The CCIM Institute’s magazine, “Commercial Investment Real Estate” reports the following:

“The strongest net effective rent gains in history may occur between 2011 and 2015 as 75 million echo boomers finally can afford to strike out on their own, says RREEF Research.  This pent-up demand along with a below-average supply, limited by financing constraints and fewer construction starts in 2010 and 2011, will boost rents quickly.”

The Phoenix market has depressed pricing for multifamily, especially the smaller properties that saw a huge speculative run up during the recent boom.

With the depressed pricing, high cap rates and the coming “pent up demand” maybe now and the next year or two will be a rare opportunity with a quick payoff.  It’s sure starting to look this way.

It’s a busy market out there.  All the good stuff seems to be disappearing : from good condos, homes, to small multifamily.

The supply of multifamily fourplexes is quickly dwindling sway.  Most of the good stuff is selling quickly as investors realize how good they have it now.

Except that properties will not wait for them.  There is plenty demand now that supply is removed within 2 months on average and good ones sell in a matter of a week or two.

There are 235 active fourplexes.

89 are Pending

83 Sold in the last 30 day.

Another 21 are Pending with instructions to leave Active.

This puts the supply of fourplexes in Greater Phoenix at 2.9 Months.

If you’re thinking or buying a duplex, triplex or fourplex in Greater Phoenix and you are out of state and you want to manage it long distance: stop now and forget about it, because your chances of success are very low.

It’s different with a single family home, but even this you need someone to run your business if you are not here.

A single family home investment is a business but a multifamily is more so.  With multifamily you get a better cash flow but in return you do more management.  You cannot give up the management to lower cost.  This is like trying to let your retail store run itself.

Many of the small multifamily properties out there being sold as REOs are that way because out of state buyers came in to buy the property, milk it and then push it off to the next buyer.  That seems to be the modus operandi of many investors, even ones that are local.

That is why you rarely see prime small multifamily properties: they have been neglected with deferred maintenance and a build up of issues from bad management.

There is no reason for this sort of behavior:  there is a market for buyers who want well run premium properties and for tenants who will pay a premium to live in a well cared for small multifamily property.  Not everyone wants to live in a rat maze.

If I sound a bid irritate, I’m: I am disappointed.  These properties, the tenants and neighborhoods deserve better.  These can be very lucrative and good properties to own and you can have prime tenants in them that will care and respect your property and your business.

It’s not going to happen if you are not here to run it.  it’s not going to happen if you pick a management company for their low price.  If you are not willing to run the business then hire really good people who will put in the effort to manage your business for you and pay them well.

The effort that it takes to turn around a mismanaged multifamily property is extraordinary: extraordinary in money, time, aggravation, but in reward, as well, if done right.

I have seen so many properties out there over the years that just make me sick.  I like multifamily, especially small multifamily because it can be an amazing path of financial stability and possibly financial freedom especially in this once in a lifetime opportunity market as we have now to buy properties in very good locations.

Rarely does a property come on the market that is a ready to run business.  Some of the well run properties will not be sold while the bad stuff seems to float on the open market.  This time savvy investor can truly pick up properties, put some effort and money into them and do really well: I mean really well:  I’m talking about positive after all expenses cash flows of $1,000.00 on a fourplex for $120,000.

Investing in real estate is a business and as with any business you would carefully do research on where you customers are and how to reach them.  It’s no different in real estate.

Certain parts of the valley tend to be better for investment then others.  No matter how inexpensive some property may be if there is no rental market it’s not a good investment period.  You can hope to leave that property vacant and maybe it will go up in price but that is not a sound investment strategy, though, many people did that.

So where are the renters?  They are where most people want to live: near jobs, good transportation, schools, shopping and some entertainment: these are popular places where homes don’t sit vacant, where they don’t deteriorate nor are decimated by un-use (home that just sit around, not used tend to deteriorate).

Where to invest?  This is a more difficult question.  Rental rates don’t increase proportionately to prices.  A 1,500sf home in Avaondale can lease for $1,000 and cost $125,000 but a $350,000 Central Phoenix will only lease for $1,800 on average.

There is more to consider, of course.  What are you going for, appreciation, cash flow or a combination.  What ever I say now is subject to change based on market conditions.

Homes in Avondale, parts of Goodyear, Litchefield Park, Surprise are well priced, still and the rental markets are fairly good.  These are areas where you can purchase income homes and rent then out for near a 1% per month return in gross rents: $100,000 leased for $1,000 per month is 1%.  That’s a good goal to have.

You won’t get this in Central Phoenix but it does not mean it’s not a good investment.  We’ll selected properties will provide a good return for many other reason then simple rent cash flow: these could be the reuse of land for better purposes, an increasing population or even a changing population.

If you buy a home for $50,000 in rural Phoenix, it can be large, newer and fairly nice.  There are places like Buckeye or Queen Creek or Arizona City where inexpensive homes are abound.  There is a reason they are this low in price.  They could be good purchases if you live there, but tread carefully if you’re investing for rentals in those areas

Investors in small multifamily properties, 2-4 units, have a window of opportunity now and for at lease another 6-12 months.  Prices are very attractive and there are many options where cash flow can be substantial.

What is difficult is financing.  You need that 20-25% down plus healthy reserves and very solid credit, plus not more then 3 other leveraged properties.

The larger properties 5+ units and especially mid sized and larger properties with commercial financing will have that window open up in the coming year as loans come due and are unlikely to be renewed.

At the same time it will be difficult to finance these properties, though cash buyers will be in a very good position to buy well positioned properties.

Some news purporting the strength of multifamily in the next phase of the cycle.

Housing experts predict that multi-family rental properties and apartments will recover fastest from the current downturn, followed by housing in cities that didn’t overbuild.

The market is likely to hit bottom in the next few months, says Bernard Markstein, senior economist and director of forecasting for the National Association of Home Builders.

“Next year will see slow but steady improvement, as home builders are controlling their inventory,” Markstein says.

Apartments and other multi-family residences will snap back quickly once businesses start hiring again, predicts Victor Calanog, director of research at Reis.

Baby boomers looking for retirement homes and first-time home buyers also will lead the way out of the decline, predicts Bill Singer, a securities attorney and trader who is a member of Forbes.com’s panel of financial gurus.

In Greater Phoenix we did overbuild but in certain sub-markets we did not. While there is plenty of hosing, land and lots with pipes sticking out of the ground ready to be built once the demand picks up, not everyone will be as eager to live on the outskirts: it will take a while if ever for people to get comfortable, en mass, with the idea again.

The central location, Scottsdale, Phoenix, Tempe don’t have much room to grow except infill plus the population is increasing naturally plus the draw of a reviving urban city. These will help sustain and grow the demand for multi-family housing in Phoenix.

While rents in many areas have decreased they are holding steady in the urban areas. Once the market picks up, higher prices will keep people from being able to buy a home or condo. Plus as the economy becomes more mobile and agile there is no need for a growing population to even own real estate. Owning is not fore everyone and this maybe a realization that finally takes hold: for many it’s better to rent and there is nothing wrong with that.

In the small multifamily unit market, 2-4 units, there are 559 active properties.  70% are lender owned or short sales.

In other words normal seller should simply stay out of the market because it will be a pure fluke if they get a buyer even if the property makes sense and there are some very good properties out there by normal sellers.  Many are in very good to excellent condition, well managed and with little deferred maintenance but they are not bank owned so they get very little attention.

If we look at the Pending properties, there are 133 right now, only 4 are normal sellers.  The rest are lender owned or short sales.  Prices range from $24,000 to $250.000 and hover in the area of $37,000 per unit.

$37,000 per unit sound very attractive but often these need a lot of work.  Not only cosmetic work but deferred maintenance plus they are vacant non income producing units.  These need to be factored into the analysis.

Since January 2009, 122 units.  Based on this there is, roughly -since we don’t have March sold number yet, a 14 month supply of residential multifamily properties.

The map below shows some selected multifamily properties of interest.  They are selected for being in better rental markets.  Some are turn key ready: meaning buy and run a good business.  Others need some of a lot of work but the price reflects it.  I did not include any that are in risky areas that have higher then normal turn over.  Each property, though, needs to be investigated individually.  If you do have any questions about these properties please call me, Artur at 602.628.4349.

The tenant pool is increasing for the smaller apartment building properties.  These buildings tend to be a bit older with less amenities and command a lower rent.  With a lower incomes and some uncertainty vacancy rates for well marketed small multifamily properties are lower then larger complexes with offer lots of amenities but higher rent.

Priced for small multifamily properties are very attractive resulting in good returns, especially when partnered with good financing, these can make very good cash flow positive income properties that can be held for a long time.

Financing is a bit more difficult to obtain, usually 25%.  Some buyers decide to purchase a fourplex as an owner occupied property- for that purpose.  Loans for owner occupied multifamily properties can be purchased for as little as 3.5% down with an FHA loan and they will still cash flow.

Artur Ciesielski, CCIM 602.628.4349 

The property search here at Arizona Apartment Investor is a very popular destination: it has always included the ability to create automated updates of the searches you create. 

In essence you can select a city and property type like multifamily and you’ll get updates one a day or once a week of new properties that show up on the market or any price changes. 

We put together a quick guide of how to set up these auto updates: the benefits of doing so: and a short video of how to do it.

See how to set  up automated Phoenix property updates.

NOTE: You’ll be taken to the search at Phoenix Market Trends.  Simply select multi-family as a property type and you have a go.

It’s very quick and easy to set the searches up and you’ll love the updates: you’re in compete control of them as well: take notes, save favorites and get full details.