What's going on with our market? How to navigate

8 Replies

I don't know if we can chalk it all up to COVID, but there is an alarming shortage of sellers coming to the market. At the same time, interest rates are at record lows and the demand for the Phoenix-area real estate remains strong. Investors seem to have dialed back their activity and I have seen a good amount elect to sell and take advantage of large appreciation profits. Snowbirds (seasonal visitors) are choosing to stay away while we make national headlines for our outbreak. It's questionable whether things will die down enough for them to make the large economic impact this winter/spring that we are accustomed to.

My question is, how have you adjusted your strategy?  Any assumptions or theories that you are playing out?

Here is the residential supply for Maricopa County. I can't recall an inventory level so low. Making it great for sellers but difficult for buyers. We are back to only a few days on market and multiple offer in some areas and price ranges.

@Ryan Hoover Our strategy for the last 3 years has been to sell properties we no longer wish to keep in the Phoenix portfolio and 1031 exchange into much better cashflowing property out of state. I don't see this changing as long as we have property that is not performing based on return on equity or unfriendly HOA or any other condition that affects our mental well being.

With that said, I think the Phoenix market for cashflow is game over. It's rare to find any MLS listing where you would cashflow more than a few percents (mid single digit) with 20% down. I think the people who are finding some success are the creative financing folks (sub2, lease option) etc.

@Ryan Hoover it is because of all the facts you pointed out that so many investors have gone virtually into other markets to get the returns they desire. For right now until we see how the next 1-2 years I am solely focused on seller fi and lease option transactions as @Stone Jin mentioned. I still find wholesale deals of course but I am being tighter with the underwriting.

Best to you!

Originally posted by @Stone Jin :

@Ryan Hoover Our strategy for the last 3 years has been to sell properties we no longer wish to keep in the Phoenix portfolio and 1031 exchange into much better cashflowing property out of state. I don't see this changing as long as we have property that is not performing based on return on equity or unfriendly HOA or any other condition that affects our mental well being.

With that said, I think the Phoenix market for cashflow is game over. It's rare to find any MLS listing where you would cashflow more than a few percents (mid single digit) with 20% down. I think the people who are finding some success are the creative financing folks (sub2, lease option) etc.

That's a pretty aggressive approach.  Sounds like your strategy is primarily to maximize cash flow, which I would totally agree is getting harder and harder to find.  It takes 20% down on a $300k property and even then, it is difficult to find deals that cash flow $250 a month.  

If you had a different strategy, more of a long term appreciation goal, would you hold those properties?  Also what areas of town are you invested?

 

Originally posted by @Melodee Lucido :

@Ryan Hoover it is because of all the facts you pointed out that so many investors have gone virtually into other markets to get the returns they desire. For right now until we see how the next 1-2 years I am solely focused on seller fi and lease option transactions as @Stone Jin mentioned. I still find wholesale deals of course but I am being tighter with the underwriting.

Best to you!

Appreciate the insight!  Have you had good results with seller financing and lease options?  I think that is going to have to be my next evolution if I am going to continue to add to my portfolio.

 

@Ryan Hoover

We primarily are in the east valley (chandler/mesa/aj), but have a few left in central Phoenix.

The long term play is to replace the income from my software consulting business.  Once there, I will consider more risky/appreciation investment vehicles.  

Investing out of state does not mean no appreciation.  In the midwest where you can buy value add properties, you can still capture that forced appreciation.

For example, last property I bought 

121K purchase price, 24K rehab, ARV 170K, Rent 1600, COC 14-16% with 20-25K of equity. We buy houses we would live in ourselves. The OOS strategy does not mean you have to buy turnkey or buy in crap neighborhoods. There are great neighborhoods in every city in this country.

Originally posted by @Stone Jin :

@Ryan Hoover

We primarily are in the east valley (chandler/mesa/aj), but have a few left in central Phoenix.

The long term play is to replace the income from my software consulting business.  Once there, I will consider more risky/appreciation investment vehicles.  

Investing out of state does not mean no appreciation.  In the midwest where you can buy value add properties, you can still capture that forced appreciation.

For example, last property I bought 

121K purchase price, 24K rehab, ARV 170K, Rent 1600, COC 14-16% with 20-25K of equity. We buy houses we would live in ourselves. The OOS strategy does not mean you have to buy turnkey or buy in crap neighborhoods. There are great neighborhoods in every city in this country.

Point well taken.  I am sure there are great opportunities in every state.  I wasn't implying little to no appreciation, just maybe the rate of appreciation and the price point at which that takes place.  5% gain on $150k property vs 5% gain on $300k property is a big difference.  But at the same time, if you can have 2 $150k properties for that same price, your cash flow will most likely be higher and the appreciation close enough.

Replacing your income with cash flow is a great goal, that a lot of people on here share.  Sounds like you are well on your way.

Good thread here Ryan. I've completely switched from buy & hold in Phoenix to flips exclusively. You're easily going to spend $250k for a decent buy and hold to meet, what I calculate as a 10% cash-on-cash return minimum. And because a majority of my buy & holds are in the midwest like some others I see where I'm getting 15%-30% returns with equity, it made sense to continue to build my capital here to acquire more out there. Off market deals are becoming gold mines and that means wholesalers are your friends. Granted there are still those greedy folks out there but find one who's reasonable and wants to see you win. Build the capital up and when our market shifts in the future and more inventory can start coming in, then you can switch back to buy & hold options in the valley. Capitalize on inventory being low because basically, you're guaranteed a sale if you price it right and deliver a good product and who doesn't like their profit back quickly? Just my thoughts.

@Ryan Hoover I am having very solid success with the free and clear properties and LO props. I haven't marketed specifically to free and clear owners (I market to OOS owners in 3 states) but several of the people that responded to my marketing have paid off their homes. My mindset is to find people that have a "situation" and need some help. They are out there; we just need to find them. Brandon Turner has a great book about creative financing; Investing in Real Estate With Little or NO Money Down. I think it's a must-read. 

Best to you!