Do buy and hold rentals make sense in Phoenix area?

Question

My primary interest is in Buy and Hold investments, but it seems like it's really tricky to find anything that makes sense in the Phoenix area, unless it's in a really bad part of town. Is Phoenix just one of those areas where other strategies make more sense? I'm sure there's something I'm not seeing and I would love to learn from someone who is familiar with this market. Thanks!

Stone Jin · Answer

@Anthony Maza I'm not sure you will be getting 12% Cash on Cash in metro Phoenix anywhere, espicially if you are looking strictly on the MLS.  Sometimes you can find a value add small multi family where the seller hasn't raised rents for 10 years but they get snatched up in hours.  I think you will see after you start doing analysis that most deals on MLS pencil in around 5-7% cash on cash return, a lot of investors are okay with that knowing that it is a hot rental market and has appreciation(so less vacancy and about 3-5% appreciation), though many local investors think that the prices will plateau.

I think the creative subject 2 and lease options guys are getting better returns but that takes work up front.  I'm not sure how active/passive you want to be with your investing.

A few years ago short term rentals seem very viable however I would be careful of market saturation as now it is very trendy to buy a condo in tempe/scottsdale and do STR.

Good luck,

Stone

Enrique Huerta · Answer

I don't think that's unrealistic for the market, but you'll probably be in the Glendale area for higher COC returns.

The more deals you analyze, the better of a feel you get for what is realistic in a market. Talk to more brokers, and keep a database of analyzed deals so you can see trends.

Are you looking for SFR or Multi-housing?

Ric Kenworthy · Answer

@Anthony Maza. We compared multiple online STR listings by area and used our own personal experience with the market. If managed properly (which we also do for others) there really is very little seasonal down time. We’ve experienced about 25-30% better return than the market average.

Anthony Maza · Answer

That's encouraging, thank you guys.

@Ric Kenworthy can you advise any good tools for analyzing STR deals?

Ric Kenworthy · Answer

We’ve purchased two condos in a prime Old Town Scottsdale location and are experiencing a lot of success with STR’s. Ran over 80% occupancy for 2018 and blew our 15-18% out of the water! Not to mention they’ve both appreciated over 30% in just 16 months. If you find the right property in the right area, you’re good. Scottsdale, Arcadia, Roosevelt District are great!

Enrique Huerta · Answer

My background is in financial analysis for real estate investment firms, so I have a collection of financial models from various sources and I've built my own over the years.

You can find some free or low costs ones online on various websites: AdventuresinCRE, AStudentoftheRealEstateGame, GetREFM.

RE: SFR V. MFH, it's up to your long-term goals.

Anthony Maza · Answer

That's great intel, thanks, I'll start looking in that area.

I'm open to both SFR and Multi-family. It seems like starting with SFR would be simpler, but eventually I want to be investing in Multi-housing.

I know BP has calculators to analyze deals...which sounds like the fastest way to do it, but I'm a little hesitant to spend the money to go Pro.

What do you use?

Anthony Maza · Answer

Awesome, thanks guys. I'm glad to hear that people are doing it here in Phoenix.

@Enrique Huerta Returns I'm looking for: difficult to answer because I'm so new. The BP members say to look for about 12% cash-on-cash returns, and $100/mo cashflow per door. I've been using this as a benchmark of sorts, but I think I would be happy with a lower return at this point in my career. Am I being unrealistic in hoping for this, or is there any other advice you'd offer me? Please let me know, I'm here to learn.

Pamela Sandberg · Answer

We have some fantastic buy and hold opportunities here! Many people are killing it on STR in the Scottsdale area, but you can also do LTR in various parts of town. (For example, Tempe will always have a steady LTR market due to the University.) Feel free to PM me for specifics! Would love to chat.

Do buy and hold rentals make sense in Phoenix area?

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