Hi, I'm an aspiring investor and I'm beginning to analyze multifamily properties. I know that I do not want to invest in D class neighborhoods but I also want to stay away from the A class. I'm having difficulty distinguishing the classes in between as I look at properties on the MLS. I think I will invest in the north or east relative to central Phoenix but that can change. What are the criteria of B and/or C+ neighborhoods in your opinion? Can anyone provide the names of neighborhoods for better understanding? Does anyone recommend starting at C versus B?
I intend to buy a property within the year.
Thanks to anyone willing to help me out here.
Hey there @Rodolfo Coronel . Welcome to BP.
For general B/C+ areas, you would look to most of Scottsdale, parts of Tempe, parts of Chandler and Gilbert, and you would tiptoe the line between B & C Peoria the further north you wnet and way out in parts of Surprise as well. The further north one goes in Scottsdale, the higher the grade as well as Scottsdale can oscillate between C and A depending on the exact location.
I know that's a very general overview, but there are literally areas in the city where crossing a street or two can take you from a B to a C or C to D. It'd be easier to classify where to invest if you have a preset budget. Once that is established, you'll learn pretty quickly where you can and cannot afford to invest.
The criteria for a class of neighborhood is a mixture of fact and opinion as there are no hard and fast rules but here's an article to help get you going for classifying neighborhoods. https://www.biggerpockets.com/renewsblog/2015/12/09/class-a-b-c-d-real-estate/
I lived and worked in the East Valley for about a decade and the corridor of North Scottsdale down to Ahwatukee is pretty solid IMO in terms of quality of neighborhood. Hope this helps you get started.
I've driven clients through literally all pockets of small 2-4 unit multi family across Phoenix, Scottsdale, Tempe, Mesa, Chandler, and Gilbert (not as much on the west side Glendale/Peoria etc). It's really hard to make sweeping statements about neighborhood or property class, as these can vary wildly across town and even from street to street or block to block. For example, the large pocket of 4 plexes in South Scottsdale is a ~C area with C to B properties, but you can literally drive a few blocks North and you're in the Arcadia neighborhood filled with multi million dollar homes.
There are a lot of small multis in the Sunnyslope neighborhood of North Central Phoenix, which can vary dramatically from one street to the next. You may see a property on the MLS that looks nice from the pictures, but if you do a drive by you'll see the surrounding properties are C- to D ish. This is why your best education will be to start with Google street view, and then physically drive the properties to see the neighborhood first hand. You'll start to get a sense of what a C or D neighborhood and/or property looks like in the Phoenix market, which will help you to weed those out more quickly when you're back at your computer on the MLS.
I think the sweet spot is to shoot for a B-ish property in a solid C neighborhood. You'll pay less for the property and then you can make some updates to position it to attract higher quality tenants.
Thanks you @Bob Okenwa and @Ryan Swan for providing great insight. I moved from Illinois 7 years ago and over the past 2 years I've noticed the intermixed nature of Phoenix communities which is unlike the Chicago land area. It really can change drastically from one street to the next!
Bob thanks for providing the link. It was really helpful and I will definitely be analyzing properties in the suggested area.
Ryan thanks for the advice (especially the piece at the end of the post). I hope I'm successful in finding a sweet B property in a C neighborhood. I will be doing a lot of scouting over the next few months.
Once I read a bit more and have more specific questions I'd like to attend local investor meetings/groups. Any recommendations of such groups??
There are a few groups that meet regularly out here. AZREIA has monthly meetings on the 2nd Monday of every month.
I've attended a few meetings down in Mesa with some local folks a few times and there's another one coming up on February 28th. https://www.biggerpockets.com/forums/521-events-an...
Hey @Rodolfo Coronel I just finished my first flip in Glendale, and the neighborhood we were in feels like it was what you are looking for (Northern and I-17). To get in there it was 190k house plus 30 in rehab (and we spent a bit more than we should, but it was a great learning experience!). I know our team has other investors in Glendale with similar numbers as well so hopefully that gives you a ballpark set of numbers for at least the Glendale area around GCU.
@Bob Okenwa makes a great point in that it is much more about what your budget is than where to invest. When I realized that the world was not my oyster and there were limitations on where I could invest just based on the numbers, it helped narrow my focus a lot more, which was a huge plus! Feel free to PM me if you have other questions.
Thought the sweet spot was class B area, class C property?
Not that there is an totalling right or wrong way. We all bring different skill sets, tolerances, and inclinations. That is what makes looking at smallish rental investing so interesting, we all watch and learn, leap and burn, hit Jackpots, and just live through boredom. I like boring rentals the best, please tenants, I dare you to try and bore me the most.
@Robert R. I know what you're describing- buy the C property in the nicer B area and you're getting a discount on the property that already has the neighborhood to support higher rents and valuation. I'd generally agree that this is the ideal strategy, although I know from experience that it's only appropriate more experienced investors/landlords in Phoenix.
The reason being is that many of the ~C properties in Phoenix have so much deferred maintenance and systems that are at end of the functional lifespan that they become money pits for new owners. I've had many small multis fall out of escrow during the inspection period because the buyer was overwhelmed by the sheer number of items that need to be corrected immediately or in the near future. If you have the experience and cash reserves to take these on, then by all means I would recommend negotiating a good deal on a C property.
I stand by my advice for a first time investor like @Rodolfo Coronel - buy the ~B property that was well maintained by a seller who had some pride of ownership. Then they can learn the ropes of being a landlord and managing a property without as many of the maintenance headaches draining their spirits and eroding their cash flow from day one.
Ryan, I purchased a class C condo in a solid B area, it smelled like there had been a dead body in there when I purchased it. Took out all the carpet had floor treated with a molecular modifier, whitewashed painted everything that would hold paint, updated the appliances. Between the work and the closing costs, intested another 10% of original purchase price. It's been a great buy and hold, never more than 10 days between tenants, rent increases every year. Tougher to raise the rent in a class C area without more vacancy risk. Condos while a PIA in alot of ways, are much more predictable with repairs.
@Robert R. , sure that's the way to do it if you have the cash and time to improve the property. Most first time investors are already spread too thin after putting 25-30% down, paying closing costs, and setting aside reserves.
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