Best Locale for an investment property (Phoenix, Mesa: for sale, foreclosures, rentals)

[Home Addict]

We are looking to purchase an investment property in the greater Phoenix area. Since we are from out-of-state, we are pretty flexible in terms of where the property is located.

Our budget is 125k tops, and we prefer a traditional home as opposed to a clustered home or a town house. What would be some decent neighborhoods with reasonable prices and good ROI? Decent schools would be a plus. Low HOA would be a plus.

Thanks in advance!

[Captain Bill]

You can get a higher ROI in the marginal areas of the city, such as South Phoenix, and some other areas of the city.

The investors I work with are buying in Gilbert and east Mesa because they are safer areas with good schools and the potential for future increase in value are on par with all other homes in the Town of Gilbert.

You can buy homes in that range, and the rents are running in the 70 cents per square foot range.

Costs of management companies vary slightly.

[Home Addict]

Originally Posted by Captain Bill

The investors I work with are buying in Gilbert and east Mesa because they are safer areas with good schools and the potential for future increase in value are on par with all other homes in the Town of Gilbert.

Thanks for your post. Gilbert is a very nice city. But East Mesa? When I was there it seems older and there are parts that I think are unsafe.

Using the 202/60 intercross as a center, are you mainly referring to the Southeast portion of Mesa which is more like Gilbert? Or the Northeast corner of Mesa (La Senda)? Between those two areas along 202 loop, it seems a bit hit-and-miss.

[Captain Bill]

Yes I'm mainly referring to the southeast Mesa.

[azriverfan.]

I would recommend Ocotillo in Chandler. Ocotillo is a wealthy community with great schools and is pretty upscale. Chandler has arguably the best schools of any city in the Valley and a great economy with many high tech companies. Intel is creating a 5 billion dollar plant and adding 4000 new jobs. It made national headlines. People will be looking for homes in this area when that plant emerges in a couple of years. Right now, there are a lot of good deals in Ocotillo and I'm amazed by some of the prices.

Intel's new $5 billion plant in Arizona has Obama's blessing - USATODAY.com

Another great place to buy is Scottsdale. No one thinks of Scottsdale because it's already prestigious and assume it doesn't have much room to grow but it's also a place in which people defaulted on their homes and there are a lot of foreclosures on quality homes that are worth more than they are listed for. Scottsdale has a ton of great properties. When people think investment property, they only seem to focus on less than 150K on City Data but the reality is there are a lot of great values in Scottsdale right now. Scottsdale also has name recognition and prestige and if you can afford to invest more (400K), you can get a really good deal on a house there that will sell for much more than that in a few years.

[Captain Bill]

I agree there are bargains in Ocotillo and Scottsdale.

However the OP has a budget of $125k tops. And while those homes are bargain priced, in my opinion as an investor, the $400k homes don't make good landlord type rental investments.

Each investor will have their own criteria, and in working with investors, I have to understand their criteria and work with that. However, most of the investors today are landlord type investors, and the better deals for that type are in the $100-150k range because of the rent, and the spreading of risk.

In Scottsdale the $400k home is averaged price (move-in-ready) about $160/sf and the rent is average around $1.00/sf.

In Gilbert a $150k home is priced around $75/sf (move-in-ready) and the rent is around $0.75/sf.

The cash flow in Gilbert is going to be greater than in Scottsdale, and any increase or decrease in value is going to be about equal. If homes in Scottsdale double in price, the same will happen in Gilbert.

If an investor has $600k to invest, it makes more sense, to me, to buy (4) $150k homes in Gilbert than (1) $400k home in Scottsdale (or anywhere else for that matter) because of the risk spreading.

• If I have 4 homes and one vacancy, I'm 75% occupied.
• If I have 1 home and one vacancy, I'm 100% vacant and have no income.

The speculators of 2005 would buy the $400k home simply because of the quick appreciation and quick turn that was anticipated. Today the investors are looking for cash flow through rental income and long term appreciation.

If one wants an even higher cash flow, then more bargains can be found in South Phoenix and along that corridor. However, there is also higher risk because the neighborhoods have a fairly bad reputation, and future appreciation may not be commensurate with other areas. I won't even work those areas.

[MN-Born-n-Raised]

Originally Posted by Captain Bill

In Scottsdale the $400k home is averaged price (move-in-ready) about $160/sf and the rent is average around $1.00/sf.

In Gilbert a $150k home is priced around $75/sf (move-in-ready) and the rent is around $0.75/sf.

The cash flow in Gilbert is going to be greater than in Scottsdale, and any increase or decrease in value is going to be about equal. If homes in Scottsdale double in price, the same will happen in Gilbert.

If one wants an even higher cash flow, then more bargains can be found in South Phoenix and along that corridor.....

Good post. The OP had a budget and was focused on ROI.

In addition to ROI, I look at the risk / reward. There is a higher risk of depreciation when buying a $400K home over versus a $125K home. I definately look at that portion of the math / trade-offs. I also prefer to look at areas of town that are cosmetically holding up. Certainly Gilbert passes that test.

If a person rents by the WEEK (furnished) to snowbirds and vacationers, then a bigger home on a golf course for instance (or near a destination like a ball field) will have a higher ROI. But this model is exclusively related to a weekly / monthly rental setting. That's the area of the market I have always liked so I can use it whenever I want. Of course that model has it's own set of trade-offs and it isn't for everyone.

Therefore it's no surprise that investors are looking at lower priced properties.

[khuntrevor]

I like Central Phoenix. 101 W Glenrosa Ave Phoenix AZ - Foreclosure for Sale - MLS #4629268 - Realtor.com®
This is about 200 yards from the Light Rail. Buy for 65K, rent it out for 875. In the long run, I think the Central Corridor will outperform all of the exurbs. They already have jobs, entertainment, and transit.

Like a lot of places, buying a newer home can be a real trap. People always underestimate commute times, and overestimate the quality of their neighbors. Just check the competition for rentals, as many others have thought of the same thing.

[MN-Born-n-Raised]

Originally Posted by khuntrevor

I like Central Phoenix. 101 W Glenrosa Ave Phoenix AZ - Foreclosure for Sale - MLS #4629268 - Realtor.com®

People always underestimate commute times, and overestimate the quality of their neighbors. Just check the competition for rentals, as many others have thought of the same thing.

Maybe it's just me but I personally would not live in that house for free. It's small and it's not exactly in a plush neighborhood.

Phoenix is full of retirees. I don't ever want a job again and there are hundreds of thousands of people in the Valley who don't ever want to commute to any job. There is a large subset of the population that wants to be away from others and strongly prefer newer homes. I'm one of them.

[Captain Bill]

This may be a great home for one who wants to invest in the inner city, but I wouldn't buy that home. It's priced at $94.45/sf and appears to be not in the best of areas. At $895 the rent would be $1.12 per square foot, but the initial investment is too high.

Without studying the market in that area I wouldn't know if the bank would accept $65k either.

The house is 60 years old, (brick is a positive) and just from the pics, needs carpet and paint, needs yard, has wires running all over the outside, probably needs electrical updates, and other repairs. The bars on the back window tell a story about the community. When I see bars on windows, it tells me the neighborhood is not safe.

Investors have different criteria, and different tolerance for risk. My model is to invest within a 30 minute drive from my home, in areas where I'm not afraid to drive in, and in homes that I would be willing to live in.

For the OP's benefit, would that home and area fit his criteria of decent neighborhoods with decent schools? I'm not familiar with that area so I don't know if it would be right for him.