Buy and Hold in Phoenix area? Are the days of 2% deals gone?

Question

Hi all,

I'm still relatively new on the forums - trying to learn as much about my market as possible. (I'll be moving to the Chandler area in May and looking to buy in Chandler / Tempe)

I'm wondering how everyone in this area is adjusting seeing that its near impossible to find a 2% deal. Are the days of buy and holds over if you want to fit that 2% model?

I've looked into tax liens, foreclosures, auctions but I wont have the capital to fund something for 100% of the home price.

Ideally I would use an FHA 203k loan to move on something, contract the renovation and live in the property for a few years then down the road turn it into an investment.

I would love to hear your insight on how to find value in this market!

Thanks,

Wendy Black · Answer

Rents seem to be pretty much stuck.  We've owned a lakeside rental in Avondale for a year-and-a-half, and we only we able to raise the rent a small amount.  Not a good time for SFR purchases here.

Charles Elmer · Answer

well the best thing I've found is to keep a "real" job that shows good steady income. This will allow you to get multiple mortgages. If you accumulate only airbnb properties you might hit a roadblock because of the debt not creating any income. Essentially they tell us that, " yes it made $2k last month but since there is no signed lease nobody knows what it'll do in the future". Once they have seasoned a bit things might change but ours is 6months old and banks don't really like using it as viable income.

Nate T. · Answer

If you are buying retail, cash flow is pretty unrealistic.  If you are buying at a discount and you can qualify for low interest financing then you can potentially cash flow.  You don't have to be at 1% to cash flow.  It also depends on other factors such as interest rate, down payment amount, etc.

But honestly I don't think this is a great time to buy a single family rental property in Phoenix.  The prices are too high.

What to do?  You could consider buying out of the area, in less expensive markets (I've never been brave enough for that). You could fix and flip (which is great right now if you can find a deal).  If you're set on long term single family investing in the Phoenix area, you might consider ways to enhance your cash flow, such as:

• Vacation rentals
• Student rentals
• Group homes
• Offering lease options / seller financing

Ben Leybovich · Answer

Aren't you more likely to find the delta you're looking for in Tucson?

Nate T. · Answer

I haven't been here forever but I don't think 2% deals were ever "a thing" in the Phoenix area.  In the bottom of the market (2008-2012) you could get 1% deals, and if you still own them today they are probably close to 2% deals.  But other than that it really doesn't exist.  For example, if you buy a median house today for $240K, it will rent for somewhere around $1400.  Nowhere near $2400 or $4800.  If you get that same house wholesale for $175K you still wouldn't hit 1%.

Doug McVinua · Answer

Account Closed We have exchanged previously and I think given your situation and skills you would be a perfect fit for a dog of a house that would still finance. We could still buy it discounted off of retail price, you could live in it, learn the trades and improve it over the next couple of years.

The house would be on the verge of not financing FHA or maybe a 203K for the right property. Once you start working you will have some cash to start the improvement projects to make it sharp and extremely rentable when you are ready for your next primary residence.

The improvements could be carefully selected so they are a reasonable cost of improvement but provide the Sizzle tenants desire and the durability you want as an owner.

Account Closed · Answer

@Charles Elmer Awesome! Great advice. I'm currently living in Tucson, but moving to Chandler in May to take a job. I'll be looking to invest in both the Phoenix area and the Tucson area in time so I'll be sure to look into airbnbs in both areas.

Congrats with the success with your rental!

Account Closed · Answer

@Charles Elmer

That's a huge tip thank you! Is it just a game of finding a good lender in Tucson then? Or creating other areas of income to help build up the Airbnb portfolio.

Account Closed · Answer

@Nate T.

I love those ideas! I've toyed with the idea of airbnb - maybe that's something I'll spend some time looking into.

I wanted to start as owner occupied to take advantages of the low money down. A good model could be follow the BRRR model except look to airbnb as renting. I'll need to spend some time learning from airbnbers in the area.

Thanks,

Buy and Hold in Phoenix area? Are the days of 2% deals gone?

Most Popular Reply