Location, Location, Location?

Question

Both houses have similar sq footage, 1100sq feet. same amount of land... If I buy this one, I would have to put more money into it, which is tough but I could squeeze it in within a couple of years...

Where would u buy? Would u go for appreciation? Or would you go for a better house?

Thank you

Henry Lazerow · Answer

Get these spammy AI responses out of here ^ 🤮

P.S. you shouldn’t buy either those rent to purchase ratios are way too low. Try and find something in the .7-1.2% range.

Shiloh Lundahl · Answer

Hi @Mary Jay I live in Gilbert myself and I own about 35 single family homes myself and another 35 with partners all in Arizona. None of them are in Gilbert though. The rent to cost ratio is just too low for it to make a lot of financial sense as far as cash flow goes for the amount that I would need to leave into the property. And as far as appreciation goes, the appreciation ratio is also not that attractive compared to other locations in Arizona.

To give you an example, let's say you buy the property in Gilbert for 386k (which is a good price in Gilbert) but for it to value higher and attract a good renter you would need to get rid of the animal smell and add a closet to make it a 3 bed, 2 bath house. So after you buy the house, pay closing costs, and fix it up by changing the flooring, painting, adding the closet, and possibly painting the kitchen cabinets and vanities to give it an update, your all in amount is probably around $440,000 and it would probably value about $450,000.  Rents would probably be around $2100 and you would have a loan for around $300,000 give or take $10,000. So you would have about $140,000 stuck in the home and your monthly cash flow would be 0 to negative each month. Let's say after 5 years of owning the home you have paid off $20,000 and you have negatively cash flowed about $10,000.  And let's say the home appreciated about 4% a year so the value would be at $550,000. If you sell it at that price. Your profit would about $76,000 ($550,000 - 8% in closing costs - loan balance of $280,000 - $10,000 of negative cash flow - $140,000 of your money that you put into the deal). Then you would need to pay the taxes off that gain which let's say would be around 15%. So your total gain would be around $65,000 over 5 years with an investment of around $140,000 which would be around a 9% return per year in my example and my example doesn't include repairs, vacancy, or turnovers during that time.

For the amount of work that this would take plus risk, I personally don't think the return on oils be worth the work or the risk.

Even though I live in Gilbert, I personally buy in Mesa, Apache Junction, Florence, Coolidge, and Casa Grande. If I were in the west valley then I would probably buy in Buckeye, Phoenix, and south mountain area. I would look for safe areas, but not necessarily nice areas. Probably C to B - areas. Also, I would buy off the wholesale list for a better deal rather than buying off the MLS or Zillow.

The majority of homes I buy are from wholesalers and they need work. By after I am done fixing them up I usually create about $40,000 - $60,000 of equity in each house and that equity doesn't include the $10,000 - $20,000 of my money that gets left in the deal. Also, the properties usually cash flow a couple hundred dollars er month and the appreciation is usually about the same but I sell in about 3 years. Also, since I use the lease option strategy I don't pay for closing costs or realtor fees. So let's say I get a $60,000 gain off of a $20,000 investment over 3 years. That is a 100% return on investment each year for 3 years. That is about what I shoot for if I am an active investor in a deal.

So I would encourage you to keep looking for some better deals and that may mean looking into some different cities to buy in. Also, I would encourage you to connect with wholesalers if your in Arizona. There are tons here and they are a great source if you are looking for some good deals. Let me know if you would like me to connect you with some wholesalers in the area.

Dan H. · Answer

Let me ask you why would you want to buy either of these?   Do you like to loose money virtually every month on properties that historically have not appreciated much?

It is different if you are buying a home to live in.  However investment properties are supposed to make money, not lose money.   Historically the S&P is likely to produce better return than either of these properties with a lot less work.

If you want to know which one I would buy if I was forced to buy one of these, I would purchase the 2nd one because it seems to have some value add potential.

good luck

Mary Jay · Answer

Thank you guys so much!

NA N. · Answer

Hope this helps!!! You’re weighing two very different investment paths — and the fact that you’re thinking through the trade-offs (not just the price) already puts you ahead of most first-time Phoenix investors.

Here’s the truth: both of these properties can work…

but only one protects you financially AND emotionally as a landlord.

Let’s break it down in a way that brings total clarity.

1. Cash Flow Comes First — Not Appreciation

A lot of investors get seduced by the “hot market” or “future appreciation,” but you don’t spend appreciation — you spend cash flow.

When both houses rent for the same $1.8–1.9K……but one costs $340K and the other $386K + needed repairs…

You’re already seeing your answer:

✔ Peoria: Lower price + fewer repairs = stronger cash-on-cash

✘ Gilbert: Higher price + renovation costs = weaker cash flow

Appreciation is a bonus, not the foundation of a sustainable rental strategy.

2. Tenant Profile Matters More Than People Admit

Peoria’s tenant base is broad and stable:

• more renters
• more turnover demand
• easy to re-fill units
• great for families
• easier to maintain steady occupancy

Gilbert is a fantastic appreciating town, but you already identified the key issue:

“Mormons don’t like to rent; they own.”

That means:

• fewer renters
• more picky renters
• more vacant inventory
• lower urgency to rent
• longer days on market

A great appreciation market with weak rental demand is a risk for a first rental.

3. Condition = Peace of Mind (AND lower expenses)

Peoria is:

• new roof
• new water heater
• updated flooring
• new paint
• elderly-owned (usually low wear-and-tear)

Gilbert is:

• old carpets
• smells like pets
• missing closet
• broken blinds
• needs paint
• dated interior

Every dollar of deferred maintenance becomes your dollar the moment you close.

Your first rental should NEVER be the one that drains you during the first 12–24 months.

4. Appreciation vs Reality

Gilbert will appreciate well long-term.

But appreciation only matters if:

• you can hold it easily
• the property never becomes a financial burden
• cash flow doesn’t break you during market fluctuations

If your budget is tight OR you want a smoother first rental experience,

Peoria is the safer, more stable, more cash-flow-friendly choice. My opinion!!

5. A Simple Test to Decide

Ask yourself:

“If the market froze for 5 years — which property would I be happier owning?”

For most people, with the facts you listed, the answer is Peoria.

Final Verdict (Based on your facts)

Peoria = better rental, better stability, less stress, stronger cash flow

✘ Gilbert = long-term appreciation but weaker renter demand + higher upfront costs

For a first rental, I’d choose the path that gives you fewer surprises and more monthly breathing room

Location, Location, Location?

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