All Forum Posts by: Melanie Johnston

My thoughts exactly @Jon Martin I'm not using it as a legal term. In our market it simply indicates a furnished rental that is longer than the average STR. Generally rented by the month.

@Michael Baum thank you for your perspective. Yes, for this MTR strategy, you would need a formal lease. When I work with clients who buy and operate STRs, I offer them the marketing avenue of listing the house on the Multiple Listing Service for one-month minimum leases. Applicants are vetted and the leases have an end date. We have yet to have anyone stay past their lease. 

I recommended Zillow as a route for self-operators because it offers the credit/criminal background check. They also offer an online lease.

In our market, monthly rentals are big business so an operator looking at all their options might find this helpful.

If anyone has questions on how we do things in Arizona, I am happy to share my experience.

If you own a short-term rental, there are likely to be seasons when bookings slow and you worry about generating enough income. The resort industry knows this cycle well. They have “high season,” when everyone wants to be at that destination; “shoulder season” when demand is not as strong (usually two times throughout the year) and “low season,” when most guests want to be somewhere else.

In Arizona, we call the last one summer.

When I was arbitraging a Scottsdale STR (renting it from the owner for the express purpose of furnishing it and re-renting it at nightly rates through Airbnb, etc.) I knew that our demand weakened when temperatures reached 100 degrees and people sought cooler climates.

Since rates are lowest during our low season, the fear of not being able to make the monthly nut was a concern. Not to mention that frequent drives in the summer to check the house between bookings became less and less attractive.

That’s when I decided to switch to a mid-term rental (MTR) strategy for the summer.

Advantages of a Mid-Term Rental Strategy

• You reduce your time spent managing multiple reservations and property turnovers.
• Your MTR strategy can co-exist with your short-term strategy, allowing you to attract a different segment of travelers.
• Pay smaller fees/commissions. Advertising on Zillow ($19.99 for a 90-day listing, for example) is a lot cheaper than paying a portal’s booking fee. Zillow has an application link you can send directly to inquirers. Prospective guests pay the application fee, and you get a summarized credit check/criminal history report.
• Even working with an agent to list your home on the MLS for one-month minimum stays can be less expensive than paying the portal fees.
• Rental taxes are lower. In Scottsdale, for example, stays for a minimum of one month are taxed at 2% versus 14% (approximate numbers) for stays of 30 days or less.
• You can impose utility caps, having guests pay any amount over your cap, minimizing air-conditioning expenses.

Who Will You Rent To?

In the metro Phoenix market there is demand for furnished rentals from several groups looking for flexibility, including those who are:

1. Moving here for a job and aren’t sure where they want to buy or rent long term.
2. Selling their home and aren’t sure where they are headed next.
3. Building a home and finding that it’s taking longer than planned.
4. Temporary or contract workers, such as nurses.
5. In transition (getting a divorce, for example).
6. Off-season travelers wanting to save money. (There is still plenty to do in Arizona in the summer. You can play golf at the best rates of the year. Cooler spots like Flagstaff are a two-hour ride from Metro Phoenix, for example.)

While low season is never going to bring the revenue you generate in other months, adding a mid-term rental strategy can maximize low season earning potential, save you time and money and gain you very valuable peace of mind.

Thank you @Matt Greer. I agree that it's an exciting time for Arizona's economy to be building and diversifying.

Hi, Bob.

I'm an agent in Metro Phoenix and I've helped dozens of BP investors buy investment properties and personal residences. The majority of them are out of state buyers who rely on my knowledge of the market, personal video tours and deep experience to make their choices.

I agree that the MLS is rich with choices right now. Our inventory of homes is triple what it was 9 months ago.

And the 4th quarter has always been one of the best times of the year to buy since only truly motivated sellers are on the market now. Discounted offer prices, seller concessions and rate buy downs are common at this moment.

I would love to assist you...and share the names of BP investors/buyers I've recently helped.

Feel free to reach out.

Melanie

Last week the President of the United States and Tim Cook, the CEO of Apple Inc., among other dignitaries, came to town to commemorate a milestone at Taiwan Semiconductor Manufacturing Company’s (TSMC) mega chip-production facility under construction in north Phoenix.

TSMC used the event to announce it will build a second chip fabrication (fab) facility here, tripling its investment from $12 billion to $40 billion. This represents "the largest foreign direct investment in Arizona history and one of the largest foreign direct investments in the history of the United States,” according to the company's Dec. 6th statement.

"In addition to TSMC Arizona’s first fab, which is scheduled to begin production of N4 process technology in 2024, TSMC has also started the construction of a second fab which is scheduled to begin production of 3nm process technology in 2026," the company said. 

The Taiwanese Chambers of Commerce of North America reports that about 40 companies that support TSMC’s operations have established facilities and offices in Phoenix.

What does this mean for residential real estate investors?

The TSMC statement revealed, “In addition to the over 10,000 construction workers who helped with construction of the site, TSMC Arizona’s two fabs are expected to create an additional 10,000 high-paying high-tech jobs, including 4,500 direct TSMC jobs.”

We don’t have all the 10,000 high-paying high-tech workers in town now, which means new residents who will be moving here, needing to rent or buy a home.

So which cities and neighborhoods could benefit most?

The massive TSMC facility is in far north Phoenix near the intersection of Interstate 17 and the Loop 303 freeway. Because of this freeway access, employees can be drawn from several areas that offer a reasonable commute.

While builders have already begun acquiring land west and northwest of the facility for new housing developments, for current housing stock it's easiest to look at—and search for—likely residential areas for future TSMC employees by zip code. Pay attention to zip codes west and south of the facility for more affordable options.

North of TSMC

• 85086 includes the master planned community of Anthem, which is likely to get a boost with its middle- to high-income homes.

East of TSMC

• 85085, 85024, 85027, 85050, 85054. These zip codes offer more affordable to higher-end homes.

South of TSMC

• 85083, 85310, 85308. These zip codes provide proximity while also offering a wide range of price points.

West of TSMC

There is a lot of commercial growth happening along the newly developed Loop 303, especially along its northern leg, in response to TSMC’s arrival. This will become a major employment hub and there are already well-established neighborhoods that will benefit from their location.

• 85383 is the closest and most developed zip code for nearby housing. The city of Peoria offers a wide range of price points, giving investors more options.
• 85374, 85388 and 85379 (City of Surprise) will also be easily accessible via the 303.

Workers will come from many other surrounding cities, making their choices based on lifestyle, school districts and commute times. The zip codes above offer attractive options to investors looking for long-term holds, and possibly for short-term rentals for executives getting their bearings before they buy.

But as TSMC’s $40 billion commitment shows, metro Phoenix is a magnet for employers looking for a foothold in a still-emerging, business-friendly environment.

This puts Arizona’s growing economy on the radar of real estate investors at all levels.

@Scott Mac those are all good questions. There are so many different variables at play. Keeping an eye on the statistics tells us about the present, but can't reliably predict the future.

I've helped several investors buy Airbnbs throughout the Valley, so it is definitely an issue I keep track of.

“The market may not feel any different from yesterday, but the Cromford® Market Index for all areas & types has just slipped below 90. This means we are officially declaring a buyer's market.”

That was the November 14 report issued by The Cromford Report, one of the most respected market analysts of Metro Phoenix real estate market.

While some cities in the Valley (shorthand for Valley of the Sun…Metro Phoenix’s nickname) were showing Cromford® Market Index rates in the buyer’s market range as far back as Q2 this year, having all of them slip below 90 is a major development. Metro Phoenix is no longer heading collectively toward a buyer’s market…we have arrived.

What is the Cromford® Market Index (CMI) and what does it indicate?

“Cromford Market Index™ is a value that provides a short term forecast for the balance of the market. It is derived from the trends in pending, active and sold listings compared with historical data over the previous four years. Values below 100 indicate a buyer's market, while values above 100 indicate a seller's market. A value of 100 indicates a balanced market.”

Here is the very telling chart of the fall of the CMI since May 2022:

Their November 14th report concluded, “The majority of the market has been a buyer's market for some time, but the whole market has been propped up by the relative health of the luxury sector. With most of the Northeast Valley now surrendering to the widespread negativity we have an overall reading of 89.9, despite Fountain Hills holding out as a seller's market.

There is a faint flicker of positivity over the last few days since mortgage rates dropped last Friday. New contract counts are up a little and we also have a slight increase in incoming new listings. This probably won't change the balance in the market much, but it might increase transaction volumes, which would be welcomed by many.”

For investors looking to buy, this is good news. There are no longer lines of buyers jockeying to pay over asking price. And unmotivated sellers are no longer “testing the market” to see if they can get their dream price. If a house is on the market between now and the end of the year, that seller is motivated.

Some investors are sitting on the sidelines, not wanting to “catch a falling knife”…what a Northern California-based investor who owns 3 Phoenix-are long-term rentals told me last month.

So, what’s the best strategy now? Most BiggerPockets investors I know are tracking a subset of properties, concentrating on barometers like days on market and price reductions, and keeping their “powder dry” as they wait to strike.

Whether to pick up short-term rentals or long-term rentals, investor interest is growing as prices decline. Cash buyers are in the best position, as always. But even financed buyers will know when the numbers make sense for them. The recent decline in rates and forecasts suggesting further rate improvements as inflation wanes, suggest it's time to get ready.

For the foreseeable future, investors are in a strong position to ask for price reductions, seller incentives and favorable terms.

Stay tuned for future updates on the ever-evolving Metro Phoenix market.

(Metro Phoenix includes the cities of Scottsdale, Mesa, Tempe, Gilbert, Chandler, Queen Creek, Glendale, Peoria, Surprise, Buckeye, Goodyear and a few smaller suburbs.)

@Jesse Watson Your photos are amazing! As an agent (and I'm honored to be your agent!) I've seen thousands of real estate shoots. Ensuel did such a great job that I want to contact him for my upcoming listings. I'll tell him that you sent me!

@Michael Harris Congratulations on starting your journey toward building your STR portfolio! I have helped a number of BP investors buy STRs in Scottsdale and half of them are first-time investors who manage their properties themselves. So once you lock down a cleaning crew and repair person, managing from afar becomes much easier.

As far as regulations go, this is a hot topic in Metro Phoenix. Five years ago the governor said cities can't regulate the minimum number of days people can rent their homes out. Previously cities like Scottsdale imposed a 30-day minimum stay to protect their largest industry...tourism and resorts. I had a STR rental and we just booked 30-day stays, mostly to Canadians and winter visitors from Chicago and New York. But of course that made "low season" months in the summer a little harder to fill.

Under the new laws, cities can't regulate length of stay, but homeowners associations can. So I encourage buyers to search in non-HOA neighborhoods. I also route buyers away from neighborhoods where I know there is subtle resistance, such as a few pockets in Scottsdale where homeowners have planted "Homes Not Hotels" signs in their yards.

Having said that, there is a lot of hoopla around regulations, but when it comes time to make changes, cities have only imposed minor inconveniences, such as registering your rental to ensure you are paying transaction privilege tax and posting the name and number of a local contact who can be on the scene to respond to any noise calls made to police.

Whenever there are any campaigns to limit rentals, STR owners show up at the state house to defend their property ownership rights, so regulation attempts have been limited to the kinds of overlays I've mentioned above.

No one wants major party houses in their neighborhoods, so choosing your tenant type wisely and setting your STR up in a way that doesn't accommodate huge crowds is a hedge against attracting unwanted attention.

As far as price points, while there are a few condo complexes that allow STRS, the majority of STR buyers are purchasing SFR with pools to maximize their revenue. Budget a minimum of $500,000 for finding a home in Metro Phoenix.

Hope this helps. Feel free to ask me anything.

Melanie