All Forum Posts by: Wes Blackwell

@Scott Doyen

Yeah, seems like a lot could change in the next few years... you could move, she could move, you guys could break up, who knows?!

Perhaps a single-family home in Sacramento is the best option for now. If you can find one with a casita or guest-quarters / in-law suite that might be the best option as there will be a little more separation between you and the tenant.

Even if you get a single roommate for $500/mo it can make a difference, so don't hesitate to explore the options and see what's possible. Best of luck!

@Chris Pike

Great points. I think that with STR here in Phoenix, the main issue comes down to the tendency for tenants to not treat a property and their neighbors with as much respect as an owner would, and the neighbors' assumption that if it was an owner instead of a tenant they wouldn't have this problem.

You could get a bad neighbor who owned the property, and people would just consider them a bad neighbor. But with AirBnb if you get a bad tenant, the neighbors will blame the fact that it's a STR and if only it was owner-occupied things would be so much better. We both know there's no promise in that.

The coming legislation looks fairly light, but could be added onto later in the future. Seems like the state is trying to be pretty loose, but cities and HOA's are pressuring for more regulation & self-control.

We'll probably have to wait another year or two after the coming bill passes before further regulation. The big hammer would be if enough complaints came in and the state suddenly allowed local municipalities to regulate. That's when I think bans and heavy regulation would come fast and swift. 

So like you said, buyer beware, know all of the issues going in and have a backup plan just in case. Great post!

@Marshall Gerston

If they are doing this in Tempe, it is illegal:

https://www.tempe.gov/government/community-development/code-compliance/renting-in-tempe

I'm willing to bet that's the case for Scottsdale and Phoenix too.

Many cities have a limit on the number of unrelated people that can live together. 

In Tempe's single family districts, the maximum number of unrelated people that can live together is three (3), regardless of the size of the home or number of bedrooms in the home.

Now, it's not like there are people out there regularly policing this (that I know of), but in the off-chance you or your buddy gets caught, there goes your rental.

So either go for three bedrooms and make the numbers work or a 2-4 unit property. Perhaps it is doable with a duplex that has 2/1 each side, but then again probably not. 

Do your due diligence on the regulations for your area and know the risks involved. If you proceed, have a backup plan in case you're limited to three tenants.

@Keith Torsen

Part of the problem with your approach is that your criteria for a "deal" requires the bare minimum down payment.

Yes, leverage is great, and wouldn't it be nice if all properties cash-flowed with 20-25% down... but some will require more. And if the property is in a great area, in great condition, that must be taken into consideration as well. So what if the property cash-flows if it's in a bad area and the tenants beat it to crap. CapEx and Maintenance will eat you alive.

Perhaps we can help you further if you gave us an example of your process on one of those analyzed properties, and we might find a deal where vacancy, property management, maintenance, etc. is too high.

I suggest this because the 1% rule metric you're using is not applicable to Sacramento, and most other markets for that matter. That's like saying you'll buy a $400k house and rent it for $4,000/mo when it costs only $2,850/mo to buy it with 5% down. Not going to happen. The closest you can get is usually either a duplex in a crappy area and super low price, or a fourplex in a crappy area you'd probably rather not own. 

All numbers are relative, and dependent upon location. What you have to do is decide which primary metric you want to analyze properties with, and then calculate the average for recent past sales AND what's currently available on the market to determine an average. Then compare prospective properties against that.

For example, let's say you're using the 1% rule metric, and the average for the area and property type you're considering is 0.6%. If you come across a property that is 0.85%, then you know it performs far better than average and could thereby be considered a "deal" -- if it fits your other criteria.

And perhaps that's what's most important. Instead of using some golden metric (everybody has their favorite), determine what you really want to get out of the deal. Cashflow? Appreciation? Something to secure your retirement? Then use that as a guideline instead.

All too often beginning investors try to impose an unrealistic criteria for a given market, when achieving that criteria is impossible for that area because it doesn't exist.

I get investors who say "I want $1,000/mo cashflow with minimal down in a B class area" -- and for the most part that doesn't exist. They're looking for a unicorn and potentially missing many other deals that would work for their needs, but because they're imposing some external criteria it must meet beforehand they don't even see them or skip right over them.

Make sense?

And as for expected rents, are you currently working with an agent? We can get you the rents right off the MLS so you can see what the property is currently renting for. And you can't just assume a specific rent will apply to all of Sacramento. You must take it on a case-by-case basis as it will depend on location, size of units (not just bedrooms, sq ft) and condition/upgrades of the unit. A 2/1 of the same size might get $1,400 in Tahoe Park but $900 in Oak Park. Once again, it's all relative.

Also, perhaps try looking in a lower price range. 

3747 9th Ave, Sacramento, CA 95817 - $315k

"SELLER IS LOOKING TO SELL FAST. MOVE OUT OF STATE FOR JOB. Duplex with GREAT income. All rents where just increased an are at market. Front unit has new flooring, painted through out. Studio in back has long term tenant."

Gross rents are $2,225. PITI with 25% down and a 5% interest rate at the asking price is $1688. Leaving you a $527 spread for other expenses, management, etc. I'd suggest self-managing it, passing as many utility expenses as possible onto the tenants to keep as much as that money as possible.

Property has been on the market 93 days without a single price drop, seller is in a motivated situation, so here's your chance to get a discount. I bet the seller will have a hard time mentally selling for less than $300k though (big price point), but even just that $15k off would free up another $81/mo.

BUT WAIT -- THERE'S MORE! Because I'm an agent I can see that the seller was asking $289k in December of last year, so it seems like you definitely could get less than $300k. At $289k that would free up another $59/mo. So we're up to $677 net considering gross rent and PITI.

Putting 25% down on $289k instead of $400k saves you $27,750 in cash to keep in reserves for repairs & maintenance, etc. And I'd suggest on the first turnover of each unit you spend that money to spruce it up and charge even more rent.

Or, put the full $100k down on the loan and free up another $149 in monthly cash-flow. That's $826 a month before other expenses, and there's no way you won't be positive on a duplex even if you overpay or overestimate for everything else.

Violent crime isn't bad at all for the last six months. Perhaps being two doors down from a church on one side and 8 doors down from a church on the other side is keeping the sinners away.

As you can see, opportunities exist. Only a .77% on the 1% rule @289k and 25% down. But if it put $200-300 in your pocket every month while continuing to go up in value as someone else paid your mortgage, with rent going up from inflation if nothing else, would that be worth it to you?

As for lowballing in general, you can basically forget it on any new properties. Way too much demand. Maybe if it's been on the market 60-90 days, but not new stuff. Just sold a home and got 3 offers in 3 days on the first weekend. 

Also, for a residential multifamily investment property, if you're not planning on house-hacking typically it's 25% down, not 20% like with a SFR. But I could be mistaken and that may vary from lender to lender. Check with your lender first before deciding a deal is a deal.

Hey Nigel, if you're looking out of state, I highly suggest checking out the Phoenix Metro Area of Arizona. It's only one state away, which makes it a 2 hour flight instead of 6 hours to Florida. We have a TON of people moving here from California, and are #4 in the nation for population growth and job growth. 

Best of all, we have 40 properties in your price range, not just 3! So your dollar will go a whole lot further too!

Wherever you invest, be sure you know the market and geographic area really well. Don't buy something you wish you hadn't that's hard to get rid of or attract quality tenants. Due diligence is extra important when investing in unfamiliar areas.

Best of luck! 

At least once a week, I got a message on here from an investor looking to buy a condo or townhome to use as a short term rental for AirBnb in the Phoenix Metro Area or Flagstaff.

Having discussed the pros and cons with numerous investors multiple times, I thought it would be appropriate to share some of the information I’ve learned with the rest of the BiggerPockets community here on the forums.

The Lure of Phoenix Short Term Rentals

Short term rentals are the latest hot trend in real estate investing, and it’s easy to see why. There are lots of upsides to choosing this strategy:

• Lower entry point for pricing (since it’s mostly condos)
• Can experience higher returns than LTR, especially during high tourism seasons
  
• AirBnb has made it easier than ever to book your property

But despite all this goodness, I can’t help but issue at least a word of warning regarding the future of Phoenix area short term rentals.

Disruption = Legislation & Regulation

AirBnb has been not only a complete disruptor to the hotel industry, it’s also been a disruptor to local neighborhoods and property owners.

And with that, comes lots of regulation. 

South Lake Tahoe recently passed a ballot measure essentially banning most short term rentals.

https://www.rgj.com/story/money/business/2018/12/06/most-airbnb-vacation-home-rentals-banned-south-lake-tahoe/2233124002/ 

And Laguna Beach just did the same thing:

https://www.latimes.com/socal/daily-pilot/news/tn-dpt-me-lb-council-20190505-story.html

“We don’t want commercial ‘touristification’ in our residential neighborhood,” said resident Charlotte Masarik.

Ok, well that’s not Arizona… but rumblings of similar complaints are happening in Flagstaff as well:

https://azdailysun.com/news/local/airbnb-a-boon-for-owners-headache-for-neighbors/article_1abd0fbb-83ee-54d6-96c3-cd753349094f.html

And Phoenix too:

https://www.azcentral.com/story/news/local/phoenix/2018/11/30/airbnb-rental-home-closes-shop-after-neighbors-ban-vacation-rentals/2025777002/

So let's take a look at what laws regulating short term rentals are already in place.

Current Arizona Legislation

In 2017, a law was passed declaring that cities, towns and counties cannot place any restrictions on short-term rental properties just because the property is not classified as a hotel.

https://azdailysun.com/news/local/despite-local-objections-new-year-s-laws-include-airbnb-expansion/article_52d485d5-79cd-567f-943c-bff142e9493c.html

This law specifically targeted any municipalities that were trying to restrict Airbnb and other online lodging marketplaces from operating in the area. The law states there are no restrictions on the number of properties an investor can own and rent using these short-term online rental services. Neither is there a limit to the number of days a home can be rented out in a given area.

On April 11, 2018, Arizona enacted Senate Bill 1382 that requires any online lodging marketing places operating in Arizona to remit all state and local taxes. This clarification means that the individual property owners do not need to individually collect and pay any additional taxes. The online services would be responsible for collecting these taxes from any renters and making payments to the state and local authorities.

https://legiscan.com/AZ/text/SB1382/id/1738135

Fantastic news right?

Well… not everyone was on board with those decisions…

"I didn't move into a neighborhood to have the house next door to me turned into a weekly rental property,'' said Sen. John Kavanagh, R-Fountain Hills, in voting against the measure.

"We feel the same way at the local level,'' Sedona City Attorney Robert Pickels said. "The city of Sedona feels very strongly that the characteristics that are unique to Sedona and preservation of those characteristics are left to the city of Sedona.''

Pickels reminded the legislature of Arizona's claim to state's rights when objecting to federal legislation is proposed for Arizona, and that local municipalities should have the same rights.

But that fell on deaf ears, as in signing the measure, Gov. Doug Ducey said the legislation provides "financial breathing room'' for families by allowing them to earn something extra.

(Remember that line… it’ll be important in just a bit.)

With the OK from the government, investors nationwide hopped on the gravy train and starting buying up properties in AZ to rent on AirBnb. 

But soon after the complaints piled up from neighbors and fellow residents:

Soon after came the renters, who brought an increase in noise, traffic and even recreational use of marijuana, according to the neighbors.

"We were all on edge," neighbor Holly Keeble said. "It was taking away our quiet enjoyment of living."

https://www.azcentral.com/story/news/local/phoenix...

And now new legislation is headed your way…

Proposed Arizona Legislation

A bill with the backing of 57 Arizona lawmakers from both parties aims to add new regulations to short-term and vacation rental properties like on AirBnb.

House Bill 2672, sponsored by Rep. John Kavanagh, R-Fountain Hills, adds restrictions on the number of people allowed in a short-term or vacation rental property and would require the installation of security equipment, among other additional regulatory measures.

https://www.azleg.gov/legtext/54leg/1R/bills/hb2672p.htm

“REQUIRING THE INSTALLATION OF SAFETY AND MONITORING EQUIPMENT THAT MONITORS AND DETECTS THE LEVEL OF NOISE AND NUMBER OF OCCUPANTS ON THE PROPERTY AND THE TRANSMITTAL OF THAT INFORMATION TO THE PROPERTY OWNER OR MANAGER.”

Uhmmmm… you mean like cameras? How else are you going to determine how many people are in the property at any given time? Say hello to Big Brother!

Perhaps some other solution will be proposed (body odor sniffing technology anyone?) but if it's cameras you can bet those vacancy rates will go sky-high as tourists opt for hotels where they can sleep, dress and knock boots in private.

Although, Representative Kavanagh has stated this bill is to target the “major abusers” who host parties and large events in properties that are not intended for that use. So perhaps it will only be if you receive violations or complaints.

"This was sold as a bill to allow individual homeowners to make some extra cash on the side," Kavanagh told The Republic in October. "Unfortunately that morphed into large investment groups (aka you reading this) pooling their cash, buying homes and creating party houses and catering to drunken golf outings."

But here’s the whopper:

“RECEIVES NOTICE OF THREE ADDITIONAL VERIFIED VIOLATIONS OF A CITY'S, TOWN'S OR COUNTY'S APPLICABLE LAWS, REGULATIONS AND ORDINANCES WITHIN THE TWELVE‑MONTH PERIOD AFTER THE SUSPENSION ENDS, THE DEPARTMENT SHALL REVOKE ALL OF THE ONLINE LODGING OPERATOR'S TRANSACTION PRIVILEGE TAX LICENSES.”

If a property gets enough verified violations, the license to rent like this would be revoked.

Meaning if you rent your AirBnb during Spring Training and your tenants get a little too drunk and rowdy a few times, you’re screwed. Property goes back on the market and you’ll have to pay the costs of sale, or switch to long term rental.

This bill isn’t finalized yet, but it’s coming. And these kind of punishments will definitely be included.

HOAs Can Still Ban Short-Term Rentals

Before you purchase an investment property with the goal of using a short-term rental service to generate cash flow, you want to make sure to carefully review the rules around this option if the property has a homeowner’s association.

Land use restrictions within the homeowner association’s governing documents arises under contract law. Therefore it is still legal for the homeowner’s association to place restrictions on the length of a lease or completely ban short-term rentals.

An investor should work with a real estate attorney to make sure that their desired income strategy for the home falls within the HOA CC&Rs before moving forward with any purchase. AND make sure that it would require substantial majority to overturn short term rentals if already allowed. Attitudes can change.

Regulating AirBnb Drives Down Local Rents & Housing Prices

Remember that line about wanting to give Arizona families “breathing room”?

Well, a recent study of LA county showed that regulating AirBnb could help lower rents and home prices.

https://voxeu.org/article/short-term-rentals-and-housing-market

There’s already pressure from current homeowners on the noise, and now you may get added pressure in the future from potential tenants and owners about prices.

“There are clear distributional implications of the home sharing ordinances. We show that rents will decrease due to the home sharing ordinances, so the average renter will gain. Because of the home sharing ordinances, homeowners lose, while renters tend to gain. This offers a plausible explanation as to why cities around the world that have heavily restricted short-term rentals typically have a high share of renters”

So it's also going to depend on the owner/renter percentages of your community what the attitude may be towards short term rentals. Be sure to take that into account if buying in an area with an HOA.

Caveat Emptor

I don't mean to come off like I'm sounding the alarm on STR's in Phoenix or Arizona and saying they're no longer a viable investment strategy or about to be outlawed.

I’m just reminding potential investors that there is current legislation in the works, and will undoubtedly be more legislation to come in the future.

And while some investors and families will certainly enjoy the “breathing room”, complaints from local families will be ten times louder.

You probably won’t show up at the local town hall meeting to tell everyone why STRs in your area are a great idea... 

But the super pissed off soccer mom next door will, along with a story about how one of your tenants oogled her teenage daughter and made her scared and now they now longer feel safe there. That's headline material that will easily sway public opinion.

As ridiculous as this sounds, all you need is one murder or rape case in a short term rental to bring forth an avalanche of new legislation (background checks for renters?). 

And don't think people aren't that stupid. This man killed six people while driving for Uber. He claimed a “devil figure” on Uber’s app was controlling him on the day of the shootings.

https://www.theguardian.com/us-news/2019/jan/07/uber-driver-michigan-kills-six-guilty-plea

So there is A LOT outside of your control:

• You can't control future legislation.
• You can't control your tenants and the complaints they may get you.
• You can't control how your neighbors will vote to change the HOA.

Of the 13,000 single family homes for sale in the Phoenix metro market, 9,000 have an HOA. So you've got roughly a 75% chance of having your HOA vote to ban your short term rental.

So when a first time investor asks me about this, after telling him all these details I ask “Does that sound like a scenario you’d want to make a $200k bet on?” 

For most of them the answer is no.

But at the end of the day, DO YOUR DUE DILLIGENCE. Far more than you normally would. 

This strategy has worked for many an investor, and shall certainly work into the future. But if you buy into the wrong neighborhood or manage your property poorly, you could be in for a world of hurt.

PLEASE SHARE YOUR THOUGHTS:

1. Do you own a short term rental or know someone who does?

2. Do you think short term rentals should be restricted or regulated in any way?

3. What’s your best advice for investors looking to get into short term rentals now?

@Nigel Ford

I took a look at the duplex you're considering in Sacramento. First off, this is really two homes on one lot, not a standard duplex that shares a wall. Still two units, but it brings up my next point...

Second, these look A LOT like manufactured homes. Identical layout, wall-unit for A/C, super boxy cookie-cutter look, originally intended to be sold as a package deal of 5 properties (so it makes sense previous owner would slap down two manufactured homes for extra income), etc. 

I would verify that these properties are NOT manufactured homes, as that may totally ruin you financing.

Third, on top of that, even if you could find a lender to give you a loan on a manufactured home, or even if the buildings aren't manufactured homes, the subject property is zoned C2 for commercial. Speaking in general, if the highest and best use of a property is not residential, it typically doesn't qualify for residential lending programs. And FHA is the financing with the most restrictions and requirements.

But you'll need to run this info all by your lender first before you make an offer. Don't want to waste your money on inspections and appraisals just to find out that you can't get the deal funded. 

Although, the property was purchased in 2000 with FHA financing, but the laws and regulations have changed immensely since then so it may not be possible now. Once again, verify and ask your lender.

Current listing states they're looking for Cash, Conventional Loan, or "Submit" -- which usually means seller financing or something more creative. They did not check the box for FHA, so they may not accept your offer even if you made it.

There are two other nearby one unit properties for rent, 3120 Howe Avenue asking $795 and 2121 Edison Avenue asking $950. So $900 seems about right for market rent.

When house-hacking a duplex, you're not going to be making cash-flow, especially only with 3.5% down. But the rent from the other unit will allow you to control a more expensive property for less money than it would normally cost you if you didn't have that rental income, like if you purchased a single family house.

That being said, you may be able to achieve the same outcome purchasing a 3/2 single family house for $260k and renting out two of the rooms for $500/each. There are 103 of those on the MLS, compared to only 3 duplexes.

Hope this helps! If I can get any more information for you just let me know. Here to help :-)

@Chris Bendorf

Hey Chris! Welcome from Sacramento to BiggerPockets! You're in the right place!

Biggest consideration you have is going to be financing your next property. Typically a lender is going to require 20-25% down for an investment property. If you've got the dough, then you may be in luck. 

But if you don't, you possibly may be able to rent out your current home, and put less down on a new owner-occupied property. But you're going to need to talk with a lender to see if that's even possible to obtain financing for.

You could potentially look for a seller-financing deal to get around that, but those are few and far between and you're going to have to do some hustle to find one most likely.

All in all, continue learning no matter what, and talk with a lender to see what may be possible. If not now, maybe they'll give you the info you need to determine when the next deal may be possible in the future.

Perhaps try talking to the one that helped yo get the loan for the purchase, and I can share an investment-minded lender with you if that's no longer an option. Best of luck!

@Sayed Amin Aziz

I'm going to venture out and say that if you had to ask this question, you're probably not ready to purchase an apartment complex in Phoenix.

Think about it... when you play Monopoly you buy the little green houses first, then the big red hotels. There's A LOT that can go wrong between tenants, toilets and termites... and having 16 to deal with instead of just one can make for a lot more stress than you're hoping for.

That all being said, not trying to dissuade you, but perhaps a single family home at a much lower price would be far less risky and offer you more opportunity to find a deal with such terms.

@Deepak Mahajan

Welcome to the forum! You're in the right place here at BiggerPockets, and as you see we have a fairly active user-base here in the Phoenix Metro Area to help guide you in your purchase and investment strategy.

If the local market fits your budget, I suggest that most first-time investors start locally. Why? Because you already know the lay of the land, and you're close by to effectively manage the property and oversee it in case anything goes wrong. That helps relieve many fears that most new investors have, and ultimately reduces risk.

When you open yourself up to looking nationwide, you've immediately compounded the complexity of the decision tenfold, as you now must compare and contrast multiple markets against each other. And if you don't know what you're looking for, it's easy to go wrong and make a mistake.

Plus, you must remember that no matter where you are looking, local wholesalers, turn-key providers, agents and loan officers are probably going to sell you on why you should be investing in that area. If you don't know how to see through the B.S., it's real easy to get sold up the river on some property you never should've purchased.

Now, may you get better returns elsewhere? Probably... but then again, it totally depends on your goals and the metrics you're using to measure ROI. Is it just purely cash-flow? But what about appreciation? Cash on cash return? Are you holding this property for 10-30 years? Or are you just hoping to sell it in 3-5 years and move up to something else? You oughta be aware of population and job projections before making that decision...

Main point is, a lot goes into making the decision. I moved to AZ for the opportunity to sell real estate, because I believe it's in a great place to invest in for the future. It's #4 in job growth and is set to nearly DOUBLE it's population by 2050! You've got huge migration from California folks looking for more affordable housing, and baby boomers by the dozen retiring and wanting to live out their golden years in warmer climates. That presents a market ripe for opportunity if you ask me.

Ultimately, you can make real estate investing work in any market, and investing locally is usually the smartest decision for beginners because you only have to learn the numbers, not analyze the local geographic area at the same time. This is shortcutted because of your familiarity with the area. You already know who's living there, what streets are good and bad, and have all the contextual information about local political views, news happenings, "word on the street", etc.

So, my suggestion would be to "window shop" for now and learn the local real estate market first. Explore it fully, learn all the numbers and analysis here first BEFORE exploring other areas. That way you won't have to do two things at once. 

Once you know WHAT you're looking for, you'll better know WHERE to look for it.

Hope this helps! Feel free to reach out to any of the locals here on this board! We're more than happy to help and get your questions answered! :-)