Betting Heavily On Phoenix

[Account Closed]

Let’s play a game. I’ll tell you why I’m betting heavily into the Phoenix real estate market. I’ll detail the stakes. I’ll outline my reasoning and then you get to poke a thousand holes in my theory. Ready? Go!!

The Stakes:

I own 3 SFH rentals valued at about $1M. I'm at about 80% LTV collectively with $100k in reserves (dry powder as they say) but minimal cash flow at the moment. I've pressed my leverage button pretty hard. The PHX market has been on a tear the last few years with appreciation, rent growth, and employment gains all registering in the top 5 cities consistently. Mine is an appreciation play which has treated me well thus far though I'm aware it's not exactly the meat and potatoes of the typical BP strategy.

I expect rents to continue to rise which should improve my cash flow. YOY rent growth was 6%+ last year though I don’t expect that meteoric pace to continue. I also expect values to continue to rise at a healthy pace. (8% collectively on my investments last year alone)

The Evidence:

Supply is literally limping along at this point. The analysis that I've read expects that to get worse before it gets better. Lenders have tightened the screws a bit on builders which I expect will slow the pace of development markedly while banks wait to see how COVID plays out. Lower LTV will make less deals pencil out unless rates somehow turn lower than the already record lows of today. The resale market is at an anorexic 2 month supply. Simply stated, I don't see a correction on the supply side coming for quite some time.

Demand is stable. Net migration and the jobs figures would indicate that we should expect demand to remain intact for some time. The mass exodus from California is causing bidding wars left at right at the moment. We’re talking 10 offers or more in 24 hours in North Scottsdale and North Phoenix (I’ve been watching both area like a hawk).

That said...it’s an election year so anything could happen.

Now for the opposing arguments...do your worst.