Buy house in AZ as investment?

Question

As a new investor/first-time, I'm thinking of buying a house in Arizona (Phoenix suburb like Surprise) and rent it out. Houses appear to be cheap (~100k) for 2,000 sq feet property and monthly rent is above $1,200 leading to likely positive cash flow. Long term is to live there when I retire but for now, will need a property management company as I live in Illinois. Any tips/advices for me? Should I look elsewhere? Any success stories in AZ/Phoenix area?

Ward Adams · Answer

We have been living in and working the West Valley for the last 10 years, good times and bad and we agree that there is little for even $180,000 and even those will require updating. Unfortunately, previewing 175 homes in the last 6 months we have found that sellers are asking the same price whether the home is a beater or updated. Odds are that if you buy and spend the necessary money to get a house livible, you will be upside down on your investment. This is largerly the fault of the realtors and Zillow. The realtors don't demonstrate the difference in values to their sellers. We have also been involved in property management and rental market rates severly limit the amount of the investment that can be supported.

Ward AdamsHavelock-Adams, LLc

Krystian Sosinski · Answer

Surprise is one of the least inexpensive cities in the Phoenix area. I live here so I'll give you my opinion of the area.

What I like about Surprise:

1. You get a lot of bang for your buck out here. Price per square foot is low. There is also some vacant undeveloped land still out here. Also check out the Happy Valley area as its quite similar and even newer than Surprise.

2. Wesgate is the go to place. It has the Cardinal stadium, lots of restaurants, and Tanger outlet mall near by for discount shopping. But this is the only place to go to have some real fun.

3. Very few multi unit rental complexes out here. Not many options for renters to rent. Most the apartment complexes are catered towards luxury.

Drawbacks:

1. Surprise is mostly catered towards retirees. There's definitely an older population out here, something you will notice right away and on the road. For a millennial such as me, I do find the area quite boring with not much to do. It's not a city you go to really rent, work, or have fun. But for an older couple who's not working, it could be great. Also there are no jobs out here excluding some retail, service, and fast food. Therefore long commuting is required unless you work at Luke Air Force Base.

2. Surprise is isolated. There is a lot of traffic congestion on Bell Road heading in and out of the city during high peak times. It takes about 20 to 40 minutes just to get to the 101 highway. Then you can start your journey to work.  That's pretty bad compared to the easy high way access other cities have. It will be getting worse in the short run as the Bell Road and 60 grand highway intersection will be getting shut down for several months as they will be building an over pass. Traffic connection should start to get better in 2017 as the 303 final improvements are finalized this year and that intersection overpass would be done.

3. Supply is over saturated on Air Bnb. I see a lot of properties just sitting on the market on their app. Difficult to compete for tourists, but that may be because Surprise is so far away from the airport. Surprise does make me wonder if the low short term rental demand will translate to single family homes rentals.

Areas I suggest also checking out are Avondale, Goodyear, Peoria, and North Phoenix for consideration. Another location that you may like that is similar to Surprise in characteristics is Estrella Mountain Ranch and Verado.

If you have any other questions let me know. I've lived in AZ for 11 years.

Brian M. · Answer

Wendy and Ward are spot on.  I'm a native who was in statewide outside sales for 20 years and I can tell you with absolute certainty you won't draw those rents in Surprise.  With all the building and redevelopment happening closer into the heart of the city, persons who can foot $1,200 certainly aren't; going to buy a half hour from downtown.  Do a little more digging, friend :)

Jeff Brown · Answer

Thanks all for the tips - greatly appreciated! So with homes being over 200k, maybe I should start with buying a 2-bedroom condo to rent out? I have about 20k to put down and really like to learn the real estate business. Goal is to find positive cash-flow condos/homes. Not sure where to start as there's so much info.

Erin Estes · Answer

Check out Renter's Wearhouse for property management: http://renterswarehouse.com

Wendy Black · Answer

Where did you get these figures?  Good luck on not only finding homes that inexpensive, but also for renting them at that price.

Going the traditional route, not a single home under $100k came up for Surprise on Redfin, this morning.  In fact, I think you'll be hard-pressed to find anything under $100k in the far West Valley except in an area you wouldn't likely want to be, where flipping wouldn't even help.  Maryvale (east, and in Phoenix) has some homes under $100k, but you're not going to fetch rents of $1200.

FYI: We moved to Phoenix from Chicago in '73.  Owned a home on the west side since '75.  While most of our investments are in CA, we're versed in the West Valley market and bought a rental home in Avondale last fall.  It's in a lake community (man-made) and is waterfront, and we don't even get $1200/mo., and it certainly didn't cost $100k.

Average house rents in the far West Valley (Avondale, Surprise, Goodyear) can run from $950 to maybe $1300ish, but it depends on the size of the home and whether there's a pool or other amenities.  However, there's no way you're going to pay $100k for such a home, at least traditionally.

There are other things to do in the West Valley other than go to the Tanger Outlet Mall and the Westgate Entertainment District.  Arrowhead Mall and the mile of shopping that surrounds it is a big draw, too.

You need to decide what's more important: cash flow or appreciation.  Housing prices hit the skids years ago, but have been recovering pretty quickly.

Buy house in AZ as investment?

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