Grab a cold beverage.
Get something to drink and sit down, because you’re going to read something that you likely never expected to hear from a Phoenix real estate agent, and something you’re not likely to hear from very many of us.
But first … a touch of background.
I enjoy living in Arizona. Won’t say love, as I reserve that for time staring at the ocean, but I truly enjoy it here – heat and all. The Phoenix area has been my home for more than 30 years and I expect to end up in the ground here one of these days (hopefully later rather than sooner, all things considered.)
Six years ago I abandoned the brokerage business in favor of real estate. Schwab was downsizing and I didn’t want to go somewhere where I’d have to try and sell people what they didn’t want or need. Real estate seemed like an optimal solution – people want houses, I’m not trying to convince them to buy a product that they didn’t want and all would be well.
Except the market hasn’t been so well, not in quite some time. I’m sure there’s something known as a “normal” market but I’ve yet to see one.
Now to the heart of the matter …
Over the past couple of years I’ve worked with a number of folks who have purchased property here in the Phoenix area solely as an investment. If these folks had a long enough timeframe and were comfortable with the idea of watching values conceivably drop before rising – in other words, if they were realistic about the state of the market and the risks involved – we moved forward. The largest hope was rental rates would increase to help increase cash flow.
Except that hasn’t happened, at least not substantially enough for me to be able to recommend purchasing Phoenix real estate solely as investment. And solely is the key word in that sentence.
If you are looking for a mixed-use property – one for yourself either now or down the line, but also one you’d like to use as a rental (seasonal or full-time) in the interim and you’ve got a longer timeframe, then by all means we should talk. Because this isn’t a scenario where the bottom line is the bottom line alone – there are other things pulling you toward Arizona, the aesthetic aspects that mean next to nothing to someone simply creating a real estate portfolio. It’s hard to put a value on the weather, the golf, the urban amenities, etc. that come with vacationing or wintering in the Valley of the Sun.
But if you’re one of these latter folks, the kind who care far less about the size of the kitchen than the size of the return, the kind who happily will trade off the 300 days of sunshine for the opportunity to buy newer properties for similar prices with better cash flow … I’ve got someone who you can talk to in order to discuss opportunities in other real estate markets.
Borrowing the math from Jeff Brown …
One countered with how they bought a home for $100,000 renting for $700 a month. Seriously? You said that out loud? He’s not the Lone Ranger either, as their are literally scores of all cash purchases in that region, Arizona — and sportin’ those basic numbers too.Let’s see how they’re doin’ now.
Using less vacancy/operating expenses in the form of a percentage than I do on my own spreadsheets, we’ll give him $5,500 a year, or about $460 a month cash flow.
If he’d used the strategy I recommend?
He would’ve purchased a $250,000 property with monthly rents (duplex) of $2,550. He would’ve put the same $100,000 into it, but as a down payment. His loan would be 5.25%/30 year fixed. His cash flow, using more vacancy and operating expenses percentage-wise than we did on his SFR, would be about $8,420 a year, or about $700 a month.
Seems pretty clear, doesn’t it? What’s most striking is Jeff’s doing this by getting his clients into investments – duplexes – which have next to no return here in the Phoenix real estate market. Same product, different market, incredibly different result.
Again, this isn’t to say investment in Phoenix real estate is a terrible idea. It isn’t, not in the long run. But if you’re serious about getting your money in right today and it doesn’t matter in what state the home may be in as long as the numbers are right, there are better places to be.
P.S. If you’re someone who happens to be an investor and you have some equity to play with – in other words, you either can get out from under the loan on the property or you’re free and clear – it might be worth looking around to see if reserving a seat on the stagecoach out of Dodge is right for you.