2nd investment in same area or branch out?

Question

Greetings all:

Back story: My wife and I bought and rehabbed a home in Tempe, AZ with a VA Loan in early 2019. In late 2019, I was offered a great job in Chicago. We now rent our Tempe house and use a local property manager.

Question: When we are ready to purchase another investment, should we stick to the Phoenix Metro area or venture into other markets?

Primers:

1. While I love my job, it does keep me quiet busy.

2. I was born, raised and lived in all parts of the Phoenix Metro area.

3. However, I understand I have a natural bias toward Phoenix because it’s home.

Any guidance or insight would be tremendously appreciated.

AP

Tim Fazio · Answer

@Alex Pirila, stick to the Phx market.  It is extremely hot and AZ is seeing a huge influx of people moving there permanently from many states.  We will have a housing shortage for the foreseeable future.  Tucson is also a great market to be in and just a short drive south.

Jon Kelly · Answer

@Alex Pirila Take advantage of your years of experience and "team" in Phoenix. Why throw it all away and start from ground zero somewhere else? Lack of diversification shouldn't be a concern in a large enough market like Phoenix.

John Warren · Answer

@Alex Pirila I would start with the end in mind, which is one of my favorite of the 7 habits of highly effective people! Do you want to "retire" or land in Phoenix permanently or will you always move to different cities as you climb the corporate ladder? I think you will want to know what you want this portfolio to look like in 10-15 years to really answer your own question.

When it comes to Chicago, I think you have a lot of options. I am still laughing at someone who said Chicago is a cash flow only market... Chicago has seen some enormous appreciation the past few years and you can still find cash flow which is rare for one of the top markets in the US. At the same time, Phoenix probably has a lot more growth potential in the next 5-10 years. Of course, that will only help you so much.

Which town will help you connect your capital with opportunities? Chicago is great for FHA buyers, but then you need about 75-100k to get into a property once you make the jump to conventional loans. We have a more expensive market than a lot of midwestern markets for sure.

Crystal Smith · Answer

I suspect over your lifetime you'll move a few times so imagine building up a portfolio in multiple cities over time. My recommendation:  Continue to build your portfolio in Phoenix while establishing relationships and building a portfolio in Chicago. While living in Chicago you'll learn how to manage from afar. Then when it's time to move on to the next city you'll be an expert in managing from afar.

Paul De Luca · Answer

You could do both. If you're now living in the Chicago market, you could purchase a house hack while also continuing your investing in the Phoenix market. One advantage to buying a house hack is that it will be significantly less money out of your pocket as opposed to a traditional buy & hold (20-25% down).

You need to live somewhere anyway, so why not turn your residence into an additional income generator?

Carlos Ptriawan · Answer

AZ is appreciation market, a next CA in the making. Chicago area,etc is for cash flow only, slow growth economy. If I were you I will build 70% portfolio in AZ, 30% in IN/WI.

JJ P. · Answer

Phoenix is experiencing amazing growth.   I'd stay there.  It's far easier to consolidate in one area, and since it's an area that you know well, your knowledge will be an invaluable asset to your investments.

Paul Welden · Answer

@Alex Pirila

Invest in what you know and what you are comfortable with.

It’s possible that you also know and are comfortable with other areas such as Chicago.

Dick Rosen · Answer

Take advantage of the team you've already built in Phoenix.

2nd investment in same area or branch out?

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