denver over Phoenix? 

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 8 2022, 22:58
Quote from @Ryan Williams:

Hi @Ali Mirabzadeh, you are looking at two great markets and all the reasons you mentioned above is why you have seen so much capital flow into these areas over the past 5-10 years. 

I'm based in Denver and don't know AZ as well (side note*** I know a lot of people have moved to Phoenix/Scottsdale, but I don't get the appeal! It's a desert and cars/bicycles literally melt on the streets lol)

I think you are thinking about it well, especially looking at a long term approach, in a city like Denver that has good population growth, rent growth, average income, and vacancy rate like you mentioned is a still a great play if you are satisfied with just breaking even for a while, and seeing future profits/appreciation. 

What you also said is true, in Denver, it's hard to find cash flowing properties right now. The only other factor you many consider is incorporating a short term rental strategy combined with multifamily to see some healthy cash flow. There is for sure more work involved with that, but that is where people are seeing some good returns in our current market. 


Hi @Ry,
Thanks for sharing your thoughts.

Do you invest in Denver, I'd like to have a chat with you to learn more about your experience and your portfolio.

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 8 2022, 23:00
Quote from @Wale Lawal:

Welcome to BP Ali, 

As an Investor-Agent myself, I have had several conversations on this topic with my clients and customers. Everyone has different goals and investment criteria, so this is not a size fit all kind of situation.

I will suggest that you clearly define what you what and do some research then go from there.

A local Investor-Agent can help shorten your learning curve and save you a lot of headaches as they tend to understand the market better.


 I agree with you Wale.

Do you recommend to find agents in both markets to help me in my search?

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Scott E.
  • Developer
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Scott E.
  • Developer
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Replied Jun 9 2022, 06:44
Quote from @Mike Dymski:
Quote from @Scott E.:

The Phoenix market is very expensive, and very competitive. Expect to pay $350k+ per door and a pro-forma cap rate of 4% if you're buying in a desirable area.

It's my opinion that the rent growth we've seen around here is not sustainable even with heavy migration into the state, so I wouldn't be a multi-family buyer in the Phoenix market today. 6 months from now, that might be another story...

@Scott E.if you don't mind me asking, based on your thoughts on the PHX market, what are you doing with your existing portfolio and near future acquisitions?


I have 2 residential flips in process and still actively pursuing more residential and commercial deals. I do believe there's money to be made in any market so I'm not just sitting on the sidelines. But multifamily around here specifically have just gotten to unreasonably high valuations lately (in my opinion)

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Raju Balakrishnan
  • Rental Property Investor
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Raju Balakrishnan
  • Rental Property Investor
  • Santa Clara, CA
Replied Jun 12 2022, 08:49

Both are great places to invest. I agree with the analysis that Phoenix is is heated now. At 4% caps the future growth is already contained in the price. I am curious to know how you shortlisted Denvar and Phx, why not Texas cites etc, since I am in bay area also and thinking or other great market to invest in. Between do not underestimate the power of cash flow over appreciation. May be my blog comparing a cash flow vs appreciation market (San Jose and Cleveland) will make sense for you, especially being a bay area resident: https://www.biggerpockets.com/... 

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Henry Lazerow
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Henry Lazerow
  • Real Estate Agent
  • Chicago, IL
Replied Jun 12 2022, 09:18

You aren't going to find real cashflow in either of those markets if using financing. Those are 4 cap areas. Check out cities like Chicago with class B areas or any decent size midwest areas can find some cashflow. 

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Andre Crabb
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Andre Crabb
  • Investor
  • Tampa, FL
Replied Jun 12 2022, 09:52
Quote from @Ali Mirabzadeh:

Hi,

I'm fairly new to BP and at the very beginning of my Out-of-State investment journey based in the Bay Area California. I have been considering Phoenix, AZ and Denver,CO as my options so far. I have compared population growth, rent growth, average income, and vacancy rate and they seem similar to each other on a high level. Denver seems to be more expensive and have higher median rents.

I know a good Cash-flow market is hard to go after right now and I'm going for the long game so would like to get appreciation and a positive cash-flow. I would like to get your opinion on what other factors I should consider to narrow down my search and pick a location out of those two(or any new locations you'd recommend to look after)

Thanks in advance.

Ali


Hey Ali,

Of course you can find deals wherever you go, but looking at historical trends. Denver seems like a more solid area than Phoenix. Especially if this market dip is coming...Phoenix was much more affected in '08 than Denver was. Denver also ranks better for metrics like education.

I ran them through my algorithm based on what you're looking for and Denver came out on top 👍

Denver vs Phoenix

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 12 2022, 23:12
Quote from @Andre Crabb:
Quote from @Ali Mirabzadeh:

Hi,

I'm fairly new to BP and at the very beginning of my Out-of-State investment journey based in the Bay Area California. I have been considering Phoenix, AZ and Denver,CO as my options so far. I have compared population growth, rent growth, average income, and vacancy rate and they seem similar to each other on a high level. Denver seems to be more expensive and have higher median rents.

I know a good Cash-flow market is hard to go after right now and I'm going for the long game so would like to get appreciation and a positive cash-flow. I would like to get your opinion on what other factors I should consider to narrow down my search and pick a location out of those two(or any new locations you'd recommend to look after)

Thanks in advance.

Ali


Hey Ali,

Of course you can find deals wherever you go, but looking at historical trends. Denver seems like a more solid area than Phoenix. Especially if this market dip is coming...Phoenix was much more affected in '08 than Denver was. Denver also ranks better for metrics like education.

I ran them through my algorithm based on what you're looking for and Denver came out on top 👍

Denver vs Phoenix

 Thanks for sharing this . I was curious to know what does your algorithm do exactly and what factors are considered?

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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
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Ali Mirabzadeh
  • Investor
  • Bay Area, CA
Replied Jun 12 2022, 23:17
Quote from @Raju Balakrishnan:

Both are great places to invest. I agree with the analysis that Phoenix is is heated now. At 4% caps the future growth is already contained in the price. I am curious to know how you shortlisted Denvar and Phx, why not Texas cites etc, since I am in bay area also and thinking or other great market to invest in. Between do not underestimate the power of cash flow over appreciation. May be my blog comparing a cash flow vs appreciation market (San Jose and Cleveland) will make sense for you, especially being a bay area resident: https://www.biggerpockets.com/... 


 I wanted cities out of state that I have at least heard of their name, some tech presence, good population growth, closer to California. I didn't look much into Texas due to high property taxes.

Also some follow up questions:
1. By 4% caps, are you referring to Cap Rate? and where do you get that number?

2. What is a good caps?

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Denise Ford
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Denise Ford
Replied Jun 13 2022, 00:35

Hello @Ali Mirabzadeh, I was happy to see your post and the follow-up comments. I've been in land investments mostly in AZ and plan to acquire my first multifamily in the 6 months or so. I'm going through the BP program with the DeRosa Group which is incredibly helpful with market analysis amongst other foundational pieces. I had narrowed down to Phoenix or Indy and will focus on Phoenix as my primary market. I live in Scottsdale and have been talking with many brokers and property management companies. Several have strongly suggested to hold for the next 6 months and see how things level out a bit. @Scott E.might agree? I have more meetings scheduled in the next few weeks. Would you like to connect and talk? My goal is to find my LPs and build the working relationships with the Phoenix-based experts. It would be great to compare notes!

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Marcus Auerbach
  • Investor and Real Estate Agent
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Marcus Auerbach
  • Investor and Real Estate Agent
  • Milwaukee - Mequon, WI
Replied Jun 13 2022, 05:26

It's always best to invest in your home market, so if you live there, that's your game. But if you choose a market anywhere in the nation, why Phoenix or Denver? Both are tough to cash flow and have seen incredible appreciation, so where do you see prices go? I had coffee yesterday with a Denver investor and heard the latest scoop about home prices. Many of the boom markets like Phoenix have also major infrastructure issues - roads are just not wide enough to handle that additional traffic, to name just one example.

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Andre Crabb
  • Investor
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Andre Crabb
  • Investor
  • Tampa, FL
Replied Jun 13 2022, 06:25
Quote from @Ali Mirabzadeh:
Quote from @Andre Crabb:
Quote from @Ali Mirabzadeh:

Hi,

I'm fairly new to BP and at the very beginning of my Out-of-State investment journey based in the Bay Area California. I have been considering Phoenix, AZ and Denver,CO as my options so far. I have compared population growth, rent growth, average income, and vacancy rate and they seem similar to each other on a high level. Denver seems to be more expensive and have higher median rents.

I know a good Cash-flow market is hard to go after right now and I'm going for the long game so would like to get appreciation and a positive cash-flow. I would like to get your opinion on what other factors I should consider to narrow down my search and pick a location out of those two(or any new locations you'd recommend to look after)

Thanks in advance.

Ali


Hey Ali,

Of course you can find deals wherever you go, but looking at historical trends. Denver seems like a more solid area than Phoenix. Especially if this market dip is coming...Phoenix was much more affected in '08 than Denver was. Denver also ranks better for metrics like education.

I ran them through my algorithm based on what you're looking for and Denver came out on top 👍

Denver vs Phoenix

 Thanks for sharing this . I was curious to know what does your algorithm do exactly and what factors are considered?

@Ali Mirabzadeh

Yea sure, it compares the cities based on factors you select. I selected several based on what you mentioned you're looking for, as well as some historical trends.

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Wale Lawal
  • Realtor | Buy & Hold Investor
  • Houston | Austin | Dallas, TX
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Wale Lawal
  • Realtor | Buy & Hold Investor
  • Houston | Austin | Dallas, TX
Replied Jun 13 2022, 09:06

I am more than willing to help Ali, Just reach out to this number 832-776-9582.

Real Estate Agent Texas (#736740)

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Denise Ford
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Denise Ford
Replied Jun 13 2022, 15:01

For a 10-year hold, the numbers look to play out well. I was at a conference last weekend listening to the big investors/developers talking about the Phoenix area specifically. There is such a huge shortage in housing now and in the projected future with the migration. The message was take caution in the next 6 months and make moves accordingly after that...let this current fluctuation play out first. Of course the industry struggles with supply chain for both new builds and value adds, but both need to get done eventually. I would not want to be a builder these days! My goal is to find LPs and start relatively small.