My Dad has a lot of great sayings. I’ll never forget the night of my senior prom. I brought my girlfriend back to our house for pictures. As I stood there posing in my $100 rental tuxedo he blurted out, “Son, you can’t polish a turd.”
Gee, thanks Dad.
In March 2009, my Dad bought a 1,500 square foot bank-owned home in Maricopa, Arizona. The house was, well ”¦ a little turdish. He spent $5,000 fixing it up and quickly leased it for $875 per month. His net monthly cash flow was $350. Neither my Dad or I knew it then, but March 2009 was a great time to buy a house. Prices were at or near rock bottom.
Once considered a poster child for the housing market bubble in Arizona, the town of Maricopa has been on the rebound the past few years. Located 35 miles south of Phoenix, this bedroom community was decimated by the real estate market crash. First time homebuyers and investors flooded the area from 2004-2006 with the “drive until you qualify” mindset. When the bubble burst property values there
dropped by more than 60%.
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Now, like most of the greater-Phoenix housing market, Maricopa is seeing rising prices and declining inventory. Those first time homebuyers and investors are back. The for sale signs that lined almost every residential street are gone. Abandoned homes are now occupied with families.
Some would call it a miracle. I call it affordability. There’s no problem price can’t fix.
Plain and simple ”“ when people can buy for less than it cost to rent, then people will buy. When investors like my Dad can get a 12% annualized return, before tax depreciation, then they will buy too. And buy. And buy. And buy.
Last week, my Dad put his Maricopa house on the market for sale. He decided to get out of the landlord business. So I listed it for him for $124,900. Six days later it was under contract. This little 1,500 square foot home, located in the heart of Maricopa, appreciated, on average, 13% a year for three years in a row. When the deal closes next month my Dad’s pre-tax annualized return will be 36%.
I guess you can polish a turd after all.