For sale is this very well cared for income property in North Central Phoenix.  It has a total of 4 units, each with 2 huge bedrooms, 2 full bathrooms and laundry facilities in each unit.  It’s a turn key operation with little in deferred maintenance and ready to go: fully rented.

Location

The Phoenix fourplex is located in North Central Phoenix and specifically the eastern end of Sunnyslope near the Phoenix Mountains.  Close to major travel routs, a bus line and near the I-51 freeway.   Residents have quick access to lots of shopping, a hospital, some of the better schools in the valley, hiking and plenty of employers.

Features

Each unit has 2 large bedrooms and 2 full bathrooms (by full I mean with with a tub)

There are 3 walk in closest.

Mostly hard surface flooring, that means durability and cleanliness and foremost low turn over cost.

Newer roof installed in late 2009.

Plenty of parking: both off street (6-7 spaces) and on street (3-4 cars).

Numbers

Price: $170,000

Income:

Rent: $2,200 per month.  Market is $2,400

Expenses:

Water:  $220.00 per month

Trash: $80.00 per month

Taxes: $2,411.00 annual

Maintenance: $1,200 annual

Insurance: $740 annual

Get in touch.

Call Artur at 602.628.4349

artur@inphoenix.com

Over the last year there have been quite a few changes in the small multifamily market.  It’s also interesting that the bottom, seemingly, per unit was hit around the same time as the single family home market: April/May 2009.

While the average price per unit gone up much, it does look as if the price is fairly steady and maybe trending up, up ever so slowly and that’s good for now.

The average price is now around $24,000 per unit and it’s been hovering from $22,000 to $27,000 over the past 6 months.

What’s really changed are the total number of units being sold.  The small multifamily market also follows the seasonal trends of single family homes, that’s why you see the summer high.  Look at the number of units sold for the same period in 2010 to 2009 an notice the very huge difference.

An now with 96 pending properties and 87 in AWC mode the forecast for sales looks very strong in deed and we may even get an up tick in the average price per unit with such a low inventory of active properties compared to the demand.  As of May 12th there were 272 3-4 unit properties active with 62 of those short sales and 31 lender owned.

All the good stuff is going fairly fast and much of what’s for sale is the same stuff that was on the market half a year ago and even a year ago, so not really part of the game.

With the current sales pace there is only a 4.5 month supply of properties and if you remove the over-priced stuff it’s more like 3-3.5 months of supply pegging it squarely in the sellers market.  A seller’s market indeed, but as you know investors are fairly savvy and in this market every one is looking for a deal so sellers can’t really push up the price.

In order to get the better properties, investors are advised to have cash if possible and act quickly.  Don’t expect much more inventory, distressed inventory that is, to show up on the market anytime soon.  We’ll have a steady trickle but no major floods.

If you would like to discuss this in more detail please call me, Artur at 602.628.4349

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.

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

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.

Here is an example of what can be purchased now.  This is an actual purchase of a 4 plex in Phoenix.  Since the example below is an REO property it’s all vacant – though not all REO’s are vacant, expect it.  There are additional costs for a vacant property.  We don’t  take them into account below but you could add $8,000 to your cash flow lost due 3 months of all vacant units in the first year, though it does not have to be that way.

$160,000 purchase price REO or Short Sale

$5,000 in closing costs.

$8,000 in post closing repairs and preparation for leasing.

_______________

$173,000 purchase cost.

$32,000 loan  20% of $160,000

$45,000 out of pocket cost including initial investment and expenses.

$2,650  potential monthly income.

($265)  vacancy

($530)  operating expenses: taxes, insurance, water, maintenance.

($240)  management: 8%

_______________

$1,615  NOI  Net Operating Income   or $19,380 annual NOI

($764.00) Debt: $128,000 @6% fully amortized over 30 years.  $7,004 PI annual.

_______________

$10,212 Annual Cash Flow.

12.11 Cap Rate

22% Cash on Cash: This is a return on the $45,000 total out of pocket.

First Year Principal Reduction $2,200

That’s pretty good.  There are a lot of properties for sale but not too many are good and provide such compelling numbers. 

Artur Ciesielski, CCIM 602.628.4349  (also an investor and owner of multifamily properties since 1999)

The small multifamily income market in Maricopa County, sale have been on the rise over the last few months.  In October 27 such properties sold.  That is a small increase over 21 last month but a large increase over the low of 9 in February 2008.

Total inventory -tough still very high- is down as are the new listing to the market.  Total supply is at 23 months. 

Sales are up mainly because prices have come down to a point where many properties make sense as investments in this type of market:  there is little chance of appreciation for at lease several years so investors must get their return through cash flow and the only way to improve cash flow in a stagnant rental market is to decrease the price and this is precisely what has been happening.  Not only are normal buyers decreasing the price but the large number of REO or foreclosed properties are very low in price, though some lenders are keeping prices unreasonably high.  I suspect will see this trend continue for a while. 

The value of separate meters on a property cannot be underestimated.  Most multifamily properties have one meter for water and maybe separate meters for electricity: in small multifamily properties is normal to have individual electric meters but it’s uncommon to have the same with water: that’s probably why its often missed.

Below we’ll compare two similar properties: one with separate water meters and one with a master water meter and the affects on income and the property value using a cap rate for evaluation.  This is just a simple evaluation to make a point. 

The properties are very similar: the rents collected from the tenants are the within 5 dollars of each other on average so we’ll just use the same rents for the sake of being clear.  Also, since other expenses vary like taxes, insurance, maintenance and landscaping we’ll reduce the analysis to the water, sewer and trash expenses since the other expenses have no bearing on our topic.

Property One:  4 plex with total rental income of $2,808.00 per month.  The units have washers and dryers in each unit and one master water meter.

	Monthly	Annually
Potential Income	$2,808	$33,696
Water/Sewer	$245	$2,940
Trash	$60	$720
Total W/S/T expense	$305	$3,660

Property Two: fourplex with total rental income of $2,808.00 per month.  Similar to the property above the units have a washer and dryer.  In this case the builder put in individual water meters for each units.  There is an additional expense to do this when the property was built: in fact its quite a substantial expense but its of great value to the former and current owners.

what does that mean to the bottom line in the pocket money?

On a monthly basis the owner gains $305.00 additional dollars of income and $3,660.00 yearly.  While this is not a lot of money in itself if you compare the total potential income of the property it translates to 11%. 

What does it mean for the property values?

At current cap rate of 7.75 it’s $47,222 in additional value: and at a conservative cap rate of 9.25 it’s $39,567 in additional value.

So, if you see two very similar properties priced, each at $310,000 which is better?  Of course the property with separate water meters because your buying for the same price but the value is greater as is the income.  

Even if the property with separate water meters were to cost $25,000 more it’s of greater value then the master metered property.  In fact that $25,000 turns into a 15% return on that money and with positive leverage the return would increase.

So when looking at properties look carefully at how they are metered and consider the true value it reflects on your return, because often its substantial.

But there is actually more to it.  Separate water meters have additional benefits to the owner.  Besides the increase in income and value there are no bills to pay, it’s much easier to control expenses, and things like unreported water leaks in the toilet will not affect your wallet but the tenants.  This is important in units that have their own washers and dryers: a washer can use up a lot of water that the owner will not have to pay for.

For savvy investors this can provide a way to increase the return on the money invested at the point of purchase and/or at time of sale.

originally posted at PMT