Arizona Forum - SF Networking Summit Connections

[J. Martin]

This forum is for anyone coming to my Networking Summit who would like to talk about the Arizona market and start connecting before the Summit! (see website in signature).

@Patrick O'Sullivan reached out from the Phoenix, Scottsdale, Mesa, Tempe, Gilbert, and Chandler markets. (will be in touch about the details on the summit question Patrick)

I know @Yuliany W. is one of our local investors in that market.
And @Johnson H. has some rentals there, although looking locally at Fairfield and Vacaville now - and maybe still Houston? I believe.

Patrick, can you find her a great deal on multifamily?
What's the market like right now in Phoenix? Overheated like the hot summer sun?
Or still some good deals to be found, selectively?
Better deals on the periphery? How would you compare the areas?

Yuliany,
Ask away! I'm sure Patrick would be happy to chime in.

Johnson, hopefully you can provide some perspective too ;

Anyone else, feel free to jump in too ;)

[Serge S.]

I am an AZ investor originally from the Bay Area and am familiar with both markets. I'd offer the following feedback on our current market in metro PHX:

The days of achieving the 2% rule AND appreciation are well behind us. Right now you will struggle achieving the 1% rule. Appreciation potential is speculative at best. You really MUST know what you are doing out here.

Be VERY cautious with the lower end 4plex properties in PHX. Our housing is very different than most of CA. The low end 4plex tenant is a different tenant in AZ than in CA. Remember that our average rents are already low. $700-$800 will generally get you into a low end but somewhat decent home. $600 will get you into a very nice condo with a ton of amenities. So that leaves the struggling rest of society to rent the $400-$500 2bd 4plex. To make matters worse, most 4plex communities in PHX are clustered next to each other. This means competition is vicious and there has been very little to no rent appreciation. The $500 2bd 4plex has been $500 since the 90s! Very different than the Bay Area. Tenants will bail to save $10 next door. Good luck with your screening process after you can't find a "qualified" tenant for 2 months. A "qualified" tenant doesn't look for a 1960s 4 plex in PHX, they either own or rent an SFR or a condo. This makes everything a challenge. Very unlikely to find revenue adds or value add improvements, forget water submettering and good luck consistently collecting app or late fees. Most owners I know face the vicious cycle of rent, evict (or midnight move) then capex followed by new lease to start that cycle all over. Every month there will be a surprise waiting for you; from the $500 water bill due to an unreported leak, sewer busting and the never ending AC repairs. That $2k gross rent and paper $1k cash flow is pretty much a pipe dream. Believe me that those 9-10% cap rates are not real. Last point on the low end 4plex market - most sellers are locals that bought 09-12 for literally $5-$15k per door. They are now reselling for $50k per door. They could not produce cash flow at the low basis and are now pushing their "investment" to the next guy. Most of that time the next guy is someone in CA thinking how could I go wrong at $50k a door. Get my point?

Seller financing does exist but its hard to find. Its probably not waiting on the MLS. I sold my 32 unit via seller financing to a BP member at a nearly 10% cap on actuals. It was a true win win sale. These deals can be found, I'm just not sure how they are found from a distance.

Metro PHX has run its course and the market is very dangerous right now. Most astute local investors are on the sidelines right now or have moved on to other markets. Inventory is very stagnant and I see much more downside than upside.

There are still opportunities in AZ but not in metro PHX so much. Unless your local and know each area , your chances of finding the right deal on Zillow or the MLS are pretty much non existent. Pinal County is adjacent to Maricopa county and its the 2nd fastest growing county in the US. There is still some cash flow in these markets but there are other challenges there. Generally, I would look to submarkets for cash flow before the metro. @Ben Leybovich - Ohio is starting look good:)

I'm not saying you cannot find a good small multifamily in PHX and I'm not trying to discourage in any way. I'm saying that your investment MUST to have the right combination of location and desirability to stand a chance of attracting the right tenants. If you can't attract the right tenant there is simply no money to be made here. My advice is to not be lured into the C class low end trying to get a paper non existent cap rate. Find a local that can guide you in street level warfare and look at the B class in areas not full of multifamily. Make sure you offer something nobody else does. Know your competitive advantage. I would take a desirable B class with a paper 6-7% cap that offers sustainable income and real value add opportunities than a C class showing a non existent 9-10% cap.