# Example of how bad it is in Phoenix, AZ



## Rickson9 (Apr 9, 2009)

This is from personal experience and is based only on my opinion and experiences. It is in point form. I haven't been posting much because I have been closing property in Phoenix, AZ.

This is what happened with one of the properties I purchased.

I work with a realtor and get access to FlexMLS that allows me to see details of the property, HOA fees, property tax, tax records, pictures, etc.

Hundreds (if not thousands) of properties available.

Focus on 1 or 2 bed condos. Cut out single family homes. Set upper price bound to $60K.

Approximately 500 properties pass.

Cross reference property crime and violent crime maps to find good ZIP codes to invest. Cross reference good ZIP codes with known concentrations of high meth drug use. Remaining ZIPs are then free of property crime, violent crime and meth drug use.

Approximately 50-100 properties pass.

Locate areas where there are more than one unit for sale (I want to buy multiples and it's easier for me and my property manager if they're all in the same place).

Approximately 10-20 properties pass.

Ask my realtor to visit the properties.

Apprioximately 10 properties pass.

I write up 10 offers to buy. The following is the story of one of these properties.

Owner was out-of-state "investor", purchased 830 sq ft, 2 bed 2 bath condo in Phoenix, AZ in 2006 for $145K. Listed it in 2009 for $50K. He has a tenant in there on a 1 year lease for $750 a month. 

I offer $36K. He counters at $43K.

By act of God, Bank of America forecloses on a 830 sq ft 2 bed 2 bath condo in the same complex and lists it for $30K. I tell the owner that I want to pursue the BoA property first unless he agrees to $36K.

He agrees to sell at $36K. 

I put in 'earnest money' deposit of $2K into escrow.

I run property inspection, termite inspection. All clear.

I tell owner that he has a tenant in the condo and that when the tenant moves out I will need to paint, change carpets and do other maintenance that will run $1K. I tell him to knock the price down to $35K.

He agrees to sell at $35K.

I sign a lot of documents outlining the aforementioned negotiations.

I contact Forex company to prepare to wire the rest of the purchase price into escrow.

Work with title company to run title search. Buy title insurance.

I establish home warranty and home insurance. I inform the Home Owners Assocation (HOA). HOA fees = condo fees.

I inform my property management company (I interviewed half a dozen of them). The costs are as follows:

$100 initial sign up fee
$300 per property reserve, held in trust, for maintenance
$50 monthly management if vacant
9.5% of gross rent monthly management if tenanted
$100 for lease renewal

Download and read Arizona landlord tenant act. Arizona is landlord friendly. No rent control. Delinquent tenants are in court 2 weeks after default and court/judge/constable throws tenant out 2 weeks after that. 1 month turnaround. Property manager represents landlord. Total cost to evict: $360.

I coordinate my realtor with the property manager to hand over condo keys, mailbox key, pool key, clubhouse key.

Settlement document passes the tenant's deposits (security deposit, pet deposit, etc.) and pro-rated rent for the month to me via escrow.

Closing day. Remaining purchase price wired into escrow. Realtor, HOA and property management company co-ordinate to hand over keys. Title company registers deed in my name.

Closing documents set to city for registration. Deed updated and copy sent to my home address in Canada.

Commissions to realtor: $2K. Flat fee. Absored by seller.

Purchase price: $35K
Monthly rent: $750
Home warranty: $34 per month
Home insurance: $40 per month 
Property management: $71.25 per month (9.5% of gross rent)
HOA (condo) fees: $174 per month

I'm taking a break. I'm off to Mexico this coming Sunday for a week. Cheers!


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## HaroldCrump (Jun 10, 2009)

Welcome back, R9.
How much do you expect to flip this property for and when?


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## ssimps (Dec 8, 2009)

Also welcome back R9 and thank you for sharing details. Very informative.


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## ssimps (Dec 8, 2009)

A few Q's if you do not mind:

Was part of your analysis the existing tenant themselves, how long they have been in the unit (when does the existing lease expire) and how many years they have been in the unit; i.e. to determine likelyhood of them skipping out next month vs being a long term tenant? 

Also, do you look at rental vacancy rate in the area to see how much competition you will have when you do have to find a new tenant?

Is would seem like these would be important aspects in the equation when buying remote properties?


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## dogcom (May 23, 2009)

It sounds pretty good and thanks for all the details.

The only thing I would ask is what are the property taxes like? And do you have any unpaid taxes to pay although it doesn't sound like it. Also are there any debts hidden against the property or does the title search deal with these issues.

These may seem like silly questions but I am a very untrusting person and feel everyone is trying to screw me over if they can. Also I don't know very much about buying property in the US so this is all very interesting to me.


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## Spidey (May 11, 2009)

Sounds interesting. My worry would be that if property values are that depressed, that the entire building may be suffering. What happens if major repairs like roof or elevator are required? Do the rest of the owners have the ability to pitch in? What about maintenance fees -- are they being kept current? I would also be concerned just with the price in general. If you're buying at such a depressed price, it stands to reason that others are as well -- what will the quality of the fellow owners and or renters be like? 

Could be that the price still makes up for any potential pitfalls. Just a few of the thoughts that come to mind.


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## Rickson9 (Apr 9, 2009)

dogcom said:


> The only thing I would ask is what are the property taxes like?


$920 per year.



dogcom said:


> And do you have any unpaid taxes to pay although it doesn't sound like it. Also are there any debts hidden against the property or does the title search deal with these issues.


Title search covers it. Encumbrances (overdue HOA fees, etc.) must be cleared by seller before they are allowed to close.


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## Rickson9 (Apr 9, 2009)

Spidey said:


> Sounds interesting. My worry would be that if property values are that depressed, that the entire building may be suffering. What happens if major repairs like roof or elevator are required?


Pheonix, AZ builds flat. The condo is not a high-rise condo that we are familiar with in Toronto. They are 2 bed 2 bath condos arranged like a row of Mississauga townhomes. No elevators.

Maintenance may be an issue if a large number of owners are delinquent in the HOA payments. All sales must have HOA dues made up at the time of sale or the sale cannot legally occur. If the property is owned by the bank, they keep the dues current. 



Spidey said:


> Do the rest of the owners have the ability to pitch in? What about maintenance fees -- are they being kept current? I would also be concerned just with the price in general. If you're buying at such a depressed price, it stands to reason that others are as well -- what will the quality of the fellow owners and or renters be like?


I cannot speak for other condo developments because I don't know them. The HOA dues in my investments are being kept current.

I am not the first Canadian (nor will I be the last) to buy condos in this particular building. One snowbird couple bought one for their own use; but they paid $80K 1 year ago. Everybody is buying for their own reasons. I am buying to cash flow it.

If a tenant is paying $500 for a 2 bed 2 bath, you can be sure that they are "subprime". $700-$800 per month is "average". $1000+ is affluent (ie. Scottsdale rents). I found that when you screen away areas of violent crime, property crime and drug use, you just get renters who are down on their luck; bought a home, upside down on their mortgage, got foreclosed, need to rent. Lots of bad stories here - 70 year old couple buys $1M home with $400K down, market tanks, home now valued at $400K, foreclosure, couple now rent and work at Walmart (bad decision making). 35 year old woman buys home, market tanks, gets cancer, needs to sell to pay medical bills (bad timing).

It has never made sense to me why individuals are afraid AFTER a massive decline in prices; after the DOW went from 14K to 7K many of my colleagues were terrified. To be honest, I was more terrified when the market went from 10K to 14K. I bought thousands of shares when the markets fell. Unfortunately the market has corrected violently to the upside and cash was piling up. The only place I could find 'depression-like' prices was in U.S. RE.

What made the decision easy for me to buy in Phoenix, AZ is that I am fortunate enough to buy in cash. No mortgage. No LOC. No loan of any kind. The condos can be vacant for all I care and it wouldn't hurt me to carry it, but they're not.


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## Rickson9 (Apr 9, 2009)

HaroldCrump said:


> Welcome back, R9.
> How much do you expect to flip this property for and when?


No plans to flip it at the moment. I am just going to pocket the cashflow for now. 

For better or worse, I rarely sell an asset that I've purchased at a good price; which is why I still have the stock and RE that I purchased over 10 years ago shortly after graduating from university.

Let's say the property doubles in price. I still won't sell. I don't need the money. I would sooner refi (more accurately - slap on a mortgage), take whatever money out that I need, keep the cashflowing property, and have easily covered interest payments that are tax-deductible.


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## Rickson9 (Apr 9, 2009)

*Fun stuff*

CBC June 2008
http://www.youtube.com/watch?v=Kmx0w5NWEfY


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## ssimps (Dec 8, 2009)

Rickson9 said:


> The condos can be vacant for all I care and it wouldn't hurt me to carry it, but they're not.


What will hurt if it is vacant is:

Home warranty: $34 per month
Home insurance: $40 per month
Property management: $50
HOA (condo) fees: $174 per month
Property tax: $76.67 /month

Total: -$374.66 / month

+ re-lease fee when it does get re-rented. 

I do see the + side of your purchase, but I also see potential issues, like possible high vacancy rates. 

Given how much the prices have dropped, more people will be buying like you to rent, so more rental competition (= lower average rent likely). The % of renters will also likely drop because now locals can also purchase places for 40K or so. I have now looked at some real estate sites for the area you mention and like you correctly pointed out, there are 100's if not 1000's of places for sale (pre-filtered). 100's below 100K it seems.

I'm not trying to be overly negative about the idea, just trying to be balanced IMO.


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## Berubeland (Sep 6, 2009)

Ontario Evictions

N-4 wait 15 days
L-1 file after the 15 days is up. If you fax it in 4-6 days to process pay $170
Landlord & Tenant Board date 1-2 months away
After Board Date the Board issues an order which takes 2-3 days plus mailing the tenant has another 11 days to pay or stay. 
Go down to the sheriff's office bring an original copy of the order. Pay up to $380 for eviction. Wait two weeks then if the tenant is still there they will give you a date this during this week sometime.
Sheriff comes then people still have 72 hours to remove their stuff. 

Time frame is about 4 months or more. 

This is a straightforward eviction !!!! If there are maintenance issues, or reschedulings or appeals it is even longer because you have to wait for another Board date. Not to mention that the board is very booked up so if your tenant brings up a maintenance issue it is put to the very back of the list for that day. 

I'd buy these properties all day long if I had the cash. Did you go down and inspect the properties yourself?

What made you select Phoenix AZ?


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## Sampson (Apr 3, 2009)

Wow, this actually sounds very interesting.

Like you say Rickson, whatever the reason (I'm thinking for personal use), the cost is ridiculously low.

I have to admit, I'm sheep, I'm slow to react. I'd be interested in looking into this for my own use, but then picking up additional units if prices remain depressed for upwards to a year.

Thanks for the great post!


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## Rickson9 (Apr 9, 2009)

Berubeland said:


> Ontario Evictions
> 
> N-4 wait 15 days
> L-1 file after the 15 days is up. If you fax it in 4-6 days to process pay $170
> ...


I talked to the president of the property management company I hired about Ontario's landlord tenant act and the aforementioned items. He just looked at me in shock. He kept saying "No rent for months? Why would anybody want to be a landlord in Ontario?" 

We then went over something similar to this:
http://www.keytlaw.com/leasinglaw/azevictions.htm

He concluded that unfortunately, although it doesn't happen often, he has to go to court and evict the tenant a few times, but the law is very much against the tenant if they are delinquent. He says the longest he has ever taken to evict in his last 10 years as a property manager was 45 days.



Berubeland said:


> I'd buy these properties all day long if I had the cash.


I'm still shopping there. It's as close to free money since the stock market crash of 2008.



Berubeland said:


> Did you go down and inspect the properties yourself?


Yes. My wife and I had a great time in Pheonix, AZ. We had the property inspector report with us. The properties are a lot nicer than we had feared. I was shopping for RE and my wife went shopping at Fashion Mall in South Scottsdale 

We have an outstanding bid on a bank-owned 1 bed 1 bath condo with new black appliances, stacked washer/dryer, granite counter tops, new dark wood cabnetry, burber carpet...for $21K. LOL!



Berubeland said:


> What made you select Phoenix AZ?


Price. No rent control. Landlord friendly; fast evictions. I can carry 2 condos with every 1 condo that I purchase with an existing tenant.


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## Berubeland (Sep 6, 2009)

Have you set up a corporation to buy these or did you buy them personally? 

Are you using leverage at all or are you just paying cash?

It is a good idea to buy in one location to minimize costs.


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## mork (Apr 3, 2009)

Rickson9 - Thanks for the great post, it was very informative. I was also looking at condos in Phoenix a couple of months back but sort of chickened out because it felt so "foreign" (i.e. I wasn't really sure what I was gettign in to with a US real estate investment, logistically speaking). Your post has certainly resparked my interest.

Would you be willing to refer me to the agent and the property management company you are using? It would be very much appreciated. Like you, I'd be looking to pick up a condo and have it rented.


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## Rickson9 (Apr 9, 2009)

Berubeland said:


> Are you using leverage at all or are you just paying cash?


Cash.


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## Rickson9 (Apr 9, 2009)

mork said:


> Rickson9 - Thanks for the great post, it was very informative. I was also looking at condos in Phoenix a couple of months back but sort of chickened out because it felt so "foreign" (i.e. I wasn't really sure what I was gettign in to with a US real estate investment, logistically speaking). Your post has certainly resparked my interest.
> 
> Would you be willing to refer me to the agent and the property management company you are using? It would be very much appreciated. Like you, I'd be looking to pick up a condo and have it rented.


I'm off to Mexico tomorrow morning. Contact me in a week or two. In the meantime, I would read about the City of Phoenix here:

http://phoenix.gov/

The section on "Crime statistics and maps" was important to me:

http://phoenix.gov/POLICE/cristat_maps.html


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## Rickson9 (Apr 9, 2009)

Scottsdale Foreclosures said:


> Great strategy.
> 
> Unfortunately FHA's new guidelines on Lending in condo complexes will limit your appreciation.
> 
> The time to buy condo's in my opinion is when FHA reverses the current restrictive guidelines for Condo financing.


I already understand this. I posted on the REIN forums about this awhile back. When the FHA reverses direction, it would be unlikely that I could buy at the prices that I'm buying at. It is fortunate that the FHA is restricting lending on condos - it keeps prices down; and for cash buyers, that's priceless.

The FHA should further tighten guidelines on lending in condo complexes - or even eliminate condo lending altogether. I would strongly support that. Less competition and lower prices for me.

I'm not sure why I would dislike an artificial mechanism that keeps prices down. I'm a Buyer, not a Seller...


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## Berubeland (Sep 6, 2009)

Under the new Federal Housing Administration rules that took effect October 1, 2009 any FHA loan for a condominium complex must meet these guidelines:
1. Project must be primary residential.

2. No more than 25 percent of the floor space can be commercial use.

3. No more than 15 percent of the units can be 30 days or more past due on the HOA payments.

4. No more than 10 percent can be owned by any one investor.

5. At least 50 percent of the units must be owner-occupied or sold to intended owner-occupants.

FHA has lost a lot of money on condo complexes and have instituted these new rules so they can effectively stop loaning money on condo sales.

With the information I know about Condos in Toronto in buildings who have rules like this improve and preserve their value over time. 

For instance to cite specifics in buildings in which I manage some rental units. In Sherway Gardens no owner is permitted to own more than one unit in each building. The building is great.

Remember what I said earlier about how owners like to own more than one unit in the same place to keep costs low? 

Well the fact is that owner occupied building are cleaner, safer and nicer places to live in and rent in. By limiting the amount of renters this makes your building better. 

So Rickson I'm not sure what is bad about this legislation long term. Obviously buildings will take a while to comply with these rules and then values will go up.

In case anyone was wondering there was a building here in Toronto that could no longer get building insurance and you must pay cash for units there. 

2 bedroom for $55,000

http://www.realtor.ca/propertyDetails.aspx?propertyId=6526706

I used to manage a unit there too


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## Rickson9 (Apr 9, 2009)

Berubeland said:


> So Rickson I'm not sure what is bad about this legislation long term. Obviously buildings will take a while to comply with these rules and then values will go up.


It's not bad at all. It's great!


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## ssimps (Dec 8, 2009)

Berubeland said:


> 2 bedroom for $55,000
> 
> http://www.realtor.ca/propertyDetails.aspx?propertyId=6526706


Great more local example B. And it has 20 bathrooms! 

What kind of rent could you get for that place and is it possible to find out vacancy rates for the area? 
EDIT: I see from the listing current tenant pays $900. What kind of tenant would a building like this attract IYO?

Also,does the building have to come up to code (so it can get building insurance) at sometime, so that the cash only restriction will be eliminated (and thus prices go up)?


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## ssimps (Dec 8, 2009)

mork said:


> Would you be willing to refer me to the agent and the property management company you are using? It would be very much appreciated. Like you, I'd be looking to pick up a condo and have it rented.


Dido. Thanks again.


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## Berubeland (Sep 6, 2009)

ssimps said:


> Great more local example B. And it has 20 bathrooms!
> 
> What kind of rent could you get for that place and is it possible to find out vacancy rates for the area?
> EDIT: I see from the listing current tenant pays $900. What kind of tenant would a building like this attract IYO?
> ...


Current vacancy rates are about 5% for Toronto. It might take a month or two to find someone who wants to live there. The units were nice and spacious. The tenants that rented there were mostly immigrants and immigrants pay their rent. 95 % of tenants unscreened will pay their rent with not too many problems. 

I have no idea what is up with that building and the insurance. This is a bit of scuttlebut I heard and I am not sure what the disposition of it is. When I managed the one unit there there were no problems with insurance. 

Yeah for sure if/when they ever get insurance property values would double.


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## humble_pie (Jun 7, 2009)

i am so not getting the beauty of this AZ show-and-tell. Way i see it, there are operating costs around 7500 per annum, not including cost of travel & hotels toronto-arizona. Gross revenue is only 9000 and that's only if the tenant sticks.

operating costs include those stated (north of 4000/yr) plus potential income lost from the 35k invested. You can easily get a return of 10% or better from a canadian REIT like dundee, with growth potential and one-zillionth the trouble or risk. So estimated income lost from capital tied up in phoenix = 3000-3500. Total costs roughly 7500.

9000-7500 is a measly return of 1500 per annum, or less than 4.5%. Growth potential is offset by high on-site risk due to remote location of mind-and-management. Just one troubleshooting round trip toronto-phoenix could wipe out entire annual profit.

i wouldn't hold the breath for 100% appreciation in a year or 2, or even 5.

all i see in this story is the touristy titillation of picking up a cheap item in a foreign bazaar.


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## ssimps (Dec 8, 2009)

humble_pie said:


> i am so not getting the beauty of this AZ show-and-tell. Way i see it, there are operating costs around 7500 per annum, not including cost of travel & hotels toronto-arizona. Gross revenue is only 9000 and that's only if the tenant sticks.
> 
> operating costs include those stated (north of 4000/yr) plus potential income lost from the 35k invested. You can easily get a return of 10% or better from a canadian REIT like dundee, with growth potential and one-zillionth the trouble or risk. So estimated income lost from capital tied up in phoenix = 3000-3500. Total costs roughly 7500.
> 
> ...


You make a lot of good points and I've posted my own concerns as well. 

It smells of the 'if it is too good to be true then it likely is' rule. 

By that I do not mean that it is not true that there are 100's - 1000's of these places or any of R9s facts about that. I am not questions R9s statements in this thread. What I do mean is that there are likely very large risks that are no being raised because of our ignorance of the local situation that has caused this situation to occur in the first place. Past performance is no indication of future performance as they say. For all we know these places could stay at current price levels for years and if trying to rent, could have 25% + vacancy rate. 

One thing I've been wondering, since the laws seem so much more relaxed down there (like no rent control), what rules are there about condo fee increases (are they controlled). Could someone buy now knowing they have a $150 / month condo fee only to see it doubled in a year or two?

If it is was all so good, so easy, given it is so cheap, then people much richer, more connected, more local, and maybe even smarter than us would have already bought them all and banks would not have to be 'fire' selling them left and right. Yet there are 100's - 1000's still out there. 

In R9's example, it was sold by a private owner who paid 4x or more than what he sold it for, but yet it was rented making 750 / month. Why the rush to sell, for so cheap, and for such a huge loss? The owner must have mostly owned it and not had a mortgage more than the 35K he sold it for, otherwise could he have even sold it without breaking is mortgage obligations?

It is not fully adding up to me either.

Only time will tell and as another member always says "good luck"!


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## Berubeland (Sep 6, 2009)

$100 initial sign up fee
$300 per property reserve, held in trust, for maintenance
$50 monthly management if vacant
9.5% of gross rent monthly management if tenanted
$100 for lease renewal

Purchase price: $35K
Monthly rent: $750
Home warranty: $34 per month
Home insurance: $40 per month 
Property management: $71.25 per month (9.5% of gross rent)
HOA (condo) fees: $174 per month

Lets say you owned 10 condo's at these prices 

Cost of Aquisition 350,000

Gross annual income - $90,0000
Maintenance Reserve - $3000
Property management - $8550
Home Warranty - $4080
home Insurance - $4800
HOA Fees : $20880

Return on Investment $ 48690

Less Two evictions - Which take 2 months because after it's empty you need a month to rent it. Costs are $3000.

One suite totaled - Renovation costs of $3000.

$42690 final income. I calculate an annual return of at least 12% plus you own the condo. Plus you get several tax deductible Arizona vacations which I like. Now Rickson if only you could get your wife to stop shopping down there 

I am pretty sure those condos cost more to build than $30,000. 

Dundee Reit is risk free you say? I think not. What if they cut distributions? What if their books are cooked? i'd rather own bricks and mortar any day than share certificates.


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## ssimps (Dec 8, 2009)

B, here is an updated calc factoring in some likely other upfront fees and yearly property tax that was not included your your calc (I do not think at least):

Cost of Aquisition 350,000 + extra costs (inspections were mentioned, maintanance reserves, travel was mentioned, lawyers were likely involved), so lets bump up total cost to $ 370,000 to factor those extra costs in since we do not know what they were, but an extra $2K per unit on average seems reasonable. 

Total full cost: $370,000

Gross annual income - $90,000 (assuming 100% occupancy)

Property management - $8550
Home Warranty - $4080
home Insurance - $4800
HOA Fees : $20880
** property tax: $9,200

Total costs: $47,510

Return on Investment $ 42,490

Less Two evictions - Which take 2 months because after it's empty you need a month to rent it. Costs are $3000.
One suite totaled - Renovation costs of $3000.

$36,490 final income. 

36,490 / 370,000 = ~ 10%

This also assumes no mortgage interest and no extra trips down to deal with something / surprises, even if it is tax deductable.

Still seems good so far if you are willing to do the work and have 370,000 in seemingly currently non-liquid investments.

But this is also assuming a very low vacancy rate if you ask me , given that the number of places for sale < 50K in the area is HUGE ( you estimate 1 month vacancy only after someone leaves in a market flooded with cheep housing?). There must be many more US people who could get a mortgage and by a $35K place if they can pay $750 / month rent consistantly. This is a BIG unknown to me right now and could turn your 10% return to a loss very quickly.

I agree that buying a specific REIT is not risk free, in fact I think it is very risky IMO. But if you buy a REIT ETF, you will get 5 - 6% even now with much lower risk IMO.

I think I would take the 5 - 6% than the at best case 10% given the hassles and risks in that area as I see it.

I'd much rather invest in Canada too.


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## Berubeland (Sep 6, 2009)

Everyone left out capital appreciation !!! And the effects of inflation on the price and the rent!!! And that the Bank of Canada like to keep our $ under par and right now it is at par. 

The thing I don't like about it is that there is no leverage involved. 

Compare this to a property I manage that just sold in Canada

24 townhouses - $2,300,000 purchase price

Downpayment of $300,000
Mortgage 1,800,000 @ 3,75%
Vendor Take back of $200,000 @ 5%
Taxes $56,000
Water $11,000
Property Management & Rentals $21,000
Gross Income $290,000
Repairs and Maintenance - LOTS 
Capital Improvements- Lots

And this is a pretty good deal that was purchase by a real estate agent to FLIP

Because mortgages rates are so low now prices have gone up. 

There are deals to be had in Canada and anywhere actually but Rickson's portfolio has positive cash flow and seems pretty good in my evaluation.


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## ssimps (Dec 8, 2009)

Berubeland said:


> Everyone left out capital appreciation !!! And the effects of inflation on the price and the rent!!! And that the Bank of Canada like to keep our $ under par and right now it is at par.


>> Everyone left out capital appreciation 

There should be in both options long term. With stocks, this has been shown for a long time, with what is happening in AZ, it is uncharted.

>> And the effects of inflation on the price and the rent

I keep asking the opposite in the AZ case, how can so many < $50K units for sale, if now being purchased to rent, not decrease average rent and increase people jumping around to get the best rent (i.e. increase vacancy rate and re-rental costs). Seems like simple supply and demand economics to me?

>> Bank of Canada like to keep our $ under par and right now it is at par. 

What can they do get it back under par; nothing I know of, except maybe drive our country into super massive debt etc like is happenning in the US. They seem to want to limit that.  Maybe if commodities drop significantly that would drop the CAD, but long term I do not see that happening either. Anyhow, I think our people in control can do little to get the CAD to drop.

IMO, the USD - CAD EX is not in our banks control; especially if we want to weaken it against the USD. It is a US and global issue that Canada has little control over. I think it likely the USD will drop even more compared CAD the way things are going over the years to come. And if traction continues on the discussion of eventually replacing the USD as the global currency of trade, watch out. 

This is the second time we have been at or above par in the last 2 years I believe.

I have no crystal ball and have no idea what will happen in the end, but we could be seeing the beginning of a massive shift in global economics; Britian used to be the economic super power for heavens sake and were for a long time. I bet then people saying the US would become the super power it is were put in mental institutions. 20 years from now who knows.


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## humble_pie (Jun 7, 2009)

i included capital appreciation.
i said "i wouldn't hold the breath for 100% appreciation in a year or 2, or even 5."

and i'll just throw out there:

what makes anybody think that anybody is going to buy 10 properties.
apart from an anonymous phrase from some ghost in the internet.

numbers for 10 proppitties are no better than one proppittie.

speaking of ghost cookbooks, did anybody ever hear of one actual audited statement signed off by a CA or a CGA from a recognizable canadian accounting firm.

speaking of spectral recipes, did anybody ever hear of an actual partners' memorandum or short form prospectus signed off by a bar-association-member lawyer.

speaking of witches' brews, what the ghost purveys in lieu of audited statements are once-a-year, ungrammatical, misspelt, childish scribbles that he calls "letters."

on the other hand all tsx-traded instruments publish quarterly audited financial statements by the ream & quire.
required by law to promptly publish all news affecting material circumstances.

dundee has no foreseeable reason to cut distribution.
dundee has cash, manageable debt, aggressive acquisition platform in ontario.
what could make you try to start a scare rumour like that.

also comforting to know: one could unload 350K dundee in 3 days or less.
unload 350K of condos in AZ hovels would take a year or more.

and, really now, what makes anybody sure that anybody ever actually travelled to feenixx arizzona ...


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## ssimps (Dec 8, 2009)

Lets 'try' not to turn this into another R9 crap fest. I learned from my earlier experience. In this case I do not think it really matters if the example specifics he gave are true or not or a mix. 

It is true that there are tons of cheap properties in the area in question so it is tempting to jump on the 'buy and rent it' wagon for some people.

Since no one is addressing my Q about vacancy rates in the location, I started googling and found a few quickly. I search "phoenix az renatl property vacancy rates"

http://www.cnbc.com/id/29350086?slide=7

states that:

"
#5 worst vacancy rate in US: Phoenix, AZ: 19.0%

(Source: U.S. Census Bureau * Based on Rental Vacancy Rates for the 75 Largest Metropolitan Statistical Areas for the Fourth Quarter of 2008)

Metro area includes: Phoenix, Mesa and Scottsdale
"

I would bet this has gotten worse, not better, given prices have dropped even more than Q4 2008, so likely more buyers and less renters of these cheap units.

The following article seems to agree, data from Q3 2009 (download the PDF). It paints a pretty dire downward rental price situation and increased vacancy rate % in the area, predicting further declines in 2010.

http://www.azama.org/news.asp?NewsID=1236

I was looking for articles / claims about vacancy rates that were NOT from management companies or real-estate agents, who of course would likely want a foreigner to think everything is great and you should buy to rent.

If you assume 20% vacancy rate, I'm not sure you are making much money on buying to rent given the monthly costs you have to pay, the non-liquidity of the investments, and the high initial out of pocket costs. Not to mention the sleep I would at least loose thinking about those empty units bleeding me $. 

Anyhow, enough of my time on this topic. My conclusion is that buying in this area for rental is not a silver bullet or ' close to free money' as original poster suggested. Maybe it will work for some, but the road will likely be bumpy for a while. 

If you want a cheap place to go and watch TV at in AZ on your holidays, then maybe there are good buys.


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## Berubeland (Sep 6, 2009)

That is a nasty vacancy rate.

You'll want a good property manager out there. 

@Humble Pie, I am extrapolating the numbers from the first post. 

In my opinion as a property manager who has seen many people buy different types of properties over the years, this is not a scary financial disaster waiting to happen. Sure there are some hiccups but there is a very nice potential for profit that justifies the risk. It's not easy. Over time Rickson will probably be glad he did this.

Right now in Canada buildings downtown Toronto are selling for cap rates of 3% and 4%. This means that if there is a fart in the income you are dealing with negative cash flow. This also means that when mortgage rates go up bad things are likely to happen. They are counting on rents to go up to get some breathing room.


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## CanadianCapitalist (Mar 31, 2009)

Very interesting thread. However, with young children at home and no time to get a good night's sleep, I just don't have the time to fly to Phoenix to tend to rental properties. For that reason, I'm out


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## steve_jay33 (Aug 29, 2009)

Great Thread. Not within my circle of competence, I will leave it to those who know something about real estate.


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## Sampson (Apr 3, 2009)

What I find most amazing about this topic is not whether the investment is a good one or not.

a 2 Bdrm, 2 Bath, with decent finishing to be had for $40,000.

You can barely buy a new luxury German sedan for that money.


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## HaroldCrump (Jun 10, 2009)

Sampson said:


> What I find most amazing about this topic is not whether the investment is a good one or not.
> 
> a 2 Bdrm, 2 Bath, with decent finishing to be had for $40,000.
> 
> You can barely buy a new luxury German sedan for that money.


Yeah too bad I'm not retiring anytime soon.
It's almost tempting to buy such a condo and move down soon.
Cheap houses, cheap booze, pretty women...


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## humble_pie (Jun 7, 2009)

hola todos
.
mi eposa y yo mismo estamos en México mirando las casas bonitas en la playa.
pero Phoenix es más barata.

hablaré con usted pronto.

Ricardoson


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## Berubeland (Sep 6, 2009)

I'm pretty sure they can't build them for that price.


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## Rickson9 (Apr 9, 2009)

Fear has been my best friend since I started investing. Bad news keeps the novices away. Vacancy rates are single digits in Toronto, but I wouldn't touch anything here with a 10 foot pole. 20% vacancy rates are music to my ears; I loved shopping in Windsor. If you don't understand why, you never will. Nobody thought I was too bright for buying thousands of shares of retail company stock after the DOW went from 14000 to sub-7000 either. Free money that 95% of the population can't see is the best kind of money there is! LOL! I'll see all of you guys on the other side of the decade (or $10M, which ever comes first).


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## ssimps (Dec 8, 2009)

Rickson9 said:


> Nobody thought I was too bright for buying thousands of shares of retail company stock after the DOW went from 14000 to sub-7000 either.


On this point, there are a lot of people that have made a lot of $ this year buying cheap earlier in the year, especially high quality div stocks where the yield was crazy high at that time. The div. yield for these people will pay for the stock cost itself in 5-10 years. Your in no special category there I think.

Based on your 2008 loss, you also did not see the crash coming and sell so that you had your millions to buy even more at DOW 7000; that would have been a more impressive thing to report.

This is very different from buying real-estate in AZ where I think you have very little understanding of the big picture and what is going on there. I'm not saying I do; I don''t. If you do, please share it with us. 

"Don't buy what you don't understand" is a very common and useful statement made.

BTW, you are advertising in your sig. AGAIN. Against the rules. What's a 'millionaire' doing trying to pawn off seats via a forum for 150 bucks for a lecture anyhow?


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## dogcom (May 23, 2009)

Those dividend yields need to go back up again I believe to be good buys from here. We will most likely see a higher stock market from here based on momentum and not because stocks are cheap. So if you buy in you will make money but you will need your hand firmly on the exit handle which is not easy to do.


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## ssimps (Dec 8, 2009)

dogcom said:


> Those dividend yields need to go back up again I believe to be good buys from here. We will most likely see a higher stock market from here based on momentum and not because stocks are cheap. So if you buy in you will make money but you will need your hand firmly on the exit handle which is not easy to do.


Totally agree; but I think buying good div stocks even now that are paying 4-5% is better than having too much cash sitting loosing $ once inflation is factored in. Some of these stocks were paying 8-10% or so div. in March / April if you had and took the opportunity to buy; which not everyone did but I'm sure many did as well. As long as you sell whenever needed and at least break even on your purchase price, you can't really loose compared to having too much cash sitting making 1 - 2% that is fully taxed. 

I'm not too greedy and I have no issue selling something if needed so that I at least break even on purchase price if I have been making good returns from its yield.

I also have a nice sized $0 balance LoC @ prime+.75%, sitting and waiting for the next time we see a crash like last time (if we do) .  So it does not bother me to only have 5% or so of my portfolio in cash. Even now, I'd rather be making 4 -5 % on div yield's with my 'hand firmly on the exit handle' if necessary as you put it.


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## HaroldCrump (Jun 10, 2009)

ssimps said:


> Totally agree; but I think buying good div stocks even now that are paying 4-5% is better
> ...
> Even now, I'd rather be making 4 -5 % on div yield's with my 'hand firmly on the exit handle' if necessary as you put it.


Why would you buy common stock for a measly 4 - 5% yield when there are good quality (A and above) short-term bonds paying that much?
Unless you have reason to believe that there will be significant capital gains on those stocks in the next few years, I don't see the logic of buying stock simply for a 4% dividend.


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## ssimps (Dec 8, 2009)

HaroldCrump said:


> Why would you buy common stock for a measly 4 - 5% yield when there are good quality (A and above) short-term bonds paying that much?
> Unless you have reason to believe that there will be significant capital gains on those stocks in the next few years, I don't see the logic of buying stock simply for a 4% dividend.


1) bond income is taxed at 100% of my tax rate (~45%), dividends are not even close to that.

2) I do see long term capital gains in stocks, which when and if sold, only 50% of gains are taxed, and besides, I have so many cap. losses from dumping my broker and buying equiv. ETFs and sector stocks during the crash that I've got a lot of cap. gains that will not be taxed at all. 

3) I do have a large portion of my portfolio in bonds (bond ETFs as we have discussed before), so I have nothing against holding bonds as part of a portfolio for the extra security, but after tax they do not compare to div's, even at 4-5% for an income stream.

Comparing a 4-5% paying bond vs 4-5% paying div stock, from a pure yearly income point of view, is not the same thing once you have paid tax on your yield.

Someone more knowledgeable than me (leslie  ), please correct my statements above if they are not correct.


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## ssimps (Dec 8, 2009)

ssimps said:


> 1) bond income is taxed at 100% of my tax rate (~45%), dividends are not even close to that.
> 
> 2) I do see long term capital gains in stocks, which when and if sold, only 50% of gains are taxed, and besides, I have so many cap. losses from dumping my broker and buying equiv. ETFs and sector stocks during the crash that I've got a lot of cap. gains that will not be taxed at all.
> 
> ...


I found this site that seems to have a nice and simple calculator for what your tax rates will be for different types of income depending on your total income level:

http://www.walterharder.ca/MarginalTaxRateCalculator.html

Note sure how accurate it is, but it seems reasonable from my experience and learning.

So for someone like me, in Ontario, non registered investments:

Ordinary income, like interest from bonds: taxed at 46.41%
Small Business Dividends: taxed at 31.34%
Large Corp. Dividends: taxed at 23.96%
Cap gains: taxed at 23.2%

So 'large corp div's' and cap. gains are taxed at 1/2 the rate as interest income.

Never realized / knew there was a difference between 'Small Business Dividends' and 'Large Corp. Dividends'. Does anybody know about this difference and how you find out what company X div's fall into?


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## steve41 (Apr 18, 2009)

What you are going to pay in tax next year is really not a major concern. It is the individual tax pmts you pay year over year, including that final tax pmt your estate makes when you die, that are most meaningful.

The problem is that your tax rate (broken out as divs, capgains, interest etc) is going to vary quite substantially year over year as your various investments (reg/nonreg/equity/etc) come in and out of play over time.

It is a complex determination. In addition to the type of taxation, you must consider the time value of money effect, indexed brackets, clawbacks, age credits. Not an easy calculation.


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## ssimps (Dec 8, 2009)

steve41 said:


> What you are going to pay in tax next year is really not a major concern. It is the individual tax pmts you pay year over year, including that final tax pmt your estate makes when you die, that are most meaningful.
> 
> The problem is that your tax rate (broken out as divs, capgains, interest etc) is going to vary quite substantially year over year as your various investments (reg/nonreg/equity/etc) come in and out of play over time.
> 
> It is a complex determination. In addition to the type of taxation, you must consider the time value of money effect, indexed brackets, clawbacks, age credits. Not an easy calculation.



Please start using this thread:

http://canadianmoneyforum.com/showthread.php?t=1818

for the discussion we are havng that has nothing to do with the OP comments about AZ.

Thanks.


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## break_thru (Jan 22, 2010)

What are the tax consequences of owning property in the US? I thought the US has a 30% withholding tax for non-US residents?


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## steve_jay33 (Aug 29, 2009)

R9. Has your property management company already rented out this property?
Was it a 1 year lease?


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## stinsont (May 29, 2009)

interested to know how you get access to the MLS information. That seems to be the key when looking for good investment properties - access to the right info!


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## steve_jay33 (Aug 29, 2009)

Great, now I have no chance of getting my question answered.


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## Berubeland (Sep 6, 2009)

Feel free to look up his website and send him an email if you need an answer.


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