Buy and hold property in Phoenix area
hi guys. I’m new here on biggerpockets and looking to get started in real estate investing. I live in the Bay Area CA and as such really have no solid buy and hold opportunities that could be cash flow positive. So I have been researching areas like Houston and Phoenix and Grand Rapids. From the research I’ve done, Phoenix area seems to be ranked amongst the hottest real estate market to watch out for for 2019. I was hoping to learn from someone here about whatever driving growth in Phoenix area, what zipcodes should I be looking at, should I be looking at single family or townhome condo... Also, since this will be long distance I’m also hoping someone would chime in with typical costs associated with property management
Hey Ali! Great questions! Here's why Phoenix is growing:
1) California milliennials are turning 30, getting pregnant, and realizing they can buy twice the house for half the price if they move one state over to Arizona.
2) California is also exporting it's middle class. If you're not very rich, very poor, or a public employee then the Golden State is probably not for you. I'm from California so I can say that lol. I mean c'mon, the state just tried to pass a bill taxing text messages. Are you kidding me? Can middle class people afford ANOTHER tax on them? And drive across the state line and gas instantly drops $1+ per gallon. Cost of living is too high for what you get.
2) 10,000 people per day are turning 65 and retiring, and Arizona is the #2 retirement destination in the US. People from the colder stats like Michigan, Wisconsin and areas like Canada are fed up with all the snow.
In fact, the Arizona Sun Corridor is projected to increase in population by a whopping 6.6 million by 2050 (as long as we don't run out of water.)
As for where to buy, it really depends on your goals and budget. Are you looking for a modest single family home in a hot area? Try Surprise. Vacation rental or condo? Tempe, Downtown Phoenix or Scottsdale. Higher budget single family home? Gilbert or Chandler. It's a HUGE area so there's lot to consider and no canned answers unfortunately.
For property management, there's no canned answer either. Prices range from flat monthly fees to 6-10% of the gross rents. All depends on the level of service you want. So best to interview several before making a decision.
Feel free to reach out if you have any more questions and want an opinion of someone looking through the eyes of a Californian ;-)
Hi Ali,
Glad to hear you are considering AZ! It's an exciting market that's growing very quickly. I have a good property management company I can put you in touch with if you want to get an idea of costs. There are so many great areas here to invest ... Tempe has ASU, downtown has a lot of culture and cool historic homes, Chandler is expanding employment n the tech sector ... feel free to shoot me a PM and we can discuss specifics!
Good luck!
@Ali Sardar About 50% of my business in 2018 was helping investors from California find more attractive investment properties here in Arizona. I also helped several employees of a fortune 500 company find new housing here because their entire sales team was relocating from Orange County to Tempe. There are similar reasons for both investors and companies to look at Phoenix Metro:
1) Property prices are still low/affordable relative to other metro areas. This is attractive both as an investor and owner occupant.
2) Rents are still low compared to other larger cities, but are rising appropriately to meet demand. Vacancy rates are 5%!
3) AZ is a very landlord friendly state compared to other rental markets like California, Illinois, New Jersey, or Massachusetts.
4) People WANT to be here for many reasons. I was on a tour all morning with investor clients from CA doing a 1031 exchange. Lucky for us, it's 70 degrees and sunny out. They are even considering a second or retirement home here in addition to investment properties.
5) Taxes (both income AND property) are very low here compared to other high cost states (see the same offenders from number 3 above). Companies want to be here and their employees don't mind coming along for the same benefits.
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Real Estate Agent AZ (#SA661174000)
- 480-332-7296
- http://www.TheSwanTeamAZ.com
Hi guys,
Thanks for the great responses. Really appreciate the expert input. I guess I need to be a bit more specific in my asks, so here it is. Im looking to get a couple of investment properties in the surrounding areas of Phoenix Metro, meaning Glendale, Chandler, Tempe, Gilbert. I have also been looking at places like Peoria and Surprise, but just don't know enough about the growth projections there to be able to pull the trigger (hopefully one of you guys can help in that).. Now for the specifics:
Property type: single family 3B 2bth, roughly 1400-1800 sqft. OR a same size townhome (although townhomes have HOA which I hate....)
Price range: $150 - 225K
I will most likely finance these properties with minimum 10% down.
The challenge is to find something that can be rented right away and starts to generate $200-$300 in net cashflow after any property management fee thats required. My research shows that appreciation is slated to be somewhere in the ballpark of 4.6% on avg. (Is that true for all these places or are certain areas growing more), but I'd love to learn a bit more about what would be the right areas to focus on given my constraints, to develop a long term performing asset.
What I would want to know is growth projections, rent/sqft in these cities, zip codes that are associated with good schools (Gilbert is pretty well known).
The base case that I've been building looks like this:
$200K for a 3bd 2 bth Single family home, 1600 sqft.
Assuming rent/sqft of say 0.9 -> $1440/month
Is it possible to net $200-$300 on that?
It's hard to find a single family residence worth 200k that would get your over $1400 in rent a month. Realistically, you'd be looking at a 3 bed 2 bath, 1000-1300 sq. ft. home in Glendale and Phoenix that probably rents for around $1200-1300. It's hard to see a scenario where these numbers can net $200-300 a month. You'd more-than-likely have to put more than 10% down to get near that amount.
Mortgage Calculator: https://usmortgagecalculator.org/
$200,000 home with 10% and a 5% interest rate makes for a PITI of $1,326.70. And that's before splitting utilities, doing repairs, property management, etc. You're not even in the ballpark.
Also since this is an investment property you're going to need at least 20% down. That would put your PITI at $1,125/mo. That's closer, but probably not going to net $300/mo for the year.
Have you talked with a lender yet? Make sure you don't put the cart before the horse... get in touch with a local lender and make sure your plan for financing is going to work.
If I were you I'd buy a $200k'ish home in Suprise. You'll rent it for $1,200 to $1,500 depending on condition, upgrades, size, etc. The Surprise market is on fire. Homes are cheap, schools are good, and streets are safe. What more could you ask for as an investor?
@Wes Blackwell You are clearly very knowledgeable about the Phoenix neighborhoods/market so thank you for sharing with the rest of us! I am a newbie who will be moving to the Phoenix area in the 18 months and will start my investing journey there. I am just trying to learn as much as I can about the market in the meantime. What would you say are the B- to B+ neighborhoods?
East Tempe would be a great area to look into. I have a home in this part of town. I rent by the bedroom 600/Each and have 3 bedrooms. I'm at the university & 101. Half a mile from Chicago Cubs spring training stadium, 2.8 miles from ASU, 10 minutes from the airport, 10 minutes from mill & 10 minutes from Old Town Scottsdale. I'm considering using my home as an Airbnb in the near future as I could probably get $150-200/Night
That's really hard to say... if only because the Phoenix area is SO HUGE.
Seriously, it can take over a hour to drive from one side of the metro area to the other, and that's with no traffic.
The main consideration you want to keep in mind is proximity to your place of employment. Most people who are coming from other states and aren't used to commuting don't like it all too much after doing it for awhile.
So once you've got that figured out, then you need to take into consideration things like price range, home size, school districts, etc. And so to try and name every B class area in the Phoenix metro area wouldn't be too helpful anyway.
If you have a better idea of whereabouts in town you'd like to live, then I can point you in the right direction :-)
Hello Ali,
If you are ready to buy, I have a renter ready to go in the Chandler area.
The area is solid, and growing.
The price points will have to be higher, but the rent will be higher as well, from $1600-$1800.
r/Alex
@Ali Sardar did you buy any property yet? I am from CA and have similar goals (AZ BuyNHold) as you.
@Ali Sardar did you buy any property yet? I am from CA and have similar goals (AZ BuyNHold) as you.
Hi All,
Similar to Ali, I live in California and don't feel comfortable with properties out here as they probably won't cash flow.
I have been looking for the past month at properties in the general Phoenix area. For those already investing or are agents in the area, I'm wondering about some specific neighborhoods where I've found potential. What grade would you give these areas:
Ambassador Heights, Maryvale, Sunnyslope, West Mesa
Any insights appreciated!
All of the areas you mentioned are higher crime areas with lower income. Mostly C- or D areas IMO. Home prices will be lower, but that is to be expected given the economic status of the residents in those areas.
@Bob Okenwa
That's very helpful information. I really appreciate it.
Any thoughts on more B to C+ neighborhoods? I'm trying to narrow things down because trying to explore the greater Phoenix metro area is becoming too much.
B to C+ neighborhoods will cost you a little more, but definitely command more in rent. There is high rental demand here for properties in decent areas! Here's the other thing you need to be prepared for in the Phoenix market: we aren't seeing a huge amount of cash flow right now. You're doing pretty well if you can flow $200-$300 per month. BUT ... we are seeing very robust appreciation. So the principal of your investment grows nicely even if you aren't seeing huge monthly dividends. That's still a good investment, you just have to have realistic expectations about what you're going to see in cash flow.
Consider South Tempe or Ahwatukee. I've also seen the occasional great one-off deal in Chandler (which is very hot and has high prices right now). There are pockets in West Mesa worth considering, but you have to be very careful. The neighborhoods change quickly.
Happy to answer and questions I can!
Originally posted by @Anand Krish:@Ali Sardar did you buy any property yet? I am from CA and have similar goals (AZ BuyNHold) as you. @Wilson Liu
Get to know the area first and be sure to visit the property before you buy. Here is a sample spreadsheet of what you can accomplish in AZ. Since you are in California you will find Arizona more familiar to you than one of the other areas across the country that cash flow.
Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Financing Needed
How does the real estate community determine the letter value of property (A, C, etc)?
@Travis Hill this is how I would classify the type of house or neighborhood:
A - Rich people live here. They usually don’t cash flow if you have leverage on them and rent them out as traditional rentals.
B - Middle class (average people) live in these neighborhoods and they can cash flow a little if there is enough of a down payment and you will probably experience some regular appreciation.
C - Lower income, but good hard-working people, live in these homes or neighborhoods. They tend to live paycheck to paycheck but usually are able to pay rent, they just struggle saving up enough money for a down payment or to qualify to get their own home.
D - Lower income, if any income. Often called “the ghetto” or “war zone.” Higher crime neighborhoods. Often people out walking around the streets during the day while the rest of the world is at work. Often have stories as to why the rent is late or why they have to wait another week or two to “get it to you.”
I would love to learn more about Phoenix market. I'm from CA and have been investing primarily in DFW. What kind of returns are investors seeing on SFR's and small MFR (1-4 unit) type properties in solid "B" neighborhoods? Thanks in advance for sharing.