Is Phoenix, AZ is good city for Multifamily Investment?

15 Replies

I am moving to Phoenix AZ. I am looking for house hacking with multifamily property. I am new in the REI market. I have few questions regarding multifamily investment.

1) I am looking at the neighborhood which has crime rate high but same time cash flow is good. There is less crime rate area but little expensive and cashflow is low. I am leaning towards the less crime rate area with little expensive. Any thoughts?

2) How financing will work in this situation since I am going to apply the house hacking strategy? (Most of the cases while I was reading people have got the minimum 25% down.)

3) Is this right time to invest?

4) Which areas around phoenix are good for positive cashflow with property value appreciation?

5) According to you which numbers are more important while starting investment as a new?

6) Any good financing options or suggestion?

Any suggestion?

@Harshil Patel

What scale of multi family were you looking to do? I gave Tempe and Mesa a glance but found there were very few 2-4 unit properties (which is the scale I am interested in), at any price, let alone that would cash flow +.

@Harshil Patel I have done a lot of investing and acquisitions in the Phoenix Metro and surrounding cities.  Great area and some great properties there.  It is a hot market so can be tough to find the right deal.  I was acquiring mostly 100+ unit Class A/B properties.  However, I do know people that have got smaller deals that are killer. 

In terms of markets, that really depends on what you are looking for and what you desire.

Originally posted by @Harshil Patel:

@Kris L. : I am looking for 2-4 units only. Since this is going to be my first investment I want to make sure unknown things learn by me properly.

 

@Harshil Patel Phoenix has solid areas that are B-C markets that might work for you.

Financing could be a lower down payment, as low as 0% down but easily 3.5% down. 

Most all the numbers are important, it's how to filter to find one that has room for improvement.

@Kris L. is right - there are few MF on the market, and it's hard to make them cash flow. A similar option that works well here in Phoenix is to get a house with a casita/in law suite/etc. This functions like a duplex (as you are living in the main house and renting out the additional unit). The numbers often work better though. 

Thanks for the input. In that case If I have to consider single family home vs condo. which one is better in terms of rental/house hacking? My point is for initial starting which one will be better option? I am looking for positive cashflow and long term investment. Also less vacancy rate. (This may be depend on the area) But I want to know statics which I can apply for my investment keeping in mind these criteria.
Originally posted by @Pamela Sandberg :

@Kris L. is right - there are few MF on the market, and it's hard to make them cash flow. A similar option that works well here in Phoenix is to get a house with a casita/in law suite/etc. This functions like a duplex (as you are living in the main house and renting out the additional unit). The numbers often work better though. 



 

@Harshil Patel : both SF and condos do well in the Phoenix rental market! Healthy rental rates and low vacancies are common here. What I would really look at are the HOA dues, which are often higher in condos. This can also reduce your homeowners insurance premium, so it's important to run the actual numbers on a specific property to accurately project cash flow.

I was recently an investor in (2) multi-family syndications in the Phoenix area. We just sold them. Happy to share and answer questions. Feel free to DM

@Harshil Patel , looks like you are leaving CA like all the smart people! I looked at multis in Pheonix for quite a while. I even spent 4 days driving around Pheonix and Mesa looking at every multi family listed on redfin a year ago. My sister in law lives in Gilbert. What I learned was that pricing and rent/purchase ratios were pretty much the same as CA. Unless you put down a large down payment there would be no cash flow. However, I did just meet a local investor in my town that has 4 airbnb homes in and around scotsdale and he is killing it! Some rent out for 4-8K per month depending on the time of year. 

I agree with @Pamela Sandberg , purchase a home with a casasita. I highly recommend following @Ben Leybovich on his experience with what he calls "luxury house hacking". All the benefits of house hacking but without the headaches of long term tenants. Turn the casasita into a airbnb like he did and help pay your mortgage. Anything Ben says is pretty much gold, in my humble opinion. As a randomly look for a possible new primary residence I try to see if there is an additional dwelling I could use as a short term rental. 

Thanks @Kevin Moules : When you say 4 airbnb homes meaning that entire homes available through Airbnb rental?  Does HOA will be problem ? I heard that there are some communities which are raising concern over short term rentals. 

Originally posted by @Kevin Moules:

@Harshil Patel, looks like you are leaving CA like all the smart people! I looked at multis in Pheonix for quite a while. I even spent 4 days driving around Pheonix and Mesa looking at every multi family listed on redfin a year ago. My sister in law lives in Gilbert. What I learned was that pricing and rent/purchase ratios were pretty much the same as CA. Unless you put down a large down payment there would be no cash flow. However, I did just meet a local investor in my town that has 4 airbnb homes in and around scotsdale and he is killing it! Some rent out for 4-8K per month depending on the time of year. 

I agree with @Pamela Sandberg , purchase a home with a casasita. I highly recommend following @Ben Leybovich on his experience with what he calls "luxury house hacking". All the benefits of house hacking but without the headaches of long term tenants. Turn the casasita into a airbnb like he did and help pay your mortgage. Anything Ben says is pretty much gold, in my humble opinion. As a randomly look for a possible new primary residence I try to see if there is an additional dwelling I could use as a short term rental. 

 

Hi @Harshil Patel , I just saw the thread and am a little late to the game.  My firm builds new fourplex communities right now in UT, TX, and ID. We actually have land under contract in the Phoenix metro now to go vertical on a new fourplex community.  I'll keep everyone here posted on how it goes.  Generally, we've found the west side of the metro to be more friendly to cash flow (land price are more manageable...but there's still growth and demand for rentals).  You might try looking at some options out west.  

Originally posted by @Steve Olson :

Hi @Harshil Patel , I just saw the thread and am a little late to the game.  My firm builds new fourplex communities right now in UT, TX, and ID. We actually have land under contract in the Phoenix metro now to go vertical on a new fourplex community.  I'll keep everyone here posted on how it goes.  Generally, we've found the west side of the metro to be more friendly to cash flow (land price are more manageable...but there's still growth and demand for rentals).  You might try looking at some options out west.  


Interesting. Keep me posted. We buy apartment communities and have two on the West side. It'll be interesting to see what you decide.

 

I am moving to Phoenix AZ. I am looking for house hacking with multifamily property. I am new in the REI market. I have few questions regarding multifamily investment.

1) I am looking at the neighborhood which has crime rate high but same time cash flow is good. There is less crime rate area but little expensive and cashflow is low. I am leaning towards the less crime rate area with little expensive. Any thoughts?

It all depends on the management company you're going to use. Since you are house-hacking, you will be living in one unit while renting and managing the other units. In this situation, it will depend more on your personal preferences and safety concerns. Also, the type of crime matters a lot. I would dig into the demographics further to really decide where you'd like to be. There are so many factors that go into this decision, but I personally wouldn't mind buying in a rougher neighborhood to get better cash flow and a better basis. You just have to be aware of your surroundings and see if you're concerned about that. I'm single. A family man may feel different.

2) How financing will work in this situation since I am going to apply the house hacking strategy? (Most of the cases while I was reading people have got the minimum 25% down.)

You can use FHA or Low-down conventional programs up to a 4-unit property. I would speak with a mortgage broker to see all your financing options. I'm not a lender but happy to make some referrals to people in Phoenix that may be able to help you.

3) Is this right time to invest?

I will say something that is potentially controversial to some, but yes right now is the right time to invest IF (AND IT IS A BIG IF) it is the right time for YOU to invest. Do you have the income, savings, willingness, and time to move forward? IF SO, MAKE YOUR MOVE. Don't wait. Many people are on the sidelines waiting for a recession. That's cool too, but what if it takes longer than 1 year to come? What if a trade deal is reached and the recession is no longer imminent? You would have missed out on potential appreciation and management experience. If you can afford to do it now, just underwrite conservatively, don't over-leverage your investment (so 25%+ down may be smarter), and buy a good deal. Make your money on the purchase and you can make a sound investment in any part of a real estate cycle.

4) Which areas around phoenix are good for positive cashflow with property value appreciation?

The west side of the valley will be more cash flow positive around this time of the cycle. I recommend you analyze a minimum of 100-200 deals to establish a baseline. If you find a deal that fits your investment criteria, then dig in and move forward.

5) According to you which numbers are more important while starting investment as a new?

According to me, I believe in 2 things: Conservative underwriting and Cash flow. I am targeting a minimum 7% cash yield for new acquisitions and I sensitize all underwriting assuming a larger op-ex ratio and a larger vacancy factor. The days of underwriting 5% vacancy and 35-40% operating expenses are gone. I also would build in a larger DSCR than 1.25x.

6) Any good financing options or suggestion?

Talk to a good mortgage broker! DM me for referrals.

Any suggestion?

Read and execute. Best of luck.


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@Harshil Patel , yes your are correct. He rents out the entire home. I don't recall if we talked about HOA or not, it has not stopped him from doing it though. There are indeed some communities in AZ that are pretty upset about the short term rental business taking over their community. It is raising home prices and folks who moved away cannot afford to come back to their hometown. I feel this pain as well, as I would love to move out to the country where I was raised but the land that could be purchased for 300K 20 years ago is now selling for 1 million. Its just the reality of real estate.