Is Cash on Cash Return Irrelevant in Arizona?

[Ryan Stumbo]

So, recently I have been trying to branch out and buy real estate in other states. I'm currently working in Arizona so I thought "hmm it's nice out here, I should try to get a property or two while I'm out here." I am running into an issue. I'm very big on the numbers. I take every monthly/annual expense and calculate the cash on cash return, and if it isn't at least 8% then it's not worth it to me to even invest. 

I have now went to 2 different realtors, looked at some multi-family properties, typed the numbers in, and I've had 1 deal come back as a -55% CoC return. Then another was at like -90% CoC return. I do my numbers and see what kind of price is doable for me. Now, obviously with the deal being that overpriced, I could just not even attempt it, but when something has been on the market for 120 days, I figure heck why not just make an offer. Even if they view it as lowball, attach my spreadsheet to the offer and show them their property is way overpriced without directly telling them that and maybe they'll come to their senses. Me thinking the realtors would respect math also and see that I'm correct, I've had 2 realtors tell me "you're just not in tune with the Phoenix market." At this point, I will ask them politely to explain what this statement means because my math shows this deal is a terrible deal. They didn't respond. Just the vague "you don't understand Phoenix market." So I guess my question is, is there something I'm missing? One of the realtors also said that if I'm looking for 5% return in this market I may as well go ahead and go back to where I was investing before because that ship has sailed. So is this a case of it's just not possible to find 8% returns in this market in a decent location? Or do they actually have any logic or math behind what they're saying. Is there some deeper, specific reason someone is willing to pay for something that returns them a negative % on their money? This 1 realtor also told me there's a lot of "institutional money" here and that people are willing to use real estate to park their money and just take the loss because it keeps the IRS from getting their money.

I suppose in summary I'm asking, 1) are these realtors just trying to talk me into a bad deal and I just lucked out with the 2 realtors I found

2) Do I truly not understand something about the market down here and these -50-100% returns aren't so bad after all? (lol unlikely, since math is math.)

3) are these realtors just intimidated by making an offer they view as lowball since the listing price is so overpriced?

If someone can explain to me what I'm missing I would be happy and open to learning and understanding. I'm just truly not understanding what it means to instead of critiquing a list price that leaves you with a -50% return, I am instead being the one critiqued for not "understanding the market" .. lol any info on this situation would be greatly appreciated.

Thanks in advance.

[Zach Lemaster]

@Ryan Stumbo

In my opinion you are really asking about multiple different types of investments here. Is AZ a great place to find double digit CoC ROI, no. It is an outstanding market for flips however (at least right now). You can get agents to throw lowball offers out, but most are likely hesitant to do that knowing it might be a waste of time being such a sellers market. You can find the right one that will spend the time to go through multiple offers if they know you will bring them a lot of business. They are just few and far between in a hot market.

I do high end flips in Phoenix, and the margins are pretty stellar.  Buy for $500k to 800k, put in ~$200k, sell retail in a week or less for over $1M (usually $150k to $250k net profit)!  Just rough numbers, but that is typical to see.  I like AZ for those opportunities, not buy & hold rentals.

I like the idea of house hacking something that has some deferred maintenance or value add!