Is Phoenix’s little sister finally ready to come out of the shadows and into the national spot light as an emerging and thriving city? Based on the building and development happening in the Old Pueblo it sure looks like it. Now let me be clear, I am not trying to compare Tucson to the 12th largest city in the U.S., but I do believe that Tucson is finally coming into its own. There is growth and development occurring throughout the city, and no sign of things slowing down. With announcements occurring almost weekly of new corporations bringing jobs to our economy and new developments breaking ground, Tucson seems poised to finally shed its title as Phoenix’s little sister.
I have lived in Tucson for 10 years, I moved to the city to attend the University of Arizona in 2007. At that time Tucson was a mix between a college town and a place for retirees to visit in the winter months. You didn’t see cranes in the skyline or hear about new companies bringing thousands of jobs to our economy. Known for a slower pace, it was apparent that Tucson wanted to be and could be so much more. Fast-forward 10 years and Tucson is hardly recognizable. We have great restaurants, a night life Downtown, and the economy is thriving with a local government embracing the growth.
This past week a friend of mine visited Tucson for the first time in 2 years. He owns real estate in Tucson and is doing a couple new project with my team. He flew in to check out the projects and visit for a couple days. As we drove through town I found myself pointing out new projects and developments every couple of blocks. He was blown away by the growth, and to be honest, as I talked about all of the different projects occurring, I was somewhat taken aback as well. Being active in the local real estate market I had lost perspective of how far Tucson has come and how much is actually happening in our community.
To fully demonstrate this growth I decided to pull news articles of some of the major projects that are currently in process or are planned to start in the Old Pueblo. I have included a brief headline and summary below as well as links to each article for more information.
If you would like to discuss the Tucson market, strategic planning for building wealth through real estate or how our team may be able to help you accomplish your real estate goals please do not hesitate to send me a message.
“The Downtown Tucson landscape is rapidly changing. A new business opens every couple weeks and construction projects are happening around nearly every corner. Since 2008, Downtown Tucson has experienced over $1.2 billion in public and private investments, and over another half billion dollars is being invested into current and proposed projects.”
(Bigger Pockets Will Not Let Me Post The Article Links. Send Me A Message And I Will Send You)
Caterpillar Inc. Bringing Regional HQ to Downtown- CAT is building new regional HQ that will provide 600 engineering jobs to Tucson with a projected $600 Mil. positive economic impact on Southern Arizona. Tucson.[1]
Amazon Fulfillment Center Coming to Tucson- Although Tucson did not win the bid to become the home of Amazon’s second HQ it does look like we will be getting a very nice consolation prize. Known as “Project Wild Cat” it appears Amazon will be building a 20 acre (Yes 20 acre) fulfillment center that will bring 2,000 jobs to the Old Pueblo.[2]
Geico to Build New Corporate Office in Tucson- Geico’s regional office is staying in Tucson and they will be adding 700 new jobs. Bourn Companies will be developing a new 200,000 sqft office space for the national insurance company.[3]
New Shopping Center in Central Tucson- 10,000 SqFt retail and restaurant space coming to central Tucson. Both T-Mobile and Starbucks have already signed leases for space in this new development.[4]
New Housing Development on 4th Ave.- Proposed 250 unit seven story development is currently planned to be built in the heart of historic 4th Ave. [5]
$137 Million UofA Honors College Complex-Described by UofA as being a "campus within a campus."Located just north of the business and law school this project will have over 1,000 beds for first year honor college students.[6]
Student Housing Project on Broadway- The Mark at Tucson is a 8 story 154 unit high end luxury apartment complex set to be completed in fall of 2019.[7]
Another Student Housing Project Coming Soon- With a land acquisition cost of $10.2 Mil. this new luxury student housing complex is located on the parking lot next to Chase Bank at UofA. This tower will house 505 students and have units ranging from studios to six bedrooms.[8]
AC Marriott Hotel Open for Business in Downtown Tucson- This newly built 8 story hotel hace 136 hotel rooms, 1,500 SqFt of meeting space, Spa and 6th floor pool deck. This is the first hotel built in downtown Tucson since the 1970s.[9]
Tucson Convention Center Hotel-This new hotel will sit adjacent to the Tucson Convention center and have 125 available rooms. The project is expected to cost around $2s Million.[10]
JE Dunn Proposed 20 Story Office/Retail Building- Kansas City developer has proposed plans to build a 20-story, 250,000 SqFt tower on East Broadway between Scott and Sixth Ave.[11]
Extension of Aviation Parkway Approved- The decade old plan to extend Aviation Parkway around Downtown and connect with I-10 has been approved. The project is expected to begin as early as August of 2018.[12]
Proposed Student Housing Project on the NW Corner of Euclid and Speedway- Local developer Michael Goodman and national developer Peak Campus have proposed a 5 story development consisting of 163 units as well as 8,000 SqFt of commercial space for retail and restaurants.[13]
New Project Could Bring One of the Tallest Buildings to Tucson’s Downtown Skyline- Although details are still fairly unknown, it appears a new development at the parking lot located on East Broadway between Sixth and Scott Avenues will bring a 300-foot towner with office/retail space, parking and residences.[14]
New Mid-Rise Apartment Coming to Downtown Tucson- Located next to One South Church this new six-story project will consist of ground floor commercial space for retail/restaurants as well as 100 upscale one and two bedroom apartments. Expected to be completed by the end of 2018, rent is estimated to range between $1,500 and $2,500 per month.[15]
Proposed 300 Luxury Apartments Around the Historic Benedictine Monastery- Local developer Ross Rulney has submitted plans to build two seven story buildings on the north and south end of the Monastery. The property would consist of 300 luxury apartments with the use of the existing Monastery still unknown.[16]
Ten months ago, I purchased an investment property in an area of Tucson that I believed was going to appreciate very rapidly.Lately, I have been focusing on expanding my investment portfolio into new markets such as Kansas City, MO. I have seen good returns in Kansas City, but it’s always nice to have a big win in my “home” market of Tucson, Arizona. While doing research on the Tucson market, I realized that a specific neighborhood was going to start appreciating rapidly; Barrio Hollywood. This area is close to down town Tucson, the University of Arizona, and Pima Community College. The location is nice, but a new development was going to cause homes to appreciate rapidly. Caterpillar Manufacturing broke ground on their new headquarters a few blocks away. Its estimated that this addition will bring more than 600 jobs to Tucson over the next 5 years!
With that knowledge, I was able to confidently invest in a SFH that only needed minor repairs to become rentable, to gain immediate cash flow, as I waited for the market to appreciate.The goal was to buy and sell within one year.
Breakdown:
Purchase date: 6/30/2017
Listed: $60,000
Under Contract (as the Buyer): $55,000
Acquisition Price: $46,250
Renovation Cost: $1,955
Total investment: $48,205
Ten months after the purchase, we are under contract on the selling side at $65,000.
Breakdown:
Sale date: 4/4/2018
Under contract (as the Seller): $65,000
Closing Cost 7%: $4,500
Net income at sale: $60,450
ROI: 31%
Annualized ROI: 37%
Total Profit: $14,771
The reason this made sense was the ability we had to use multiple strategies. If the area didn’t appreciate in the way that we expected, we could rent the home for $575mo, with hardly any renovations. Rental comps in this area for remodeled 3-bedroom 1 bath units are at least $800 a month. Any way you cut it, the deal made sense, and the returns were going to be high. The plan was to buy the home and sell it within the first year and reposition the gains into a new property or a new market. I did not do a lot of work on this project, I let my market research and the appreciation do it all for me.
I am going to discuss a few aspects of property management. What property managers should do for you,how much they should cost, important reasons why you should hire a PM, and how to find reliable one.
A crucial aspect of PM is Communication. Communication to you, the owner if there are any issues, and communication to a tenant on how the issues will be addressed. The PMs main job is to act as the middleman between the tenant and Owner. Maintenance requests, issues with rent payments, or tenant complaints all run through the PM who has to be able to calm any tenant concerns and ensure that the owners best interests are kept at the front.
Another important reason to have a property manager is their understanding of the law in regards to rental homes. Different states have different laws and timelines on different issues and an owner can be left with a judgement against them if they misunderstood or were not aware of the law governing their rental property. For example, in the state of Arizona, if a landlord enters a home without proper notice to the tenants, the tenant could be awarded up to a full months rent for the disturbance of their quiet enjoyment of the home.
Property managers will also look at your property in an unbiased way and provide legitimate market analysis for the home to ensure the property is rented at the top of the market without sitting vacant for several months. Over the course of a year, a $100.00 reduction in the rent is $1,200.00 in rent coming in to the home, and potentially the home staying vacant for another month. A property manager will be able to constantly analyze the interest in the home and adjust as needed.
If after looking at your property it seems the best step is to manage the home yourself, be sure to have any documents you use reviewed by a lawyer to ensure you are protected and read through and understand the local and federal laws that cover Real Estate Rental Properties.
If you have made the decision to move forward with a Professional management company, always make sure to compare different companies.
Read the agreements and speak with the property managers. Be sure to ask questions about any fees that are charged or what their procedure is for terminating management if you are not happy or if you sell the home. I had one prospective client come into my office asking if I would be able to take over management of their property. They did not feel their current property manager was looking out for their best interest and the home had been vacant for several months. After looking over their management agreement, we found that if the owner decided to terminate, they were locked in to continue paying the management fees for any rent collected to the previous company until the agreement was up. The agreement was for 5 years. In the end they moved back into the home and will not be able to sell the home or have it rented for several years. If the owner had been aware of the termination clause, he would not have signed the agreement. Always remember to have an attorney review any documents before signing.
Do your due diligence, read reviews online, speak with people who have property being managed by the company. Another issue you should consider is how often the PM is inspecting the property. Although tenants are required to report issues to the PM, the PM should be getting eyes on your property at least 4 times a year.
Price can depend on how much work the property management team does. I have seen companies charge as little as 6% of the rent, but all that they did was collect rent. This would work if you are an owner that can handle the day to day maintenance and placement of the tenants. On the other hand, a full-service property management company can charge 12-15% on rent. At that price point, they should be handling the collection of rent, the maintenance, placement of tenants, and the eviction of delinquent tenants. So, in short, if you are an owner who can handle the day to day operations maybe property management is not for you. But if you are an out of state investor, an owner working full time, or if you simply do not want to deal with the headache of working with tenants, partnering with a property manager will grant you more freedom, while still allowing you to collect your passive income.
The accomplishment of purchasing a home or an investment property is already stressful and can take a considerate amount of time. Scam artists know this, and because of their weak moral fiber, they try to profit from this monument time in a person’s life. First time home owners and investors need to be aware that scams often happen in real estate because a lot of information is public record IE: name, address, parcel numbers. In this post we are going to discuss a scam that was recently attempted on one of our agents in Kansas City and wire fraud that has affective a lot of people in Tucson AZ lately.
The scam:
Brian our agent, received a notice in the mail stating that if he wanted to obtain the deed for an investment property he recently closed on he would need to: “Respond to the letter by Jan 31st, and pay the service fee of $87.”
The letter looked legitimate, had his name, the property address, and the parcel number. Like I said in the first paragraph, that is all public record and can easily be found on the county assessor web site. The timeline is given to make the victim feel as if he/she needs to make a rash decision and pay the fee. This scam is not centralized in Kansas City, and the attempts can be seen nationwide.
The Scam:
Information is being shared online, through emails and text messages, speeding up business, but making it easy for hackers to locate valuable information. Hackers are accessing email accounts through captured passwords, and then scanning for emails related to real estate transactions. They respond to the emails with new wiring instructions from the agent, title representative, or attorney. The home buyer unsuspectingly wires the funds to the hacker's account. Once the funds are sent they are not retrievable.
How to avoid being a victim:
If you are a real estate agent you need to build a standard warning about wire scams into your e-mail signature, stating you will not discuss personal financial information over e-mail. Always use strong passwords and change them regularly, and advise your clients to do the same. Brokers should consider employing a staff member who’s responsible for monitoring, updating and implementing information security systems and procedures at your company. Millions of dollars have been lost because of wire fraud, it’s very easy to inform your clients about the danger. As a home buyer or investor, try to avoid free WIFI hotspots, speak with your agent on the phone to verify you have the correct account, and never share personal financial information over an e-mail.
What other scams have you seen recently? Please comment below so that we can be aware of the practices and help our clients avoid losing out on their hard-earned money.
Do your research, stay safe, and have a purposeful day
I purchased my first investment property at 18 years old. Over the last 10 years I have built a full service real estate investment group, been involved in 100s of real estate transactions, made a pretty decent living and had a ton of fun along the way. As I reflect back on the last 10 years I can directly attribute my success to two things: First, a persevering attitude, refusing to accept no as an answer and a willingness to outwork the next guy and Second, amazing mentors who always took time to coach, guide and help me along the way.
Now this post is not about me or my journey, but rather about a young college kid who reached out to me 14 months ago via Bigger Pockets. His name was Scott and he asked if I would be willing to talk with him about real estate. I remember clearly thinking at the time: “I have so much going on right now, I really do not have time to get coffee with this kid”. Something in my gut contradicted that feeling and so I agreed to grab coffee. Instantly, I saw much of myself in him. Specifically, he was young, dumb and had no clue what he was doing or how he should be doing it. Additionally, it was clear he was going to do whatever it took to become successful. At the end of the coffee he asked if I would be willing to let him come into the office and intern for our team. Having failed with a few interns in the past I was reluctant, however I got started by sweeping floors at a new build construction site for a general contractor and remembering that I reluctantly agreed.
In Scott’s first 3 weeks I am pretty sure he lived at the office. Although he was still in school at the University of Arizona, there was not a day he did not log at least 10 hours. Keep in mind this was an unpaid internship. It very quickly became clear Scott was in it for the long haul and willing to do whatever it took to provide value. He went from acting as an office “go-for” and moved into analyzing deals. It took some time, and it was a little rough at the start, but slowly he started to grasp the concepts. Throughout the process he never complained, he showed up early and worked late. Eventually he started to show substantial value. The next step was for him to get his real estate license so he could start working with clients and running deals solo. 14 months later and he has become a real estate professional with an extremely bright future ahead of him.
A few of his accomplishments from the past 14 months include:
Completing his degree in economics from The University of Arizona.
Closing 30+ real estate transactions.
Launched our teams wholesaling company that now has three team members working under him.
Created and launched a rapidly growing podcast called ROI: Dream Bigger and Live an Extraordinary Life.
Got engaged to his amazing girlfriend
And is currently looking to purchase his first investment property
This is just the beginning for Scott. In 2018 he is on his way to net $1,000,000 in commissions for our sales team and add begin building his personal real estate portfolio.
My hope in telling this story is twofold: First, to all the investors on BP that are killing it and having massive success in real estate, do not forget the impact your mentors had on you and always try to help the next guy. You never know when the next Scott will be reaching out. Second, to all the guys and gals just getting started in real estate on BP, do not be afraid to send a message or make a phone call to a potential mentor. You have to be relentless in the pursuit of your dreams. You never know who will be able to help you get to where you want to go. Provided so much value that they cannot say no to working with you. Equally as important, if you are given an opportunity, do not let it go to waste. Becoming successful in real estate is not easy, it takes a massive amount of work. If a mentor opens the door, do everything you can to run through it and never look back. Effort is everything, push yourself, venture outside of your comfort zone. As Wayne Gretzky elegantly put it “you miss 100% of the shots you don’t take”.
Stay purposeful, keep pushing and enjoy the journey.
Mike,
There are many options in your situation. I'm in Tucson and have an office on Broadway/Campbell.
Would love to connect with you regarding your options. What do you think?
Let me know if you'd like to meet or jump on a call,
Ben Riehle
We recently closed on, yet another off-market deal that one of our “bird dogs” identified as distressed. We have been very active in this neighborhood, and it’s starting to show. The purpose of the bird dog is to drive around designated areas that we identify to have a lot of room for appreciation and find distressed properties. Bird dogging is a major aspect in the off-market value add play. Our investor purchased this property at $90,000, and we helped them identify three possible ways to move forward.
We could wholesale the property at $140,000 without any renovations for an easy profit of $50,000. This is a very solid move, and does not take a lot of work. The second option is to do a traditional flip. Purchased at 90,000, and remodel for 60,000, we expect the appraise value to be $235,000. This would bring a profit of $85,000. Again, this is a solid investment depending on your real estate goals.
However, after discussing with our investors what their long term real estate goals are, we decide that a cash out refinance would be in their best interest. We estimated that the remodel cost will be $60,000, bringing the all-in cost to $150,000. As stated, the property should appraise around $235,000. This option will allow our investor to refinance at $176,250, at a 75% LTV (Loan to Value) ratio. Because the new mortgage is higher than the all-in cost, the investor will receive $26,250 in hand to be able to reposition into an additional asset. We will be able to rent the home for $1,600 per month, and we essentially are in for $0 cash. When we looked at the big picture, and realized our investors long term goals, the only option that made sense was to re-fi and allow the owner to invest in another asset and enjoy the positive cash flow that was achieved. Another reason why the traditional flip doesn't work is because the percent of taxes that our investor would have to pay on the profit from the sale.
We recently closed on a 4-plex near Tucson's growing downtown and I just wanted to talk about the deal and where we saw hidden value. The property itself did not need a ton of work. We contacted the owner and they were interested in selling and we struck a deal (I.e. this was an off-market transaction). The seller had a roof replacement, new AC units installed (a big deal in Tucson, AZ), and had installed new water heaters, etc. As a result, the property was in solid condition. The units had good size, private backyards, solid cosmetics, etc. When you see a property like that, most may think that there isn't much of a value add opportunity.
So, was there any upside? Easy answer, YES.
Long answer? What we noticed is the sellers management company had marketed the rents low so that they could get tenants in there as quickly as possible. For the seller, he approved quick rental turnover so it worked out for them. In doing that, they had all of the units rented out at $600/month for nice 2bd/1bth units. For us, we always want to maximize the value as much as possible. By simply calling the owner of the property next door (who had very similar units) and looking at rental comps, the rental value could increase by $100 so that was a huge bonus for us moving forward.
On top of that, the property is in an up and coming area near Tucson's growing downtown area (Caterpillar headquarters being developed, completion of the AC Hotel - owned by Marriot, and many more ventures). With that happening, we're seeing a 6-7% annual rental appreciation in the location of the 4-plex. As a result, all signs point to an appreciating asset due to the location.
Yesterday, we closed on the property and a tenant had moved out the weekend before the closing. Although beginning a purchase with a vacancy isn't ideal, we were able to push the rent on that unit so the value-add play can begin. I transferred the management to our in house company and within one day, we have 6 showings scheduled for $750/month + utilities. Potential renters seem very excited about the unit and we may be able to get $150 above the market value. We are very excited about this property and its potential.
The reason for this post was to show that value-add doesn't always apply to renovations - Instead, making minor adjustments to marketing the asset: price point, professional photos, etc, can change the dynamic of the property and you'll be able to reap the benefits of the hidden value.
@Bob Langworthy Love these goals, thanks for sharing!
Do you have any of the books picked out? Always looking for recommendations of new books.
How is the R/E market in Main? What cap rates are you guys seeing?
Merry Christmas