Question Details

David Gilmore, Home Buyer in New York, NY

What's the best short-term place to buy in Phoenix area?

Asked by David Gilmore, New York, NY Thu May 22, 2008

Interested in relocating to Phoenix area from NY. Want to buy two houses - one for myself and one to rent. Two questions: 1)what is the best area to invest in, with the desire to sell in approx. two to three years? 2) Is it difficult to find tenants in the Phoenix area? Also, looking to spend between $200k - $250k for each house.

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I've owned property in The Valley for 12 years (both owner-occ and investment). Heed Christoph's advice. While the outer suburbs appear attractive based on price and the price to rent ratio, the areas he specified are in demand from tenants and owners.

Your time frame is awfully optimistic; it may take 5-7 years to realize a profit from a leveraged Phx real estate investment equal to a 3 year T-bill
3 votes Thank Flag Link Thu May 22, 2008
Hello David,

Let me try and answer your two questions:

With the current market conditions in mind, the most important consideration when buying investment property is location. Yes there is the cliché’ saying “Location, Location, Location” but if your hold period is only between two to three years then it is utmost important making a careful choice about the geographic location of your investment properties to minimize the risk of potential depreciation. The Phoenix Metropolitan Area is a very large geographic are and the newly master planned communities in the outskirts have been hit the hardest.

If I was to buy a single-family investment property then I would probably stick to the matured areas. A good example would be in and around Old Town Scottsdale, Tempe near the ASU campus, Down Town Phoenix and along the new Light Rail corridor.

As a general rule of thumb, right now you probably would be hard pressed to break-even cash flow with 20% down payment on single-family properties. With your intention of holding your rental for such a short term my advice would be to carefully consider all your options. I don’t have a crystal ball, however I have a feeling that the market has not quite bottomed out yet and once we made it through the valley we will probably return to normal appreciation rates. Yes we are in a down market, and nobody can perfectly time the bottom, but my best guess is that investing in rental properties requires a longer hold-strategy than two to three years.

Finding tenants is not the problem, finding good tenants, that generally in where the bigger challenge lays. The fact that population growth still going strong here and the more stringent down payment requirements for mortgages loans is putting generally a more positive outlook on the rental market.

Investment considerations are very important when buying a house to live in. However when buying a primary residence you should put your individual housing needs before the investment strategy or speculation. If the values remain flat, or are a little worse by the time you are selling then you should have at least enjoyed living in your home.

Feel free to check the market conditions of the Phoenix Are on my blog. The Altos research charts are broken down to most of the ZIP codes in the Phoenix area and may give you closer look on the local market conditions.

Hope my two cents will help along in planning your next move.

All the best and Good Luck!
3 votes Thank Flag Link Thu May 22, 2008
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