My First Investment Property: A Deal in the Desert (Tempe, AZ)

After selling real estate in Silicon Valley for about 4.5 years, I was almost 31 years old when I finally had enough money for a down payment to buy an out-of-area investment property. I always knew that my first investment would be in Arizona because my parents were both living there at the time, and I wanted to be closer to them as they aged. But I wanted a place of my own. Even though my parents were/are still married, they lived in separate houses - neither of which were optimal situations for me since my dad lived in an unsafe neighborhood in Phoenix, and my mom lived in Chandler with several cats (which I am very allergic to).

As I started searching for a place to buy, I honed in on Tempe. Tempe is where Arizona State University is located, and that is also where I went to college. When I went to ASU from 2006-2010, there were approximately 60,000 students who attended the school full-time. From an investor’s perspective, this was a great number. I knew investing near schools would not only attract students, but the school itself creates so many jobs and reasons to visit. With the constant flow of people in and out of the area, I knew there would always be people looking for a place to rent.

 "AZ had become a secondary market to California"

ASU is close to Phoenix Sky Harbor International Airport, which is another key factor that I considered when I purchased the property. Side note - if you’ve ever lived 2+ hours away from an airport, then you know how life-changing it is to live within 15 minutes of one. In addition to the airport proximity, I noticed how AZ had become a secondary market to California. For instance, those of us who couldn’t afford a home in Costly California migrated to Affordable AZ. I remember having a lot of friends in college who were originally from CA, and their parents thought that AZ was so affordable. And by comparison, it was.

In February of 2019, I fell in love with a loft I had seen on Zillow. It had been on the market for a few months and was originally listed in October of 2018 for $190,000. As time dragged on and the property accrued more days on the market without selling, the seller had performed several insignificant price drops from $190,000 to $189,000 to $188,500 to $187,500 to $187,000 to $185,000 over a four-month period. (As a professional real estate agent, this is not a pricing strategy that I recommend btw).

After seeing the property’s pricing history, I assumed that the price was somewhat negotiable since it still hadn’t sold. At the time, the other comparable properties were selling in the $170,000s, so I called my agent and wrote an offer for $172,500, leaving room to negotiate. As I had suspected, the seller was stubborn on their price. After some back-and-forth negotiations, we settled on a price of $180,000. It was a little more than I wanted to pay, but in the grand scheme of things, it was still an affordable property. To give some perspective, my Bay Area clients typically have more than $180,000 for their down payments since most homes are over $1M and require 20% down (plus closing costs).

Once the seller and I had come to an agreement on price and we entered into contract, I flew to AZ for about 12 hours to do inspections at the property. Unlike in Silicon Valley where most buyers have to waive all their contingencies for inspections, I was able to walk through the property with a home inspector. He found a problem with the air conditioner motor that needed to be replaced, and I remember using the findings from his inspection to negotiate about $600 for the seller to pay towards my closing costs.

In the end, I put down 30% and financed the rest. Loans for investment properties typically require a higher down payment than when you buy a primary residence, and they also come with higher interest rates. My interest rate at that time was 5.875% and I refinanced in 2021 to 3.675%, which lowered my mortgage payments by about $200 per month.

When I closed on the property, I planned to turn it into a short-term rental and to manage everything from afar. See, my dad had always advised me against buying out-of-area properties. He said that I should only invest in places where I can “see” the property - aka, the investment should be within 1 hour of wherever I lived. This is a very common way of thinking, but I disagreed with him. So I didn’t tell my dad about the purchase until months after I closed...

"I struggled to get the property furnished and listed online"

In my quest to prove to him that I could manage everything remotely from California, I struggled to get the property furnished and listed online as a short-term rental. I had hired a great property manager, but I had an inept handyman helping me assemble the furniture that I had ordered from Wayfair. Not only did he put the furniture together at a snail’s pace, but he assembled things incorrectly. After 2 months of slow progress, I enlisted one of my AZ friends, who also owns short-term rentals, to help me finish prepping the property. He was a lifesaver. I don’t think I’ll ever be able to repay him for helping me as much as he did. Especially considering that he had to walk up and down 2 very tall flights of exterior stairs (in the desert) to take all the dozens of Wayfair boxes to the dumpster.

After about 3 months of managing everything from afar, the loft was finally ready to list online. My property manager had advised me to list it on VRBO instead of Airbnb, so we did. There was a constant flow of bookings, and I was finally starting to have some income. It was definitely not fun having to pay for the 3 consecutive months of vacancy, plus all of the furnishings, so I was very happy when the money finally started flowing in.

One of the reasons I decided to list it as a short-term rental instead of a long-term rental was because I could stay there whenever I wanted to. The other main reason was that I could charge more per night by utilizing this STR strategy.

In December of 2019, I went to AZ to visit my parents for the holidays. At that time, I had already told my mom about the property, but I still hadn’t told my dad. I was so excited to surprise him with the news that I had purchased my first property. When he and my mom entered the loft, I was waiting for them upstairs and I shouted “SURPRISE!!” My dad’s response was, “Hi, dear,” and that was it. I asked him why he wasn’t surprised, and he said that he saw on my Instagram that I was coming to AZ (this is what I get for posting pics of me at the airport lol). I just assumed that he was a caveman who didn’t know how to use Instagram, but I guess I was wrong!

"This forced me to become financially independent"

Even though he wasn’t surprised, he was proud of me. And I think he was even happier that I didn’t call him to ask for any money when I bought the condo. He has always said that the word “give” is not in his vocabulary when it comes to money. So even though we have a great relationship, I have always known that I could not rely on him financially. This forced me to become financially independent, which is what allowed me to buy my first investment property without any financial assistance.

Now that I've owned the property for a few years, I can tell you that it's been going well... mostly. Apart from one crazy cat lady guest, and a couple of druggies, it's been a solid investment. In 2021, I refinanced to a lower interest rate and have been saving about $200 on my monthly mortgage. And the property has appreciated by at least 50% since I bought it, so I'm extremely happy about that (even though I have no intentions of selling).

"Most investors would never consider doing this"

In 2022, I rented the property to one of my besties in AZ - we had a verbal month-to-month agreement and I didn't ask her to put down any kind of deposit. Most investors would never consider doing this, but I knew that I could trust her. She lived there with her fiance for a little over a year and they were the best possible tenants I could have asked for.

After she moved out in the Fall of 2023, I decided to list the property on airbnb as a mid-term rental (MTR) instead of a short-term rental (STR). With this MTR strategy, I've been seeking guests who want to stay for at least 30 days, but for less than a year. With this new strategy in place, I've been able to successfully manage the property on my own without the help of a professional property manager. And with fewer guests checking in and out, it's been less stressful overall.

Even though I had a good amount of bookings with VRBO, I chose to list the loft on Airbnb this time. When the crazy cat lady overstayed her welcome a few years ago, VRBO didn't do very much to help with the situation. But Airbnb support has been AMAZING and I cannot say enough great things about hosting with Airbnb. If you've been thinking of hosting and aren't sure where to start, I highly recommend starting with Airbnb. Click here to get started using my referral link!