Investment property in arizona

[calgarys_finest]

I will soon be in the market for an investment property and i am focusing in the arizona market. Has anyone on here done this? How was the experiance? What should i look out for? If you have had experiance or have some input i would love to hear it.

[BoostinAround]

Why focus on Arizona?
No leverage
More difficult to manage
If something goes wrong you are far away.

Unless you plan on buying more than 5 units down there and make a business out of it, the economies of scale don't make sense.

Why not focus and learn in a place where you can do something about it, like your own town?

I know it looks really attractive, but when it comes down to it, if this is only going to be like 1-3 units...you are much better off doing that locally.

[Feruk]

I'm looking into this kind of investment as well. Looking for 1-3 properties likely in Scottsdale. I haven't bought anything yet (due diligence in progress) so take the following with a grain of salt.

I think a fair way to judge an investment is to compare it to what I can get in the stock market. If the return beats a market average of ~8% long term, it's good. Otherwise why not just buy an index ETF? Buying anything in Calgary is not a winning proposition IMO. Too expensive, too risky. Scottsdale has prices around ~4 times cheaper but rents only ~30% cheaper. Arizona is one of the fastest growing real estate markets down south. The comment above about no leverage is false (albeit harder to get a loan) and obviously a management company would be required to run/maintain the property. The math works decently even with almost no annual appreciation if you rent the unit out.

I think simply Googling the idea is a good starting place. Lots of websites with a fair bit of info on the topic. If you wanna see what I've done so far, feel free to PM as I'm open to bouncing ideas around. Especially on something fairly more complex than buying a place in Calgary.

[thetransporter]

avoid realtors who gouge canadians - many times you dont have to put down 30 percent.

[whodiman]

Had you looked about 1-3 years ago you could have leveraged it as well. You still can but you have to put 50% down instead of before where it was 25-35%. Plus, the houses were about 30% cheaper on average (up to 50% if you were willing to work with short sales or bank foreclosures).

Ironically, Scottsdale is the least cashflowing area of Phoenix yet it still blows away Calgary. But that is because it reflects a more desirable area which means higher housing prices.

You will eventually need to apply for an ITIN. Every property manager there asks for it. However, the IRS has just made it slightly more complicated to get one. Up until recently, you could get a copy of your passport notarized and sent with your application. Now, you have to send your actual passport. Just something else to keep in mind.

The good thing about Scottsdale is that you don't have a lot of pockets of bad areas in it, unlike many of the other areas. I mention this because if your property is vacant for too long in many of the other areas, you run the risk of somebody destroying your AC unit for $50 of copper.

The cool thing about the USA is that many property management companies have realtors or are realtors. This means, you can ask the property manager their opinion about a property. They will be inclined to give you a more honest opinion than the realtor because they ultimately have to manage it. Every property manager prefers making problem-free easy rent rather than dealing with tough tenants or a tough to rent out property.

[BoostinAround]

Originally posted by Feruk
I'm looking into this kind of investment as well. Looking for 1-3 properties likely in Scottsdale. I haven't bought anything yet (due diligence in progress) so take the following with a grain of salt.

I think a fair way to judge an investment is to compare it to what I can get in the stock market. If the return beats a market average of ~8% long term, it's good. Otherwise why not just buy an index ETF? Buying anything in Calgary is not a winning proposition IMO. Too expensive, too risky. Scottsdale has prices around ~4 times cheaper but rents only ~30% cheaper. Arizona is one of the fastest growing real estate markets down south. The comment above about no leverage is false (albeit harder to get a loan) and obviously a management company would be required to run/maintain the property. The math works decently even with almost no annual appreciation if you rent the unit out.

I think simply Googling the idea is a good starting place. Lots of websites with a fair bit of info on the topic. If you wanna see what I've done so far, feel free to PM as I'm open to bouncing ideas around. Especially on something fairly more complex than buying a place in Calgary.

Yikes.....so much bad advice.....
8% is good? Lol maybe if you have no clue what you are doing.

EVEN IF you are able to get a50% LTV mortgage, it will be at a high rate 8-15% or even more. Average price for a home in Scottsdale is 100-200k so you are putting down 50-100k.

With that same 50-100k you can buy something worth 250-500k locally, And this is assuming you just go conventional and do 20% down.

why would you want to subject yourself to buying something where it is not easy to manage, there are more tax and legal consequences, harder to leverage, when you are in one of the best markets in Canada.

Now don't get me wrong, it is great to invest in the US....if and a HUGE if, you know what you are doing, and are going to buy more than a couple doors. If you arent going to buy at least 10 units, it's not really worth setting up all the corporations, getting tax and legal advice, and stressing about learning a totally different market that you are far from.

If the only reason you are buying in e US is because the properties are "cheap" you are going to be in for headaches, and you will see that with lower leverage, your money won't go as far as a Canadian as it would here.

If you want to start with rentals, buy a townhouse or condo locally and learn here, make the mistakes where you can fix them, and enjoy the cash flow, mortgage pay down, and ability to leverage.

[mr2mike]

You buy a place, think to rent it... it gets trashed because it's a cheap condo.
You're paying HOA fees, Condo fees, taxes, etc.
Is the market going to go up and exceed all that money you've dumped into it for the past 5-10yrs? Not likely. I did the quick math on a $150K condo in Phoenix. It won't. Move on.
Even for a vacation property... you're then tied to going there every chance you get. Sure if you love it there. But don't think you're going to get a better return than anywhere in Alberta or Sask right now.

[Feruk]

Originally posted by BoostinAround
Yikes.....so much bad advice.....
8% is good? Lol maybe if you have no clue what you are doing.


8-10% per year market return over the LONG term is stellar in the stock market. If you're looking at the last few years and thinking you're king shit, you're missing the point. Any idea what percentage of "professional" investors beat the market over a ten year period? TWO PERCENT. If you think you're better than that, there's about a 98% chance that you're wrong.


Originally posted by BoostinAround
EVEN IF you are able to get a50% LTV mortgage, it will be at a high rate 8-15% or even more. Average price for a home in Scottsdale is 100-200k so you are putting down 50-100k.

With that same 50-100k you can buy something worth 250-500k locally, And this is assuming you just go conventional and do 20% down.

why would you want to subject yourself to buying something where it is not easy to manage, there are more tax and legal consequences, harder to leverage, when you are in one of the best markets in Canada.

Now don't get me wrong, it is great to invest in the US....if and a HUGE if, you know what you are doing, and are going to buy more than a couple doors. If you arent going to buy at least 10 units, it's not really worth setting up all the corporations, getting tax and legal advice, and stressing about learning a totally different market that you are far from.

If the only reason you are buying in e US is because the properties are "cheap" you are going to be in for headaches, and you will see that with lower leverage, your money won't go as far as a Canadian as it would here.

If you want to start with rentals, buy a townhouse or condo locally and learn here, make the mistakes where you can fix them, and enjoy the cash flow, mortgage pay down, and ability to leverage.
I've seen no indication that a minimum 50% down is required or an interest rate up to 15%! However, I won't rule it out. Having said that, if you plug in Calgary numbers with 25% down, you get an IRR of somewhere in the 3% range. Phoenix return, even at only 2% appreciation, 50% down, and 100K, I get about a 10% IRR. Yeah I'll deal with the legal hassle and higher up front costs for the significantly higher return potential.

Your argument for leverage is flawed as well. Admitedly, the smaller the down payment, the better the return. But this is a double edged sword if it's on too big an amount. If you buy a 500K place in Calgary with 25% down, your payment is a barely manageable $1980/month (at 4%). There's a chance a renter might cover that. But that's with the foolish logic that interest rates will stay low. Say you go to remortgage in 5 years and they're back up to the point where you pay 7% ($2650/month). Good luck getting a renter to cover that. Down there, you lock in for 7-10 years and you're paid off.

[thetransporter]

from someone who has actually purchased US property:
i have purchased in AZ, NV (henderson), never had to put 30 percent down.

The part i didnt like was having to deal with Calgarians on the flight to Sky harbor.

just do some asking around..

[asp integra]

My dad bought a house in scottsdale 2 years back and loves it.
Its also very easy and quite inexpensive to get back and forth from Calgary, 3 hour flight direct.
I would say spend a week down there and check out as many places and areas as you can. When my dad first got down there he was looking in some of the other phoenix areas and didnt like any of them. Then when he got to scottsdale he fell in love with it and found a house pretty easily.

He bought at the best time, in the last 2 years his place has more than doubled in value!

[thetransporter]

im trying to pay the IRS for income made on resale of property , i dont have US tax id - and they are not helping . can anyone assist me in getting tax id that I can understand? (while staying on topic as this is needed)

[calgarys_finest]

Awesome advice guys thanks for all the replys. I was thinking arizona for a few reasons. First being that my grandparents winter down there and i usually end up there for 2 weeks every winter. I love the area and would love to live there someday. I have only heard good things about the area not just scottsdale from website that i have googled. I will keep looking around and will update if i find anything and how it goes.

[whodiman]

Originally posted by calgarys_finest
Awesome advice guys thanks for all the replys. I was thinking arizona for a few reasons. First being that my grandparents winter down there and i usually end up there for 2 weeks every winter. I love the area and would love to live there someday. I have only heard good things about the area not just scottsdale from website that i have googled. I will keep looking around and will update if i find anything and how it goes.

If you are open to other areas there are plenty of other options which cashflow way better. It's tough to tell which area will move the best right now but make sure you look at all of your options. ie) Tempe, Peoria, Glendale, North Phoenix, Chandler, Gilbert and even some of the further areas like Surprise and parts of Goodyear and Avondale.

[whodiman]

Originally posted by thetransporter
im trying to pay the IRS for income made on resale of property , i dont have US tax id - and they are not helping . can anyone assist me in getting tax id that I can understand? (while staying on topic as this is needed)

As mentioned previously, it's a bit harder to get now and definitely takes a months. US government workers are just as slow as Canadian ones but then you have US and Canadian postal workers involved too.

http://www.irs.gov/Individuals/Individual-Taxpayer-Identification-Number-%28ITIN%29

[thetransporter]

Originally posted by whodiman


As mentioned previously, it's a bit harder to get now and definitely takes a months. US government workers are just as slow as Canadian ones but then you have US and Canadian postal workers involved too.

http://www.irs.gov/Individuals/Individual-Taxpayer-Identification-Number-%28ITIN%29

i did that whole process - it was rejected - i call them and cant get a straight answer . even paid "know Us taxes for Canadians" lawyer

oh well......

[liquid1010]

Originally posted by BoostinAround

Yikes.....so much bad advice.....


I have no vested interest in this, other than to say this. If you're going to mock someone else's advice - at least make sure yours isn't completely out to lunch either!


Originally posted by BoostinAround

8% is good? Lol maybe if you have no clue what you are doing.


8% in the stock market isn't good? The TSX has had an annualized return of 7% over the past decade and 8.9% over the past 15 years. If you're able to achieve more than that.... than you're doing extremely well. Remember, that's also gross (prior to paying any fees).



Originally posted by BoostinAround

EVEN IF you are able to get a50% LTV mortgage, it will be at a high rate 8-15% or even more. Average price for a home in Scottsdale is 100-200k so you are putting down 50-100k.


I have no idea how you came up with these interest rates. Are you going to your local loan shark for a mortgage? You would never qualify for a 4-5% rate.... but you sure as heck would do better than 8-15%! Usually you can get second mortgages north of 11%.



Originally posted by BoostinAround

If you want to start with rentals, buy a townhouse or condo locally and learn here, make the mistakes where you can fix them, and enjoy the cash flow, mortgage pay down, and ability to leverage.


Well said.

[BoostinAround]

Well, I wasn't going to respond to this thread because I sort of felt it was a lost cause, but I should clarify a few things I said:

I said 8% is not good....I didn't say it wasn't good for the stock market, just as an investment in general. None of my investments are in the stock market and all of them are making double digit returns annually on cash flow alone, not including any appreciation, upside or other factors. However I took the time, and money to educate myself on how to make proper, excellent investments, and the returns have been phenomenal. As an uneducated investor maybe 8% seems good considering banks are offering 1.2-2% In a GIC. But with no control, shitty leverage, and no tax advantages.....it is a bad asset class, and the people making the most money are the banks and fund managers. Sure you have a small percentage of successful stock investors who make their living off of it, but we are talking the average person.

Those rates are based in a Canadian trying to get a US mortgage. If you can leverage a helps here , the rates are much better.

One of my business parters picked up 6 units in Vegas in late 2011, paid cash thinking he could re-finance and still no US mortgage company wants to re-finance, however there are a few equity lenders who will lend at a higher rate. Even with the higher rate, the lower purchase price will still allow them to cash flow.

I am not saying buying in the US is bad, I am saying an uneducated investor thinking that buying down ther because " the prices are cheap" is a recipe for disaster. Learn in your own backyard where you have control, leverage, tax advantages, and a network to solve problems that will inevitably come up with real estate.