Is Your Phoenix Investment Property Giving You a Sufficient Return?

Text from a letter I’m sending out this weekend to investor owners:



If not … consider for a moment how else you could have your money invested – either utilizing a 1031 like-kind exchange and trading up to a newer home in the Valley or moving outside Arizona to markets where the rent-to-price ratio may pencil more favorably (and its possible picking up two strategically leveraged, cash flow properties for the price of your one in the trade.)

We arein the midst of the strongest sellers’ market in a half-decade here in Phoenix as we speak – near-historically low inventory, historic low interest rates, a surfeit of buyers trying to purchase what little is available and gradually increasing values.

Will the market hold? That depends on who you talk to. The market easily can absorb twice as many homes as the fewer than 8,000 currently for sale. But … if the shadow inventory is larger than that and comes to market at the same time, the current recovery could stall.

Another letter will be going out specifically to those investors who have purchased homes in the sub-$100k range over the past year or two, the owners who have seen their investments rise in value more quickly than likely anticipated though those gains, while not necessarily in risk of being lost, can’t sustain their current pace. At some point, interest rates will rise. And at some point, there will be more than 7,800 homes for sale across Maricopa County.

For a long time, I’ve been told by some serious investors that the benchmark price-to-rent ratio has to be around 10 percent. While possible during the depths of the market a year or two ago, that standard’s becoming increasingly difficult to reach in the vast majority of areas. I personally have investors who have spent more than a year trying to find a place in areas where the rents that would have been at that 10 percent mark before are now going to be closer to 8 percent because of the recent rise in values.

And that’s what has me in this “take your cash of the table” kind of mode, especially for those folks who purchased in areas where there are limits to how high the values realistically are going to climb without some insane 2005-style financing deus ex machina and where rents are going to remain in the $600’s and $700’s. What you’re seeing now might not be the best it’s going to get, but I do believe you’re staring at limited upside.

Of course, the attraction to these areas is price … but sometimes cheap can be a bit expensive.

I’ve got an out-of-state friend pointing his investor clients toward Austin, Texas. There, a brand new duplex consisting of 3 bedroom, 2 bathroom properties can be had in the $270s with rents in the $2,600 range – $1,300 and change per side.

Checking the local MLS, there’s precious little in the $130,000 range that’s going to return that kind of rent.

There’s a bit more to the entire equation, honestly … if you want more specifics, drop me a line and I can get you some more information and, more importantly, get you in touch with the right people to help you on the non-Arizona end.

Call it an excess of caution after riding the rollercoaster up and down the past several years, but here’s hoping we all can be a little smarter about things this time around.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at