Phoenix Real Estate questions

motion · 01-12-2004, 10:42 AM

Thinking of picking up a couple of new homes in Litchfield Park for rentals... anyone have any idea what the market's like in Phoenix? Are homes expected to appreciate? Population still growing? Good demand for home rentals? And how about Litchfield Park... is it a good area? I'm looking for homes being built in areas that are building new malls, theatres, restaurants, parks, etc. Thanks!

BlueSkyJaunte · 10:50 AM

We bought our house in 1999 for $198k. House up the road went for $400k. House two houses over is on the market for $340k. Ours is nicer than the $340 one. We live on 1-acre horse properties, though, with community irrigation. And there's construction all around. I can feel the heat from the light in developers' eyes as they look at our area.

So, yes. The market is growing. Significantly. Litchfield Park is starting to grow, like Goodyear etc.

The market's going up but we're in the slump of the worst drought in recorded history. I have a suspicion that if they start rationing water, the market will tank.

v9ff · v9ff's Garage

I would invest in Vegas property... low prices (compared to CA) and you can even get them to cashflow with 5% down with these low interest rates. You can't lose... especially with appreciation rates from 10-17%!!!

motion · 01-12-2004, 02:38 PM

Steve - Man, I tell ya, everytime I drive through Vegas and see the number of houses built in the last few months.... I can't even imagine that its still possible to win at that game. It is out of control out there!

BlueSkyJaunte · 01-12-2004, 02:43 PM

Hey, Richard, is that track bike an RS250???

Awesome mo-chines.

v9ff · v9ff's Garage

You can still get a brand new (or almost new) 3/2 for about $150-170k in North Las Vegas / Northwest las Vegas. They're still paving the streets up there!! 5% down and change will make your monthly mortgage payment around should be around $1000 and rents are up to about $1100. AND... you're appreciating at 10-12% in that area. Can't go wrong.

motion · 01-12-2004, 02:52 PM

Blue - Yes, its an '02 RS250.... what a great bike! Love the two-strokes.

motion · 01-12-2004, 02:53 PM

Brian - New 4/3 homes in Litchfield Park are approx $175k and rents are $1,200. It seems good to me... I'm heading out this weekend to scope it out. Can you be specific about why you passed?

turbo6bar · 01-12-2004, 03:50 PM

5% down and change will make your monthly mortgage payment around should be around $1000 and rents are up to about $1100. AND... you're appreciating at 10-12% in that area. Can't go wrong.

What cashflow? You're looking at negative cashflow by my math.

{cliche mode on}Past performance is no indication of future performance. Don't be the farm on appreciation. Also, rents are lagging appreciation by a fair amount. More than likely, you won't be able to raise rents by 10-12% unless you're in a unique market.{cliche mode off}

It has been said the past 2-4 years have been the worst in the last 30-40 years with regards to the rental market.

motion, general rule of thumb is you want rents to be approximately 1% of home value (e.g. $175k house yields $1750 in rent). This is just a rule of thumb, and is subject to adjustment. In this housing climate, it would be tough to buy a house at market value and get 1%, but the deals are still out there. As the stock market goes back up, I hope less money will be chasing real estate "deals."

Personally, I won't touch anything unless ROI is at least 20-25%, and 30%+ is better. I have a few Excel spreadsheets which allow you to evaluate potential buys and calculate ROI. Let me know if you'd like a copy.

Be careful out there...
Good luck.

Jürgen

motion · 04:13 PM

I'm the first to admit that I'm not an educated real estate investor, or investor period... I tend to blow all my money on Porsches, motorcycles and women, not necessarily in that order

But, I have had a rental property for the past 6 years that has performed extremely well. Purchased for $83k and now worth $250k. Rent has increased from $850 to $1250.

Here's my thinking:

$175k house. 20% down. Last time I checked you had to put 20% down if not owner occupied. Finance amount = $140k. 15 year loan at 5.75% = $1,160 per month. Add another $150 for property taxes. $1,310 per month total.

Rent for $1200 for month. $110 per month in red, going to black within 24 months.

Pay off loan in 11-12 years by paying extra payment each year.

Regardless of property appreciation, my main interest is retirement income. I'm 41 now. Retirement income would fully kick in at age 53, with partial income occurring as rents rise during the 11-12 year period.

Any logic to this? Am I being idealistic?

motion · 01-12-2004, 04:14 PM

Jürgen - Would love to have a look see at your spreadsheets. My email is richard-at-animotion-dot-com. Thanks, buddy.

v9ff · v9ff's Garage

$1100 rental income minus a $1000 monthly mortgage payment equals an extra $100 each month. Appreciation refers to property value... it always has. If you own a $150K valued house this January, next January it should appreciate to $165k earning you an extra 15k in equity.

Jürgen- I don't agree with your formula... rental income should be 1% of the home value. Personally, I think this is a very unrealistic number. There is no way a $150k home will rent for $1500/month. Rent cannot be calculated by a formula but by market research in order to be accurate.

Just my $.02.

BlueSkyJaunte · 01-12-2004, 06:54 PM

Also remember your house is trashed after a year of someone else living in it.

turbo6bar · 01-12-2004, 06:55 PM

motion, anyone can invest in real estate. Ya just have to do your homework. I just don't like losing money, and I'm sure most others don't either.

You don't have to put down 20% for non-owner occupied. 10% down is not a problem, and if you're not interested in maximizing profits, you can even get by with 5% down or less. You'll just pay higher interest rates and/or private mortgage insurance (ROI will be higher though). For what you propose, 20% down sounds good.

The scenario you present is very plausible, in my opinion. Don't think of making a single penny for a long time, and you will make a fortune times 2. I like your idea.

v9ff, regarding cashflow, have you considered taxes, insurance, repairs, maintenance, management fees (if you do not manage yourself) in your cashflow calculation? However, a good investment does not necessarily need to show positive cashflow. The properties in Phoenix might very well be excellent investments. I have no idea without looking at hard numbers.

I simply took exception to your statement that a purchase with 5% down will show positive cashflow, when I doubt such is the case.

j

turbo6bar · 01-12-2004, 06:59 PM

Quote:

Originally posted by BlueSkyJaunte
Also remember your house is trashed after a year of someone else living in it.

You can't be serious.

v9ff · v9ff's Garage

All statements are approximations and generalizations... obviously, each opportunity is different and needs individual analysis and assessment.

Then again, I'm Vegas biased as well. heh heh heh

Also, there's no way a renter will trash a house in one year unless they are a nightmare tenant. Generally, renters are pretty respectful of the property... especially, since they want their security deposit back.

Eric Coffey · 01-13-2004, 12:33 AM

Quote:

Originally posted by BlueSkyJaunte
Also remember your house is trashed after a year of someone else living in it.

Blue-

That's what would worry me as well. However, as long as you had an iron-clad contract/RA, strict tenant rules (no pets, smoking, etc.), and a sizeable damage/security deposit, you should be fine.

Motion-

I would definitely check out Goodyear! New construction everywhere (including huge new mall) clean/quite neighborhoods, and very reasonable prices. Or, you could head South to Eloy and buy a "fixer" to rent month-to-month to us nomadic skydivers!

turbo6bar · 01-13-2004, 05:52 AM

There is a LOT of money chasing real estate these days. If the deal is really great, there will typically be a lot of money chasing it. In Memphis, a handful of newbies bought up a lot of fixer-uppers to rent low income. Well, the rental market is tight, and no one wants to live in a crackerbox, when you can get into a nicer place for equal money. Now, the landlords are stuck with properties with little resale potential, no rent, sizeable front-end expenses, and payments on credit lines. That hurts.

Tenants from Hades are rare, but they are NO myth. A b~tchin' awesome lease agreement won't always protect you from a Tenant from Hades. What if your tenant pays on time, but demands to be coddled and cooed over every little issue? It costs you time, money, and sometimes a few bad nights' sleep. However, in my experience 9 out of 10 tenants are just great. The 1 out of 10 are just the cost of doing business.

In the end, for the person who's patient and can stick through the bad times, real estate can and will remain a spectacular investment. The problems occur when a landlord gets fed up early and sells out. Don't be one of those guys.

Here's a good forum for landlords, http://bbs.mrlandlord.com/qanda/index.mgi
Those guys have been there, done it, smoked it, etc.

good luck
jürgen

motion · 01-13-2004, 08:11 AM

Thanks for that link, Jurgen. Looks interesting. I had a tentant from Hell in my rental when I bought it. What a nightmare. They trashed the place and it took me 5 months to get them out. Man, it sucked. You really have to have a strong stomach when things are bad and people are living in your property for free. But I agree, most people are good and won't cause problems. Besides, you always have the leverage of increasing their rent to hang over their heads.

Brian - I agree, my numbers are thin, but workable. In a perfect world, I would have gotten into the Phoenix market a couple years ago when prices were 20-30% less, but hey, we will hopefully be saying the same thing a few years from now.

Eric - I'm going to check out Goodyear, for sure. I believe its right next to Litchfield Park? Hey, buying a bunch of bunkhouses in Eloy sounds great... except, well, you know as well as I do that skydivers have no money!

Eric Coffey · 01-13-2004, 12:47 PM

Yep. GY is right next to Litchfield Park. Not to mention, it's a very short drive away from PIR and a new motorcycle track! Oh, and yes, skydivers generally have no $$. I always get a warm-fuzzy when I see a local pull up at the DZ and get out of his $400 car with a rig, gear, and video equipment that probably totals $7000+