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In summary, whatever happens in the PHX RE market will now depend on the investor. If they stop buying, inventory will swell. If they gobble up the "deals" with a small price drop, well the "crash" will be a nothing burger. But if they quickly bail, IMO, all Hell will break loose.
Inventory began to swell last June. And the investors stepped in and mopped it up further driving another massive surge in pricing. In short, cheap money plus investors == the PHX overheated market.
I'm not selling. But if I only cared about ROI, I would have bailed it a few months ago. I had that same decision back in 2006 here in MN. No way was I going to go rent for x amount of years and uproot our teenage kids. That cost me $300K. I remember telling my wife that I wish I had the courage to do so. And not selling was going to cost us a bundle. I have that same feeling as we speak. But I positively LOVE our new neighborhood. I just cannot sell. Life isn't only about money. So I am staying put.
Good take. I'm not selling either even if it costs money. If I'm correct on my IR reading I expect lower rates into spring 2024. That will prolong investor interest because TINA. After that it will tank.
I thought about selling one or two of my Mesa properties but the rental income is too good. I've always said if my Mesa properties reached the 400k mark I would sell. Both have passed the 430k mark.
However, just as surprising if not more so are Mesa rents have now (slightly) passed 2k per month
I look at both Zillow and Redfin for a guesstimate on property values.
I thought about selling one or two of my Mesa properties but the rental income is too good. I've always said if my Mesa properties reached the 400k mark I would sell. Both have passed the 430k mark. However, just as surprising if not more so are Mesa rents have now (slightly) passed 2k per month
I look at both Zillow and Redfin for a guesstimate on property values.
Of course, there are risks ^. There are 50 active BTR (Build to Rent) communities. Another 160 are in various planning stages. Read all about them here https://roiproperties.com/a-closer-l...om-in-phoenix/ Also, many (many) more rental properties are coming on board too.
I admit to a fault, I am often way too fiscally conservative. But a $75K drop in home value (yea, I pulled that one out of my butt) is a whole lot of rental income. As in, measured in years. Even more after overhead. I would be cashing out of at least one. If it was me I'd be selling two of them. Pigs get fat, hogs get slaughtered.
Math-wise, if my home drops by $200K (that's very possible considering it went up to $500K in a couple of years) that would buy me a TON of $5K per month winter rentals in my neighborhood.
Of course, there are risks ^. There are 50 active BTR (Build to Rent) communities. Another 160 are in various planning stages. Read all about them here https://roiproperties.com/a-closer-l...om-in-phoenix/ Also, many (many) more rental properties are coming on board too.
I admit to a fault, I am often way too fiscally conservative. But a $75K drop in home value (yea, I pulled that one out of my butt) is a whole lot of rental income. As in, measured in years. Even more after overhead. I would be cashing out of at least one. If it was me I'd be selling two of them. Pigs get fat, hogs get slaughtered.
Math-wise, if my home drops by $200K (that's very possible considering it went up to $500K in a couple of years) that would buy me a TON of $5K per month winter rentals in my neighborhood.
If you're young enough, selling off a great money making asset that gives you tens of thousands in positive cash flow annually may not be a good idea. If you'd be planning on selling that asset in the next 5 years, sure maybe sell it. If your horizon is more like 15 years then things change. And keep in mind I've been predicting a housing market pullback even before you, I see a correction not a crash. I look at the possibility of a declining market not as a selling opportunity, but as a buying opportunity after it comes to fruition. In 10 years my strategy is likely to be different.
Of course, there are risks ^. There are 50 active BTR (Build to Rent) communities. Another 160 are in various planning stages. Read all about them here https://roiproperties.com/a-closer-l...om-in-phoenix/ Also, many (many) more rental properties are coming on board too.
I admit to a fault, I am often way too fiscally conservative. But a $75K drop in home value (yea, I pulled that one out of my butt) is a whole lot of rental income. As in, measured in years. Even more after overhead. I would be cashing out of at least one. If it was me I'd be selling two of them. Pigs get fat, hogs get slaughtered.
Math-wise, if my home drops by $200K (that's very possible considering it went up to $500K in a couple of years) that would buy me a TON of $5K per month winter rentals in my neighborhood.
I wouldn't say a 75k drop is unrealistic for my Mesa properties. I'm not worried about my Chandler or Gilbert homes. They would be the first areas to bounce back given their desirable location. But Mesa is often seen as the ugly stepchild within the Phx metro and would take longer to rebound. Nevertheless, I feel the overall future of the Phoenix metro including Mesa is positive.
I believe the middle class exodus from wealthier states like Cal will continue and the Phx metro will be one of their prime destinations. We're a purple state with a live and let live attitude. Tempe/Phoenix are liberal and happening spots for young professionals. And Joe Arpaio? He's a distant memory assuming anyone moving here knows who is (or was...) Then we've got our share of illegals. Right or wrong many will continue settle in the Phx metro given the area is conducive to those who only speak Spanish and looking for work.
Now, it's often been said by older timers and those in the know there aren't too many boom/bust RE markets in the United States quite like the Phx metro.
Guess we're going to find out how true that is soon enough.
I wouldn't say a 75k drop is unrealistic for my Mesa properties. I'm not worried about my Chandler or Gilbert homes. They would be the first areas to bounce back given their desirable location. But Mesa is often seen as the ugly stepchild within the Phx metro and would take longer to rebound. Nevertheless, I feel the overall future of the Phoenix metro including Mesa is positive.
I believe the middle class exodus from wealthier states like Cal will continue and the Phx metro will be one of their prime destinations. We're a purple state with a live and let live attitude. Tempe/Phoenix are liberal and happening spots for young professionals. And Joe Arpaio? He's a distant memory assuming anyone moving here knows who is (or was...) Then we've got our share of illegals. Right or wrong many will continue settle in the Phx metro given the area is conducive to those who only speak Spanish and looking for work.
Now, it's often been said by older timers and those in the know there aren't too many boom/bust RE markets in the United States quite like the Phx metro.
Guess we're going to find out how true that is soon enough.
Looking back my best gains came from sitting cycles out. Admittedly, that's in the stock market. But even more so in RE- you have a lot of friction, aggravation and costs with buying and selling. I would set this cycle out. I don't expect anything like the 2005-10 decline. You have ~5% costs between buy and sell (spread, realtor, document fees etc.) and you have to time it well. That's too much stress for me. All the while you have more or less guaranteed income coming in... the choice is clear for me. I buy the right stuff once and then hold on.
Looking back my best gains came from sitting cycles out. Admittedly, that's in the stock market. But even more so in RE- you have a lot of friction, aggravation and costs with buying and selling. I would set this cycle out. I don't expect anything like the 2005-10 decline. You have ~5% costs between buy and sell (spread, realtor, document fees etc.) and you have to time it well. That's too much stress for me. All the while you have more or less guaranteed income coming in... the choice is clear for me. I buy the right stuff once and then hold on.
That's normally a fair assessment. But when an investment is a SFH, that changes how I would calculate the math. IMO, buying PHX area SFH's in hindsight was brilliant because of the massive appreciation. And that happened because the moon phases lined up resulting in huge gains. The same reason my gains are up owning a 2nd home. Not because I could have timed it or knew it was going to happen because no one did! Multi-dwellings have typically been the model of choice in the rental market for a reason. We can all heavily thank irrational investment funds for literally piling on. But what if they jump off the pile? My point again, there are risks.
If you can maintain and improve your own properties (so that they don't depreciate), that's a big bonus. Because SFH's are in a constant state of depreciation (roof, air, flooring, layout, paint, appliances, etc) and the big gains for SFH's are only appreciation/rising prices.
Also as I pointed out, then rents are sky-high (and they are), the market will answer with more rentals. It's coming. I have NO idea if rental rates are going to go down or not. We shall see. If the economy melts down, will people be able to pay their high rents? I am not saying that's going to happen, I am saying there are all kinds of pending pressures going on around us.
So in my overly conservative view is that I would personally take part of my winnings off the table. What would be the upside and downside of doing such a thing? I'm not saying sell everything. I would (an analogy) sell a couple of "stocks". No one saw massive supply chain problems hanging on for years. Or the Russian invasion or, or, or? There are a lot of worried people out there. We probably are going to be just fine. But for me, I'd make some money off the table.
As ASU mentioned, if you have the time, maybe so. And he was in the construction industry. I'm sure he will be fine. But John lost his shorts once in PHX RE. And I'm extrapolating he is in his 60's. I know what I would be doing! Cash flow is the number 1 reason that takes a business down. Having your net worth in PHX rentals at age 6x would mean to me, sell a couple and make sure nothing can take you down for the count. It's why I posted what I posted. There are risks. So many, no one has a clue how little or how much we could climb into a hole. I've done my very best to protect my standard of living. Again, maybe to a fault.
That's normally a fair assessment. But when an investment is a SFH, that changes how I would calculate the math. IMO, buying PHX area SFH's in hindsight was brilliant because of the massive appreciation. And that happened because the moon phases lined up resulting in huge gains. The same reason my gains are up owning a 2nd home. Not because I could have timed it or knew it was going to happen because no one did! Multi-dwellings have typically been the model of choice in the rental market for a reason. We can all heavily thank irrational investment funds for literally piling on. But what if they jump off the pile? My point again, there are risks.
If you can maintain and improve your own properties (so that they don't depreciate), that's a big bonus. Because SFH's are in a constant state of depreciation (roof, air, flooring, layout, paint, appliances, etc) and the big gains for SFH's are only appreciation/rising prices.
Also as I pointed out, then rents are sky-high (and they are), the market will answer with more rentals. It's coming. I have NO idea if rental rates are going to go down or not. We shall see. If the economy melts down, will people be able to pay their high rents? I am not saying that's going to happen, I am saying there are all kinds of pending pressures going on around us.
So in my overly conservative view is that I would personally take part of my winnings off the table. What would be the upside and downside of doing such a thing? I'm not saying sell everything. I would (an analogy) sell a couple of "stocks". No one saw massive supply chain problems hanging on for years. Or the Russian invasion or, or, or? There are a lot of worried people out there. We probably are going to be just fine. But for me, I'd make some money off the table.
As ASU mentioned, if you have the time, maybe so. And he was in the construction industry. I'm sure he will be fine. But John lost his shorts once in PHX RE. And I'm extrapolating he is in his 60's. I know what I would be doing! Cash flow is the number 1 reason that takes a business down. Having your net worth in PHX rentals at age 6x would mean to me, sell a couple and make sure nothing can take you down for the count. It's why I posted what I posted. There are risks. So many, no one has a clue how little or how much we could climb into a hole. I've done my very best to protect my standard of living. Again, maybe to a fault.
Good point. It took me ten years to recoup from the last crash.
But I have enough in the bank to ride out the coming storm.
Another thing MN isn't taking into account in his calculations is loan amortization if the property is leveraged. He's merely counting the positive cash flow from rents minus expenses and comparing that to the increasing or decreasing home values. If the positive cash flow is $1,200 and the loan balance decreases by an average $800/mo over the next year, that's $24,000 for that year compared to whatever the house may depreciate, rather than merely $14,400 in annual cash flow. The decision suddenly doesn't become so clear, especially when you have a longer horizon.
Also as I pointed out, then rents are sky-high (and they are), the market will answer with more rentals. It's coming. I have NO idea if rental rates are going to go down or not. We shall see. If the economy melts down, will people be able to pay their high rents? I am not saying that's going to happen, I am saying there are all kinds of pending pressures going on around us.
Good points. I'm not making any predictions, but certainly rents can drop, and more than just a little bit. I experienced this the hard way as a landlord. And of course all the entities that expect to be paid (HOA, county tax assessor, mortgage company, insurance company, people who come to do repairs) do not care one bit that rents have fallen.
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But when an investment is a SFH, that changes how I would calculate the math. IMO, buying PHX area SFH's in hindsight was brilliant because of the massive appreciation. And that happened because the moon phases lined up resulting in huge gains. The same reason my gains are up owning a 2nd home. Not because I could have timed it or knew it was going to happen because no one did! Multi-dwellings have typically been the model of choice in the rental market for a reason. We can all heavily thank irrational investment funds for literally piling on. But what if they jump off the pile? My point again, there are risks.
