1% rule in Phoenix Arizona

14 Replies

Hey all! I have been searching for a while and it has been tough to find anything that meets the 1% rule in the current Phoenix market. I did however purchase a condo 7 months ago that is at about .8% and has been doing well so far. I am actually planning to buy another one in the same complex with a similar return.

All that aside, is anyone still able to hit the 1% rule or higher when purchasing in the phoenix area?

Thanks,

Kevin

Only with multi-family. 

I even considered multi-family and didn't find a lot in that range.  The few that I did were in area's i didn't want to deal with (hoping to keep income as passive as possible).  

Perhaps you need a PM that’s willing to deal with those areas😎

I just bought a condo in Glendale. $80k, rent is $800.

@Kevin B  last year I got 12 that would qualify at 1% or better. One in Phoenix, 3 in Apache Junction, 1 in San Tan Valley, 1 in Florence, 3 in Coolidge, 1 in Casa Grande, 1 in Arizona City, and 1 in Eloy.

@Kevin B found it!

Anyway, to answer your question, multi-families are your only real option. Not saying it's impossible with single-families but you're better off focusing on multis. Unless you're willing to go to the far outskirts of the Phoenix metro (think Buckeye, San Tan, etc.)

Yes i have looked at them, not sure that's the market i want to be in.  Sounds like i have a decision to make as to whether i want 1% returns and more property mgt or less property mgt and less returns...

Good feedback-- Thanks!

I think you should consider partnering on larger deals, so you don't have to substitute property management for returns. 

If you haven't, yet, listen to Grant Cardone's latest BP podcast. It'll help you to start thinking larger. 

Don't beat yourself up about the 1% rule.  That rule doesn't even apply to the type of RE you are looking to invest in.

So, unless you are looking to buy a mobile home park, or a storage unit facility, throw out the 1% rule.  It doesn't apply.

More important for you to use in your calculations would be the 50% rule, which suggests that you take the gross rental income minus vacancy, and use 50% of that to figure expenses (PM, taxes, insurance, etc). Again, this will scale better with multi-family, but is a good reference to guide you in evaluating your SFR purchases too.

@Kevin B

The thing about the 1% rule is that it's really only a Bigger Pockets metric. I haven't heard about it anywhere else.

But the thing about Bigger Pockets is it's nationwide, so that includes $50,000 homes you find in Ohio and $500,000 homes you find in California. The metric doesn't scale.

For that $500k home, you could buy it with 5% down with a 5% interest rate with a 30 year mortgage for only $3,563.92... so why would anyone in their right mind rent it for $1,400 more?

Here's the way you use the 1% metric:

Find out what the average 1% rating is in your market, then compare any potential deals you come across against that.

If the average in your area is 0.6%, and you come across a property that's 0.8%, you know you're probably looking at a deal since it's so much better than everything else out there.

Now, if you're looking to get better returns, you should definitely consider multifamily. More units = more renters, and more renters = more rents.

Every week I analyze every single multifamily property on the market here in the Phoenix metro area, and the average 1% score for 2-4 unit multifamily is 0.74% -- and you can find several dozen on the market above that, including multiple 1%'ers. If you look at commercial multifamily with 5+ units, the average is 0.84%.

So, the deals are definitely out there, you might just need an easier way to identify them. If you're looking anywhere but the MLS where you can easily get rental info you're probably going to drive yourself crazy.

Good info thanks guys.  I have taken that approach with my Multi and single family and they are hitting .8% rule which seems to be solid for az so far.  Close to the 50% rule but not there on above.  Really good to hear other people strategies.  

I have been targeting .78% or above because most SFR's/condo's i see are well below even .7%.

Newer to the az market, very interesting market to be in. Fun post to read. There is a lot going on in the valley, seems like you'll come across a winner soon! Good luck out there and keep us posted if you close on one in the near future! 

@Kevin B   as others have mentioned, it's really tough to get the 1% rule in metro Phoenix. Demand from both owner occupants and investors has pushed prices up. Rents have gone up as well, but not enough to equal 1% of the sale prices. 

My rentals in Tempe were above 1% back in 2011 at the bottom of the market. Now the rents would be about .5-.7% range vs sale price. For multi-families in C-ish areas, I think you would be doing well to get in the range of about .8%

I personally don't even consider the 1% rule in my own investing, nor for my clients. There are better metrics to consider with regards to your own investing strategies and goals.

@Kevin B

Right on Kevin. Seems like you've got a good grasp on the numbers. There are so many different metrics to consider when purchasing a property, so ultimately you have to decide which one works best for you and come up with your own criteria. 

Most importantly is knowing the numbers for the market as a whole. That way you can compare each deal you come across to the averages and everything else you've looked at. Seems like you're already doing things that way :-)

Best of luck!

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