Realistic Investment Expectations in Phoenix

Received an e-mail yesterday from an investor looking for property here in the Phoenix area. Unlike many of the weekend warriors who occasionally drop me a line, this individual was specific in his goals and desires, which was immensely beneficial.

The only real problem was the timing, as what he’s looking for doesn’t exist here …

Looking for best deal ! A purchase well below the valuation of a licensed valuer would be my preference.

Unfortunately, the best deals where homes can be had for less than appraised value – at least in the sub $175k range – only are available in early 2011 and before. These days, any purchase made is going to be at market value – maybe above market value if you’re looking in the sub-$100k range, where lunatic bidding is the norm.

When there are fewer than 8,000 detached homes for sale in one of the country’s largest metropolitan areas, so-called deals are not to be had.

That aside …

Also 10+ % nett rental return would be good

And that’s the real killer, and has been here in Phoenix for many, many years. It’s conceivable a net 10 percent return can happen on isolated properties, but it truly tends to be a needle in a haystack situation. (The exception here are the trustee’s sales, which are an entirely different animal.)

The best way to illustrate this is graphically. Here’s a snapshot of available homes along the northwest Loop 101 corridor in the $150,000ish range:

To stay under $150,000, investors will need to swing toward the east, closer to I-17 and to the south, dropping between the 101 and Bell Road.

Now, here’s a rundown of properties along the same corridor that are renting in the $1,300 range – not quite 10 percent on $150,000 but close enough for illustation:

See the dilemma? The higher renting properties are back in Arrowhead Ranch, north of the Loop 101 for the most part and well west of I-17 – exactly where the $150,000 and under properties aren’t.

Now … the entire Valley isn’t like this. I’ll say up front I’m not absolutely certain about the east side (except for what I see in San Tan Valley/Queen Creek), but here in the generally more affordable West Valley, it’s possible to get an 8 to 10 percent gross – not net – rental rate in El Mirage, Surprise, Avondale, Tolleson, parts of Goodyear, maybe some Buckeye … though it’s not a blanket situation. Even in each community, there are going to be spots where it can be done and spots where it can’t.

I’m sure at some point Jeff Brown will jump into the comments and discuss Austin, and I don’t necessarily blame him. When you’re serious about investing, and when you want that investing to get you onto the beach somewhere, you need to go where the numbers make the most sense.

I can make some numbers work in Phoenix, that’s for certain. But there are limits to how high investors ought get their hopes up.

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

1 Comment

  • Jeff Brown 6 years ago

    I love the examples. They’re actually fairly, ok. They demonstrate why I like Texas so much. For the record, I like AZ. It’s just that the macro and micro analysis favors the various Texas markets.

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