Thread: For Canadians Investing In Phoenix, AZ

wow, this is a very good thread. Thanks for sharing your experience and lessons learned.

I know you have mentioned buying condos. Just out of curiosity, how are you selecting the areas? If you don't mind sharing, what areas fall within your rules, and how did you go screening them?

I've had experience dealing with rentals while leaving hundreds or thousands of miles away from the properties. I know from this experience that your property manager becomes your life line in regards to your investments. How are you selecting your PMs? How are you managing them? Are you going with a single company/guy, or one different for each couple of properties?

Thanks in advance for the info you provide.

And don't forget to allocate for FIRPTA (Foreign Investment Real Property Tax Act) on the back end when you decide to sell.

Originally Posted by andviv

I know you have mentioned buying condos. Just out of curiosity, how are you selecting the areas? If you don't mind sharing, what areas fall within your rules, and how did you go screening them?

Good question! I went to the City of Phoenix web site and avoided areas that had property or violent crime.

Originally Posted by andviv

I've had experience dealing with rentals while leaving hundreds or thousands of miles away from the properties. I know from this experience that your property manager becomes your life line in regards to your investments. How are you selecting your PMs? How are you managing them? Are you going with a single company/guy, or one different for each couple of properties?

I screened a few companies. I use CR Property Services. I was assigned a property manager. Amy. If she has a question she calls me. If I have a problem, I call her. I like the fact that they send out monthly statements that itemize everything. That's pretty much it!

I hope this helps!

Best regards.

What areas of Phoenix are you purchasing your condos in?

I bought in Phoenix proper and Tolleson.

My last purchase closed in Nov 2011. It has become increasingly difficult to find rental property that makes sense as prices have rebounded strongly in the last few months.

Have you bought mostly condos or multiplexes?

Condos and SFH. I'm looking at multi-family, but haven't picked one up... yet.

I was looking at fourplexes in AZ recently (via websites) and it seems I'd clear $1k per week with zero down on a $140k mortgage at 100% occupancy. It's apparently a difficult entry point for an Australian to purchase in the States, but I'm investigating options...

Ive been looking also. What sites do you guys use? ive tried zillow but there are too many details missing for multi family.

Any financing options for canadians?

I work with an agent. I have access to the MLS so I see a new listing hit the market almost instantly.

Re: financing, I don't know. I'm buying with cash.

Originally Posted by Rickson9

It has become increasingly difficult to find rental property that makes sense as prices have rebounded strongly in the last few months.

Rise in Phoenix Housing Shows Path for Other Cities - WSJ.com

Prices on my properties jumped approximately 25% in the last 3-4 months. I am looking more aggressively at multi-unit now as the herd hasn't focused there yet.

Hey Rickson9,

What do you mean by "aggressively looking at multi-unit"? Me and another guy on the forum are buying multi-families here in Phoenix and are running into a lot of Canadian investors bidding against us. You have to be very careful when buying here, as there are nuances some foreign investors aren't taking into account (like swamp coolers, zoning challenges, and mater metered properties). We have seen some of our bids lost specifically to Candadian investors paying much more than some of the RE is currently worth.

You'll want to be careful not to get bit.

Thanks for the tips! Could you help me understand some of the zoning challenges? Also, what is a mater metered property? Thanks for any help!

I'm in bidding wars now. Phoenix is quickly becoming unattractive for me. Suggestions of another RE depressed state appreciated.

*Master Metered - my bad on the typo. Basically a lot of old properties in the phoenix area (and Scottsdale) can be on master meter, meaning one bill for the utilities. This can get VERY pricey for stuff like electricity especially during the Summer. You can include it in your rent, but you are not allowed to turn it off if the tenant doesnt pay rent. Complicates things and reduces the value of the property. We dont even touch master metered properties.

Zoning challenges - a lot of old properties were built or improved on before zoning came into play. This can lead to illegal units that have been grandfathered in. You run into issues if you ever decide to make serious improvements to those properties. Make sure whatever you buy meets zoning standards, or build the costs of permitting them into your bid.

As a foreigner here are a couple more sites that I use:

City Data

Brainyzip

Hi, I'm another foreigner interested in investing in the Phoenix area.

I'd like to know how you guys cope with the risk of renters that leave.

Rickson works with an agent. Does this agent also take care of attracting new renters? Or is this handled by another agent?

And did you inspect your properties on site before purchasing them?

Originally Posted by Amschel

Hi, I'm another foreigner interested in investing in the Phoenix area.

I'd like to know how you guys cope with the risk of renters that leave.

My property manager cleans up the unit and finds a new tenant.

Originally Posted by Amschel

Rickson works with an agent. Does this agent also take care of attracting new renters? Or is this handled by another agent?

As I mentioned above, I use CR Property Services; a property management company.

Originally Posted by Amschel

And did you inspect your properties on site before purchasing them?

I went to Phoenix, AZ a little over 2 years ago (winter of 2009/2010) before I started buying. I haven't been back since.

As an update, although I continue to scour the MLS for opportunity, the pickings are slim at the moment. Over the last 2 years I have never seen a feeding frenzy like this. I'm sure before the housing meltdown it was pretty frenetic, but for different reasons. Prices have come down hard since then.

I found a new listing one night around midnight my time (9pm Phoenix time) and I forwarded it to my agent. It was in Gilbert. Almost nothing reasonable comes up in Gilbert because, in general, Gilbert is a decent area and prices are higher to reflect this; and higher prices makes me less interested because it crushes rental yields and makes the property worthless form an investment standpoint.

I immediately told my agent to write up the offer for full price; cash. In the past, this would have won me the property easily. While I was signing the paperwork, my agent contacted me and told me that he contacted the Selling agent who informed him that 4 offers have already been submitted. Keep in mind that this was 9pm on the same day that the listing hit the MLS.

We rushed to get our offer in. The Selling agent said that she would be presenting all offers the next day at 5pm. She was a bit late, but nonetheless, she said there were over 10 offers on the table. My agent forwarded me her response:

"Ron,
Thank you for your offer for the property located at xxx in Gilbert.
Respectfully, the seller has accepted another offer.
Thank you for your time, consideration and professionalism.
I hope to work with you in the near future.
Best Regards,
Melissa Carpenter"

I don't do well in a bidding atmosphere and will likely not be able to purchase anything until this frenzy dies down. Foreigners are coming in with full cash offers far above what I'm willing to pay to make the property a decent investment. So, it's probably on to the "next thing" for me.

What is the "next thing"? Well I looked at multi-unit properties. I think a couple nights ago I looked at a couple hundred listings until 4am. I forwarded the 2 possible candidates (and 3 long shots) to my agent. You read that correctly - I found 2 possible candidates after looking at least a couple hundred listings. Investing is no joke. It requires a lot of time. But that ok that goes with the territory. My agent correctly mentioned some issues and I still needed to drop the prices on the 2 candidates to make my numbers work.

I spoke at length about this issue and my agent is having a rough time selling homes as well. Imagine trying to get your client's offer in front of a seller only to find out that, within a 12 hour period, you're competing with 10 others. The chances that my agent will close (and get paid) will be small. I asked him how he's managing this. Here is our conversation (keep in mind that I have been working with Ron for a little over 2 years now and he's found me some solid deals):

[continued after Seller's agent's response above]

Ron: "blahh..."

Me: "Wow 10 offers..."

Ron: "Welcome to my world."

Me: "You need to find a listing and get us first in line! lol"

Ron: "I have a listing - my rehab flip in Scottsdale. But it's priced at $400,000. Interested? lol"

Me: "Throw me some info. I'll shop it around. Can't hurt"

Ron: "I'll shoot you over the MLS for it. We're also remodeling another one right now on an acre lot in Scottsdale backing Orangetree golf course. Again, complete remodel. We will be listing that one for $475,000. Right on Shea blvd in the center of it all. great location. close to everything. Will be done in around 2 weeks."

Me: "Nice! I didn't know you were so handy lol"

Ron: "lol. I'm overseeing the operation in partnership with an investor I'm working with. Not doing it myself, thank God. I have access to excellent contractors and tradepeople having been in real estate development prior to the downturn."

Me: "How much would an investor need to front to flip one of these and what is the likely % return?"

Ron: "House like this, about $310,000 cash to purchase and remodel - that is if 100% cash is used. I have a line/source of hard money financing I intend to use in certain situations with my investor once we sell these 2 and prove up the returns that allows you to finance 80% of the purchase cost.

"At 100% cash investment to buy everything, the return is about 10-15% over a 4 month period for something this extensive or 30-45% annualized return.

"It is a bit risky in the purchasing because of how the properties are bought and now the inventory on even these deals is going way down so they are harder to find.

"If you'd interested in something like this or know anyone else who would be, let me know. My goal is to have 2-3 investor groups and be doing 1-2 of these size remodels per month while we can. My current investor has easily $1 - $2 million to throw at me for this once we complete the first 2 so I'm looking for up to a couple more smaller investors or one similar sized guy to fill my stable.

"As you can tell, it is almost impossible for me to make money selling investment homes anymore for a couple of simple reasons. This is much more profitable for fun for me.

"I actually wrote a blog about purchasing at foreclosure auction towards the end of last year and it explains the risks and rewards and why I don't recommend it for long-distance investors. You really have to be here with your nose on the ground to make it work, and it's STILL riskier than your simple investment property purchase - that's why the returns are much higher. The risk is in the condition of the property which is why you really have to buy them right and/or know the local market and what they'd be worth reconditioned.

"Once I have these first couple done, I will be posting a brief proforma about how they work on my developer website. Until then, I just go over it one-on-one with anyone interested."

Me: "Let me mull it over. This would be a departure from my normal buy-and-forget investing style so I would probably start quite small and likely be on the ground in Phoenix - even if it means eating up most of any potential profit."

"Perhaps losing out to a couple more 10 offer bidding wars will convince me...

"I need to find a new state..."

Ron: "hehehe...totally understand. It is a completely different type of investing for sure. Most important thing is you have someone on the ground that knows what they're doing and can run business efficiently.

"You also have to trust that person explicitly which is not an easy for most people to do. My other investor basically handed me a blank check for $700,000 for these 2 properties and told me to go have some fun. Of course, I've worked with this particular person both directly and indirectly for well over 12 years so he knows what I'm about and trusts me to act in his best interest. I also sold him an apartment building which I oversee on his behalf in Phoenix with plans to destroy it in a couple of years for a planned new condo development when the market turns.

"If you decide that you're interested, I ca send you the proforma of our Cactus home and explanation of how the investment would work.

"With the market on the rise, there really is no downside risk if we pick the properties properly - the risk is in the level of return we an achieve and now, in finding them since there are more players in the game and less properties."

Me: "Where's the sweet spot dollar-wise that has both a return on my money and where my money will actually be returned?"

Ron: "What I've found is that there are too many bidders at the lower price point because (a) it is less money to invest, (b) you are not only competing with rehabers, but also end users that are buying the properties to fix up and rent out and keep so the competition is much more fierce. When I am looking for a property, I was bidding on an average of 3-5 per DAY. That's how tough it is to get one. The sweet spot that I found was $150k-$250k requiring more extensive rehab because it not only requires more money, but also requires more expertise and market knowledge which drops many bidders out of the game.

"Min we'd probably be looking at is $200k-$250k and that's if I keep my target acquisition price below $150k to accommodate the possible repair and rehab expense.

"Of course, I'd keep trying on the smaller ones, but the likelihood of snagging one of those is almost nil so I have to be realistic."

Me: "Ok. Around a quarter mil. I'm interested in a proof of concept. Can you ask your other investor if I can speak with him. I would like to propose going in for 50% @ $250k with him for $500k total. In this case we both limit our risk capital and we both get the same return."

Ron: "I will see about getting you to speak to my investor/partner."

Me: "Thanks. Appreciate it."

The following is a link to the MLS listing of the Scottsdale home that he mentions in our dialog that he purchased and rehabed.

Scottsdale

I'm not sure if I'm going to do this or not. Ron has sent over more information and I'm reading it over. And thinking. I may find myself in Phoenix a lot more in the near future. Time will tell.