Canadian Buyers in Arizona - How to Properly Stretch "The Dollar"

For many reasons including the weather, lifestyle and golf, Phoenix and Scottsdale have been a popular  vacation home destination for Canadians for many years. Recently we have seen these numbers skyrocket due to the weak U.S. dollar and declining real estate market and potential for so called "deals".  

 

Canadians still have to be aware of what they are purchasing and the intent of that purchase. If you are searching for a "pure" investment property you have to make sure you will be able to have significant cash flow on that property. Breaking even or losing money every month in a declining market is not good business sense. Your money may be better invested elsewhere. Fringe area properties in cities like Avondale, Goodyear, Buckeye, City of Maricopa, Queen Creek among others seem to be in the worst shape and you can get homes for $60-$90/SF now where as they sold for $130-$180/SF a few years ago. On the surface it seems like a great deal. The problem lies in the difficulty to rent these homes at all and for more than 1000-1200/ mo. For example: If you purchased a $220,000 home that is 3000/SF your first reaction is, "wow" I can't believe how cheap I can get this size home. If you break down the numbers if you put down 20% = $44,000 and borrow $176,000 @ 6.5% investor interest rate your P&I = $1112. You then have to figure in property taxes = approx 115/mo, HOA fees = approx. 40/mo and insurance= approx. 140/mo so your monthly bills can easily exceed $1400/mo.

 

I do see the rental market getting stronger going forward as so many people and families are being displaced by the current foreclosure crisis, but maybe not enough to have $44,000 out there as a down payment in this market. There also seems to be a fascination with bank owned properties or as there commonly called "REO" Properties. You're buying the home in "As Is" condition and the bank may let the home go for .80 cents on the dollar but if in a year it's .60 cents you're stuck holding their bag. I'm sure there are good investments out there but just make sure the numbers work into a cash flow situation. When properties were appreciating in record numbers the concept and principal of "cash flow" was a thing of the past. That made sense when you were getting 5-10k a month in appreciation and losing $300/month on cash flow. Times have changed.

 

The solution to buying in Arizona is that if you actually will use the property as a recreational home, enjoy it and you'd rather stay in your own property over a hotel/resort, it's a great time to take advantage of the current market conditions. Also, you could pursue rental income on your vacation property the weeks and months that you are not using it. The short-term furnished vacation rental market in Scottsdale remains strong. For example $400,000 townhomes in Grayhawk regularly rent for 4-5k/month during our peak season (Nov-April). Not that only Scottsdale can work for this, but you need your vacation home/rental to be located in a desirable resort style area that is in demand to our short-term visitors. In this scenario you can personally enjoy your property and then try to obtain additional income when not in use.