AZ, NV or New Mexico for Investment Property?

Question

Hi all - I'm currently a beginner investor who is looking to purchase a single family home in the following cities: Phoenix (Chandler, Gilbert, Ahwatukee), Las Vegas, or Albuquerque. Ive done extensive research within Phoenix and have begun submitting offers, but I can't help notice that it may not be the best investment location due to such high home prices (median rent is $1800-$1950 for 3 bedroom).

My goals are to have positive cash flow, but more emphasis on the appreciation value of the home over the next years/ decades. I'd love to hear any recommendations or thoughts on the potential cities of investment from anyone

Michael Robbins · Answer

@Auryana Faramarzi in Las Vegas/Henderson the SFH purchased in the $370s will get you in that range of $1,900-2,150.  This depends of course on a variety of factors.  To offer one example: I recently purchased a house in Green Valley Ranch for about $350 and will end up investing about $25 in improvements.  It should rent out for $2,350.

I think there is still opportunity in purchasing homes with great curb appeal, high rated schools, nearby shopping, amenities, etc.... but need some interior work.  If the renovations are done well then a premium in rent can be had.

Stephen DeThample · Answer

@Auryana Faramarzi

If you are keeping it for decades then Las Vegas should have good appreciation. As the city fills in the vacant lots, there should be increased value for existing homes.

Nicole Lee · Answer

@Auryana Faramarzi

Appreciation will be great in Phoenix area but prices are high right now. They are projected  to stay high and even increase so buying sooner than later would be best to get the appreciation

Shiloh Lundahl · Answer

@Auryana Faramarzi the way to respond to a particular person is to type the “@“ symbol and then start typing the person’s name and then you select their name when it appears.

As for buying in any of the areas you suggested, I think they all have opportunities for cash flow if you are a good investor. If you are an average investor then they don’t have very good opportunities. Let me explain.

Most average investors will buy properties retail off the MLS. They don’t get much of a discount. Then they rent out the property and the cash flow is small but they hope for either appreciation to happen or for rents to go up over time. They keep the property for the long term and principle pay down and appreciation create equity over time and they justify low cash flow returns because they are creating equity. That is your average investor.

Above average investors often use advanced strategies to maximize cash flow and they usually buy properties under market value so that they walk into 20 - 30% equity when they buy a property and the property cash flows well. To give an example, I bought a property in Phoenix from a wholesaler for 240k that already had an appraisal for 340k. The main house was a 3 bedroom, 2 bathroom home and it had 2 small guest houses in the back. So it was basically a triplex. The main house rented out for $1150 and the 2 back units rented out for $650 each. So the total income from the property was $2450. I’m in the refinance period and I will likely not have to leave any money into the property after I get it refinanced because I bought it so far under market value. The property will likely cash flow between $500 and $900 a month depending on if I get a 20 year or 30 year loan on it.

So if you want to get better returns in investing, then I would encourage you to learn any of the follow advanced strategies well:

1. Short term rentals - Airbnb

2. Lease options

3. Renting properties out by the room

4. Working with wholesalers

5. House hacking

6. Finding properties in less expensive but emerging markets such as Casa Grande, Arizona which is about 45 minutes to an hour away from Phoenix.

Hope this helps. Good luck.

Auryana Faramarzi · Answer

I'm not sure how to reply to an individual on this post but I appreciate your responses. Hoping to secure something soon, or I'll probably wait until the market settles (however long that may take...)

Paul Welden · Answer

@Auryana Faramarzi

If you are paying cash, you may get a 2%-3% return on rentals, but if you are buying with a mortgage, it may not be possible to get positive cash flow for many years.

Rental prices are typically 2 years behind real estate values in the Phoenix market, but with the fast increase in real estate values, rent prices can be 3-5 years behind the current values.

Phoenix market is great for appreciation but not so great for positive cash flow. Phoenix market is great for long term buy/hold but other markets are better for positive cash flow.

Auryana Faramarzi · Answer

@Gregory Bambauer I’m also looking in the same places, we should connect!

Nicholas L. · Answer

@Auryana Faramarzi got it.  @Shiloh Lundahl has great suggestions.  Of the markets you noted, Albuquerque probably has the lowest median price.  Any reason you picked those three?

Another thing to consider in your situation is, even if you find something that cash flows, you might have a ton of your cash into the deal.  If you do the math and add up purchase price, closing costs, preparation to lease, leasing costs, etc. - you're looking at a ton of cash locked up.  Just something to be aware of.

Do you already own a primary?

Auryana Faramarzi · Answer

@shiloh lundahl hope this works - your name did not pop up when I typed "@"

From your description, it sounds like I am an average investor since building equity has been my primary goal this age.

How would you recommend finding a "deal" in the current climate of the housing market? When everything is going for more than asking price? It seems more and more difficult to secure something under asking.

Definitely will be using your recommendation of working with wholesalers. Thank you!

AZ, NV or New Mexico for Investment Property?

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