Is Cash on Cash Return Irrelevant in Arizona?

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Is Cash on Cash Return Irrelevant in Arizona?

Ryan Stumbo
Rental Property Investor · Member since 2021 · 63 posts · 27 votes

So, recently I have been trying to branch out and buy real estate in other states. I'm currently working in Arizona so I thought "hmm it's nice out here, I should try to get a property or two while I'm out here." I am running into an issue. I'm very big on the numbers. I take every monthly/annual expense and calculate the cash on cash return, and if it isn't at least 8% then it's not worth it to me to even invest. 

I have now went to 2 different realtors, looked at some multi-family properties, typed the numbers in, and I've had 1 deal come back as a -55% CoC return. Then another was at like -90% CoC return. I do my numbers and see what kind of price is doable for me. Now, obviously with the deal being that overpriced, I could just not even attempt it, but when something has been on the market for 120 days, I figure heck why not just make an offer. Even if they view it as lowball, attach my spreadsheet to the offer and show them their property is way overpriced without directly telling them that and maybe they'll come to their senses. Me thinking the realtors would respect math also and see that I'm correct, I've had 2 realtors tell me "you're just not in tune with the Phoenix market." At this point, I will ask them politely to explain what this statement means because my math shows this deal is a terrible deal. They didn't respond. Just the vague "you don't understand Phoenix market." So I guess my question is, is there something I'm missing? One of the realtors also said that if I'm looking for 5% return in this market I may as well go ahead and go back to where I was investing before because that ship has sailed. So is this a case of it's just not possible to find 8% returns in this market in a decent location? Or do they actually have any logic or math behind what they're saying. Is there some deeper, specific reason someone is willing to pay for something that returns them a negative % on their money? This 1 realtor also told me there's a lot of "institutional money" here and that people are willing to use real estate to park their money and just take the loss because it keeps the IRS from getting their money.


I suppose in summary I'm asking, 1) are these realtors just trying to talk me into a bad deal and I just lucked out with the 2 realtors I found

2) Do I truly not understand something about the market down here and these -50-100% returns aren't so bad after all? (lol unlikely, since math is math.)

3) are these realtors just intimidated by making an offer they view as lowball since the listing price is so overpriced?

If someone can explain to me what I'm missing I would be happy and open to learning and understanding. I'm just truly not understanding what it means to instead of critiquing a list price that leaves you with a -50% return, I am instead being the one critiqued for not "understanding the market" .. lol any info on this situation would be greatly appreciated.

Thanks in advance.

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Zach LemasterBusiness Member
Rental Property Investor · Denver, CO · Member since 2015 · 2k+ posts · 3k+ votes
5y

@Ryan Stumbo

In my opinion you are really asking about multiple different types of investments here. Is AZ a great place to find double digit CoC ROI, no. It is an outstanding market for flips however (at least right now). You can get agents to throw lowball offers out, but most are likely hesitant to do that knowing it might be a waste of time being such a sellers market. You can find the right one that will spend the time to go through multiple offers if they know you will bring them a lot of business. They are just few and far between in a hot market.

I do high end flips in Phoenix, and the margins are pretty stellar.  Buy for $500k to 800k, put in ~$200k, sell retail in a week or less for over $1M (usually $150k to $250k net profit)!  Just rough numbers, but that is typical to see.  I like AZ for those opportunities, not buy & hold rentals.

I like the idea of house hacking something that has some deferred maintenance or value add!

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  • Jacob Trogan
    Lender · Kansas City, MO · Member since 2016 · 142 posts · 71 votes
    5y

    @Ryan Stumbo Lots of realtors are ignorant and self-centered, they are telling you you have to buy a horrible deal, I would suggest working with other realtors and suggest not chasing a deal that is so bad, yes you may sacrifice cash-flow to a degree if that’s something you are willing to do but you don’t have to, it just will be very difficult to find an on market cash-flowing deal

    Sounds like your expectations are a little out of line of how easy it is to find a deal but I would stand up for your goals more and not let their greed cost YOU money

    1Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y
    Originally posted by @Jacob Trogan:

    @Ryan Stumbo Lots of realtors are ignorant and self-centered, they are telling you you have to buy a horrible deal, I would suggest working with other realtors and suggest not chasing a deal that is so bad, yes you may sacrifice cash-flow to a degree if that’s something you are willing to do but you don’t have to, it just will be very difficult to find an on market cash-flowing deal

    Sounds like your expectations are a little out of line of how easy it is to find a deal but I would stand up for your goals more and not let their greed cost YOU money

     I respect your honesty. Trust me, I'm not chasing the deals. I gave the realtor my offer but two of them now wouldn't even submit the offer because they said it was "lowball" .. Then when I sent them market comparable rents, with the CoCr rate and what price it would take to give me a reasonable return, they did not respond. I'm pretty strict with how I invest my money. Especially when I feel I can make a crap ton in Crypto right now, I have no desire to blow money on real estate just to look cool. 

    Also, I don't feel a deal is going to be easy to find. I'm more about putting out fair offers in comparison to rent/return rates, and seeing if anyone bites. The worst they can do is tell me no is the way I approach life. This goes for about everything I encounter haha. Admittedly, I only have 3 properties, so I'm not hotshot expert in real estate yet, but I'm learning more daily. So it sounds like you're saying most deals on the MLS are not going to be where I get my deals. So where do most people get good deals, just through connections or chasing down leads?

    0Reply
  • Ockert Kruger
    Member since 2021 · 13 posts · 4 votes
    5y

    i have this exact same problem, except its not -55% CoC but 0.5% and I'm not in a big city or an area that grows much in value, most properties just retain value they hardly appreciate here. I've reached out to realtors and asked them straight up, why do people buy at these prices, am I missing something? This doesn't make any sense. I've attached my numbers - I've made a very thorough calculator on excel. I've even reached out to owners who were doing private sales (only 1 that I've found in a year), I showed her the numbers and she wasn;t interested. I'm being pessimistic and I know you have to work at it to find a great deal, but I'm also witnessing small multi fams being sold at prices which hardly give any return, which confuses me a lot. I'm sorry I'm not able to add any value to this thread, just wanted to let you know that I've been wondering the exact same thing.

    2Reply
  • Justin Sullivan
    Real Estate Agent · Phoenix, AZ · Member since 2019 · 158 posts · 140 votes
    5y

    @Ryan Stumbo

    I just relocated to Phoenix area exactly for real

    Estate snd how good this market is. House are appreciating 100,000’s each year. This market is more for short term rentals and appreciation in my opinion. I’m looking to break into development. I have one project in jersey which should be starting within 6 months snd I’m networking and learning the Phoenix market now. I have found a couple deals that would have worked but ultimately I’m looking to build new.

    So to answer your question I think it will

    Be difficult for you to find good COC long term rentals in this area. But not impossible. If your just looking here for Shots and giggles then I say move on to soMe where else. But if you're able to spend time searching and weather the low

    Cash flow snd wait for appreciation then keep looking!!

    1Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Ockert Kruger thank God! Lol I thought I was the only one. I have 3 properties but have had tough luck finding those. But don’t get discouraged, I’m learning more as I go, and it seems a lot of people luck into their first few deals haha .. find something off market, private seller, etc

    0Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Justin Sullivan thanks for the honest, respectful advice without any insults. So then it sounds as if most people buying these properties at silly prices are counting on the appreciation. From everything I’ve ever learned from Bigger Pockets, housing market crash stories, etc, you NEVER buy with strictly the hopes and prayers of appreciation. It seems as if people are doing exactly that. Not paying attention to any numbers or rental income, buying at a crazy price, then just crossing their fingers and hoping 5 years down the road the property 3-5x its value. Seems risky as crap but hey, more power to those doing that. But at least this explains why all my deals I research are in the negatives for CoCr and still being sold at a nearby price as the listing price and why realtors basically mock my existence for not buying at full price lol

    0Reply
  • David A.
    Rental Property Investor · Los Angeles · Member since 2019 · 157 posts · 175 votes
    5y
    Originally posted by @Ryan Stumbo:
    Originally posted by @David A.:

    It sounds like you and the two agents you spoke to are wasting each other's time. Time to move on, either find a new agent or a new market. You should be able to look at prices and see if there's a chance the market will work for your personal goals. It sounds like you don't value appreciation or have any plans for a value-add which is fine, but as you can see you are fighting an uphill battle in the market you chose. Ignore what private equity is doing, they have more / better resources than you do.

    I saw you used a FHA loan in one of your examples, does that mean you planning on living in one of the units because this will also change your numbers.

    1) I did the calculations with what my return would be after my required 1 year of living in the rental.

    2) interesting conclusions you reached with saying I'm not willing to do a value add. I would like to know where I wrote that. I simply brought up MTF property that I liked and thought the area was ok and how the price was outrageous and the realtor told me it was a great price. Even with value add, that's irrelevant to what I said about it being a -50% return though. If you're getting a -50% return it's a terrible deal, and my question was asking if there's something I'm missing in this market on real estate with these realtors both saying "you don't understand that market" when I tell them I like a property but not willing to pay the list price. Now had they said "well that's overpriced but they aren't going to come down to the price you need to make it a good CoCr" then I would just move on. But it seems 2 realtors in a row tried to steer me into bad deals or making an offer that burns me. Maybe let's address the moral compass of some of these so-called realtors out here before we go wondering about other things. (not saying all realtors operate this way, but this is about the 5th shady occurrence)

    3) the price doesn't matter. I have plenty of money to throw down on some properties, but I'm not going to blow it just so I can say I'm a fancy pants, big-time investor in Phoenix..lol I prefer to make money, not look cool to a group of people at a dinner table.

    4) these specific properties were on the market for over 100 days and list price hadn't changed at all. So that was also part of my confusion as to if I'm missing something with my numbers/market. Clearly others saw it was overpriced or something about the deal was off or it would've already been bought. I am perfectly content doing value adds/fixer uppers/single family over multi-family at this point due to the outrageous prices on multi-family. 

    These agents are seeing you as someone who wants to make low ball, low down payment, low chance offers so they aren't taking the time to address your concerns.   

    2Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @David Arsene low ball on a property that has negative return? Or maybe it’s just overpriced. Hey, either way, I’m not desperate for a Phoenix property. I have 3 so far and can easily go the fixer upper route. I guess I thought when a property was on the market for over 120 days that the person selling would maybe have the thought “wow. So maybe my property isn’t worth this much. Maybe I should take something less?” .. but who knows. I guess I’m the crazy one. Hey, good luck overpaying and buying above the median when the market dips. Seemed to work out for lots of people in the past.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y
    Originally posted by @Ryan Stumbo:

    @Justin Sullivan thanks for the honest, respectful advice without any insults. So then it sounds as if most people buying these properties at silly prices are counting on the appreciation. From everything I’ve ever learned from Bigger Pockets, housing market crash stories, etc, you NEVER buy with strictly the hopes and prayers of appreciation. It seems as if people are doing exactly that. Not paying attention to any numbers or rental income, buying at a crazy price, then just crossing their fingers and hoping 5 years down the road the property 3-5x its value. Seems risky as crap but hey, more power to those doing that. But at least this explains why all my deals I research are in the negatives for CoCr and still being sold at a nearby price as the listing price and why realtors basically mock my existence for not buying at full price lol

    Ironic that you are content with appreciation on crypto currency and stocks but not real estate. With the leverage of real estate the return from appreciation is increased corresponding to the level of leverage. 10% appreciation at 90% LTV produces 100% return.

    There is a poor correlation between initial cash flow and actual cash flow for a long hold.  This is not happenstance.  Because RE markets are efficient the markets with the best rent to value ratios have either higher perceived risk and/or lower projected appreciation (rent and property as those are typically tightly coupled) than the poor rent to value markets.  

    Many sources list Phoenix as the highest appreciating large US city over the last 12 months.  All sources list it as having great appreciation over the last 12 months.  Investors take into account expected appreciation in their offers.  Regardless of what you believe will happen to Phoenix property values, the rents are very likely to increase at a high rate for the next few years. Why?   because the rent has not kept up with the property value increases; the rents are lagging the property value increase.  Even if the properties go up zero in the next few years, the rents must increase to approach the historical rent to value ratio.  If this is not enough reason to believe rents will increase I add that Covid identified a new risk in the government placing an eviction moratorium.  This new risk should result in rents to value eventually exceeding the historical normal for the Phoenix market.  

    You have calculated a poor COC (using maintenance/cap ex numbers more aggressive than I use) and you do not want to factor in appreciation 1) even though you are perfectly willing to do so for crypto currency and stocks 2) there is solid reason to believe rents will increase significantly over the next few years.

    Under your chosen investment criteria, I suspect Phoenix may not be the correct market for you even though I expect it to do well as a long term hold. 

    Good luck





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  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    5y

    @Ryan Stumbo

    Of course your returns are going to be horrible when you are trying to put 3.5% down (owner occupied loan) on a triplex in the hottest area in town. Especially when you don’t factor in rent growth or appreciation. Day 1 returns will be negative because your down payment is small and the debt payment and fixed costs will be high.

    Arcadia is a neighborhood where sf family home easily can be 1m plus so getting doors at 250k doesn’t seem unreasonable. I don’t fault you for making offers based on your numbers but the reality is that it likely will not happen.

    If you want better rent to price ratio then you have to look for more working class neighborhoods. You have experience with travel nurses then look at historical neighborhoods near downtown Phoenix. Those are nice but not as hot as Arcadia.

    Best of luck

    0Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Stone Jin I never said I was only looking in Arcadia. I made a point that a realtor tried to tell me that rents would be $2000 monthly, when you’d be hard pressed to get that in Arcadia. And the area wasn’t the best that I was talking to her about. So I was calling BS on what I was being told. Read the entire post.

    Also, if you have 150k saved up and good W2 income, wouldn't the smart thing be to try to get as many properties as possible with that 150k (hence the FHA loan). I watch and read lots of real estate content, and have heard multiple times you make your money stretch over a few properties, rather than using all your money on one deal. I get the sense a few of you are taking it as a personal dig at your home state or something. There are bad deals and low CoCr deals everywhere. I'm simply on Arizona and noticing a lot more of them. I'm not trying to hurt your feelings.

    0Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Dan Heuschele so you’re telling me income increases have nothing to do with rents. What if the rents go up to $3000 a month for a 2 BR? What does it matter if that matches the metric you used if people’s incomes have barely increased? Do median incomes not play a role at all in what can be charged for rent?

    0Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    5y

    @Ryan Stumbo no need to get defensive.  I'm just simply stating that the arcadia area is one of the hottest sub markets in the metro therefore the price to rent is not going to be favorable for long term buy and hold investors.  We own property here and out of state so I get the need to chase yield.  

    As @Jay Hinrichs stated previously, the FHA loan is only for owner occupants. It doesn't quite sound like you wanted to house hack, just a clarifying statement. If you wanted to go conventional with the investor loans, then your lowest down payment may be 20%. When you run your numbers with 20-25% down are you still negative?

    Leverage and time are your best friends starting out.  I highly encourage using debt in the current low interest rate enviroment, just got to be sure you are using the right type of debt when running your numbers.   

    As a landlord in the valley, the rent growth is no joke, rent has almost doubled in the last 6 years with no slowing down I'm afraid.  There will be an affordability issue in the working class neighborhoods, but in white collar neighborhoods the rents will continue to soar.

    If you wanted to spread your 150K across multiple properties you may only 1-2 in the Phoenix metro as the average purchase price for SF is over 300K and 25% down is 75K.  

    Just trying to provide some insight, not rain on your parade.

    Best of luck

    1Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Stone Jin haha that sounded much nicer. Not defensive, just seems a couple responses are more interested in defending the Phoenix market or making passive aggressive comments. I simply made a post asking if CoCr matters in this market and why all my deals I would pursue come back negative. A simple “you’re not putting enough down payment” or “lots of people are depending on appreciation so they’ll take the negative CoCr at first” would’ve been fine. But a couple people instead responded talking about my low down payment and “lowball” offers. Then another guy said my figures are too big for Cap-Ex and other stuff when Bigger Pockets is the place I got those figures from. I even accounted for the hot market and made the vacancy rate like 1-2%. I will put in conventional loan terms and see what this brings my CoCr to and let you know.

    @David Arsene made a snooty comment that I’m a low baller with a low down payment without providing any insight into why it’s a lowball, which is why I made the entire post. To try to figure out if there was something within this specific market I’m not accounting for when calculating my deals.

    Then @Dan Heuschele made the point that I’m not ok with appreciation when I never said that. But I definitely am not ok with -50% and losing lots of money monthly only praying for appreciation. That’s a recipe for disaster. There’s a happy medium with CoCr and appreciation. I don’t need a 40% return on every deal.. but you’re right. Some of my crypto has grown at 200-400% in about a year or 2, so I’m definitely content with that.

    0Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Stone Jin I just did the calculations with 20% down and conventional loan rates and it did lower it to -3%. A huge decrease obviously but still a negative. So I guess if someone is counting on these rents in mediocre areas continuing to skyrocket, then the -3% CoCr isn’t such a huge deal, also while factoring in appreciation. I still prefer to have cash flow out of the gate, so these really aren’t my type of deals. I’ll keep looking until I find something more what I’m looking for.

    0Reply
  • Justin Sullivan
    Real Estate Agent · Phoenix, AZ · Member since 2019 · 158 posts · 140 votes
    5y

    @Ryan Stumbo

    So it’s actually not as risky as you may think. I am not telling you to jump into an appreciation deal but think about the big markets like New York LA San Fran and Phoenix is now entering that group in my mind. Other markets like sand Diego Miami snd some Texas places also are grouped in this. They don’t really follow the same value line as the rest of the country. While prices are stable everywhere in these markets they’re climbing and while climbing everywhere else in these markets they have dips. They operate on a different grid from

    Everywhere else. It’s a ton of investment money and hedge fund money as well. So you just have to view the market different. I like appreciation deals or forced appreciation deals. Right now I’m not ready to lose $800 a month to wait for rents to rise and appreciation to Happen. Some of these guys might be paying cash for the deal so they have soMe where to park their earnings to avoid taxes. So it’s a different level then where we are (I’m assuming by your comments you don’t have millions of money lying around, lol)

    0Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Justin Sullivan haha you would be correct sir. I have about 150k total and pretty much 0 debt. Paid everything off. Have about 100k of that in Crypto so I was just going to let it sit through this bull run about to come up. Any time I mention crypto people mock that as well but I’ve made a lot of money on it since I started investing and learned a lot about it. It’s an exciting time, big or small time, to be an investor and I’m just blessed to be a part of it. I enjoy learning so it’s worth it to deal with the occasional snooty comment on a forum haha

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  • Justin Sullivan
    Real Estate Agent · Phoenix, AZ · Member since 2019 · 158 posts · 140 votes
    5y

    @Ryan Stumbo

    I’m in a similar position with $130k and two renovations currently going, except I owe about $16k on my wife’s car and I have a rental property snd not so much crypto. I saw the doge coin boom before it happened and wanted to drop $10k into it. Needless to say that wasn’t my first time telling my wife we’ll get rich on crypto!! Lol. Our finances weren’t in a position at the time to put the 10k down so we missed that run. But I enjoy crypto and stocks just as much as real estate. Right now my focus is real estate but I could switch to stocks snd start making some strong Investments after about a month of solid research. Just can’t do both at same time Right now. Our plans are to get a little more rental income then set aside a budget for stock trading.

    Let’s connect man. I sent you a request and saw you accepted it. I’m in Phoenix so I’d you dead set in this market we might be able to do something together!

    1Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Justin Sullivan sounds like we’re in a pretty similar place. I also have a 4plex back in my home state that I’m currently gutting and remodeling as well. I never got in on Doge haha I invest in a lot of crypto but it’s mostly crypto that I think is going to be used in the real world in the future. Real estate is probably the most stable over the long term so I’d like to increase the amount of real estate I own for sure. Always open to connecting. I sent you a message!

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    5y
    Originally posted by @Ryan Stumbo:

    @Stone Jin haha that sounded much nicer. Not defensive, just seems a couple responses are more interested in defending the Phoenix market or making passive aggressive comments. I simply made a post asking if CoCr matters in this market and why all my deals I would pursue come back negative. A simple “you’re not putting enough down payment” or “lots of people are depending on appreciation so they’ll take the negative CoCr at first” would’ve been fine. But a couple people instead responded talking about my low down payment and “lowball” offers. Then another guy said my figures are too big for Cap-Ex and other stuff when Bigger Pockets is the place I got those figures from. I even accounted for the hot market and made the vacancy rate like 1-2%. I will put in conventional loan terms and see what this brings my CoCr to and let you know.

    @David Arsene made a snooty comment that I’m a low baller with a low down payment without providing any insight into why it’s a lowball, which is why I made the entire post. To try to figure out if there was something within this specific market I’m not accounting for when calculating my deals.

    Then @Dan Heuschele made the point that I’m not ok with appreciation when I never said that. But I definitely am not ok with -50% and losing lots of money monthly only praying for appreciation. That’s a recipe for disaster. There’s a happy medium with CoCr and appreciation. I don’t need a 40% return on every deal.. but you’re right. Some of my crypto has grown at 200-400% in about a year or 2, so I’m definitely content with that.

    >Then @Dan Heuschele made the point that I’m not ok with appreciation when I never said that.


    you stated “For example, if I can invest 80k in crypto and get 20k within a year (25% return), why would I go take 80k and throw down on an investment property that gets me 1% a year. So CoC return to me is very important.”  

    Note crypto does not pay dividends and has no COC. You are fully relying on appreciation.
     
    according to Zillow, the Phoenix area housing market appreciated 31.8% in the last year.  https://www.noradarealestate.c... At 80% LTV, this appreciation provided 159% return. Far greater than the 25% example you used for crypto currency.

    Both are appreciation plays, but due to leverage the appreciation on property produces a magnified return. 

    Cash flow is only one source of return in real estate.  Appreciation is another source of return. I like value adds and appreciation as my source of return because they 1) allow me to extract my investment to leverage elsewhere (we only have one property with any of our investment trapped in it) 2) it is taxed deferred (unlike cash flow). Currently at death the tax is forgiven for decent size estates (currently $11.58M per individual, 2x for couples).  

    I run my pro forma looking at everything.   Have you looked at how the equity pay down affects your return?

    It could be Phoenix does not meet your investing criteria.  There is nothing wrong with that. Pick a market that does.  However, the reason the rent to value ratio is poor is because investors are forecasting forward appreciation in a diverse, growing city (low risk).  It likely will produce good returns for Phoenix area RE investors.  

    Good luck

    1Reply
  • Ryan Stumbo
    OP
    Rental Property Investor · Member since 2021 · 63 posts · 27 votes
    5y

    @Dan Heuschele the difference is if my crypto starts to appreciate or depreciate at any moment, I can sell it. I don’t have to pray or hope for anything. If you buy real estate with the hopes of appreciation, but instead it depreciates, you are stuck with it because you have to have a human being that will buy it from you, or keep it until the prices go back to where you need them. So again, I’m not against buying something that will appreciate or depreciate, I’m simply stating TO ME I like stocks and crypto better for appreciation simply because I can reduce my risks just by watching the markets. I don’t feel like you wake up one day and see a stock market number that will guarantee your house is going to rise and fall in value and give you a hint, but maybe I’m wrong on that. Haven’t studied the correlation between stocks and real estate and if there are stocks that accurately predict a real estate dip.

    Again, I’m new here man. I enjoy learning. I was just simply curious why my deals were coming out negative and why realtors seemed content with that. And through your responses and multiple others, it sounds like most realtors are banking on appreciation and not worrying about monthly cash flow. That is perfectly fine with me. I’m not wealthy enough at this point to sacrifice cash flow for a deal where I’m crossing my fingers and just hoping everyone is correct about the real estate market continuing to appreciate.

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  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    COC for me is not the primary purpose of an equity/appreciation market investment.

    I can get a bit more CF with other asset types than houses (like MF), but the way I survive in an expensive area is by buying off-market, below FMV. Not many realtors are able to source these. Gotta shake the bushes.

    My min equity capture at the buy is $43k.  I usually LO the house for small cf, but realize long-term cap gains on a couple home sales per year. No commissions or vacancy while pending.

    Then roll/exchange the little green houses on up to red hotels for the long term cf we seek.

    Equity markets require an equity capture play, not COC cf yield. The game is bridge but you're playing with a hold em hand. Switch it up.

    0Reply
  • Mick Hofmann
    Real Estate Agent · Scottsdale, AZ · Member since 2018 · 46 posts · 22 votes
    5y

    @Ryan Stumbo It sounds like you are on the right track. Phx is quickly becoming overpriced and hard to find deals as an investor. As others have stated, most realtors are small minded and are in it for a paycheck. You can still find deals around here but you have to be well connected. 

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  • Chad McMahan
    Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 754 posts · 504 votes
    5y
    Regarding cash on cash- if it's relevant to you, than it's relevant. Some of my clients, cash on cash is all that matters.

    Although many of my investor buyers are looking at total ROI- including mortgage, as they can only leverage financing so far- and have a short term (1-2 loans) hard cap on financing.

    Some examples of AZ returns:

    I'm about to close escrow on a $1.5M SFH that is estimated to STR $260k gross per year, with $180k improvement (deck, add 2 bedrooms).

    Working on a $875k SFH that needs $80k - $120k, and will easily STR $150k gross per year.

    It's a bit crazy what's happening in Sedona. Many people feel it's over priced. BUT, the returns are there and they fly off the shelf, so who is to say?

    1Reply
  • Casey Powers
    Las Vegas, NV · Member since 2018 · 405 posts · 474 votes
    5y

    Las Vegas and Phoenix markets are pretty similar in many ways. 1/3 of all homes sold in Las Vegas in the last year were bought by hedge funds, and that is increasing. These ibuyers are OVERPAYING way above comps in a race to buy up market share. I guarantee they have comparable numbers in Phoenix. The agent is absolutely right that a lot of “institutional” buyers are driving up prices there, just like they are here in LV. That’s your biggest competition as a buyer. They basically write offers on every listing that comes online these days.

    Sellers don't care one iota about your numbers - show them the money or they're not interested. Most will probably just laugh at your spreadsheet. Even if a property has been on the market 120 days, they're not going to take a lowball offer. They may eventually sell for less than they're asking but if it's on the MLS you aren't going to get it at a price that provides an 8% return unless you're doing something other than a traditional long term rental. Way too much demand for homes in these areas for that. You could make your numbers if you can do STR or such.

    Some properties are listed for other reasons. There’s an agent here who always has several listings that have been on the market for a long time, often a year+. When I ask about them they’re suddenly “off the market” and then back online a few days later. Clearly just using them to fish for clients.

    2Reply
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