Phoenix’s Hot Housing Market

Phoenix’s Hot Housing Market and the Surging Demand for Multi-Family Housing

In Phoenix, Arizona, the only thing hotter than the desert weather is the current housing market. A steady stream of new residents lured by the mild winters, lower cost of living, outdoor recreation, and a rebounding job market have turned up the heat on the demand for housing in the Arizona capital and its surrounding cities. With so many residents in Phoenix and still waiting to buy, multifamily investors are uniquely poised to satisfy that unmet demand.

Phoenix is America’s fifth most populous city, with a population of about 1.73 million, which is expected to double by 2040. Its surrounding area, Maricopa County, boasts a population of almost 4.5 million and includes rapidly growing cities such as Scottsdale, Mesa, and Sun City. While greater Phoenix was a popular destination for newcomers during the pandemic, even before 2020, the area had been seeing new residents arrive in droves. In 2019, the Phoenix area attracted about 57,000 new residents. The trend continued in 2020, with about the same number of new arrivals, many of them transplants from California and other pricier markets.

That swell of new residents, combined with historically low-interest rates, has created unprecedented demand for real estate. According to Redfin, In May of 2021, Phoenix home prices were up 31.9% compared to last year, selling for a median price of $376K. In Maricopa County as a whole, home prices appreciated at about the same rate but the median home price is even higher, at $400,000. On average, homes in greater Phoenix sold after 24 days on the market compared to 40 days last year. The average home in greater Phoenix is selling for 1.8% above the asking price, while more sought-after properties can sell for 6% or more above asking. Many homes are getting multiple offers, often with waived contingencies.

Those appreciating home values present an excellent opportunity for multifamily real estate investors. Multifamily housing offers the highest risk-adjusted returns of all real estate investment products, and Phoenix has a huge base of renters who are paying increasingly more every year. According to Rent Café, the average rent for an apartment is $1,252, with a 10% increase in just the past year. That rapid appreciation leads to an even greater ROI for investors. With a quickly rising population and only about five weeks’ worth of supply on the market, this is a market that will offer exciting opportunities to multifamily investors for the foreseeable future.  

Using Your IRA to Invest in Real Estate

Did you know that you can use your IRA to invest in real estate? In a traditional IRA, you invest in a fund comprised of stocks, bonds, and other common types of investments chosen by a plan administrator. With a self-directed IRA, investors have the freedom to pick the exact assets that they’d like to hold in their account. That can include REITs (real estate investment trusts), or even entire properties.

In order to add real estate to your self-directed IRA, you will need to work with an IRA custodian, which is a person or company who will manage your IRA. Not all custodians are created equal, and they will differ on the types of investments they can handle, so you may have to talk to a few of them to determine if they are experienced with REITs or using an IRA to purchase property.


REITs vary in size and nature but tend to be comprised of large commercial and residential properties. While REITs are often traded on the stock market, they don’t reflect ownership of a company like a stock does. When you invest in REITs, you’re purchasing pieces of buildings. This means they will be subject to the same booms, busts, and fluctuations of real estate, including the ability to hedge against inflation. In times of high inflation, when rents and property values increase, the value of REIT shares will also increase.

Buying property

When you buy a property using your IRA, the IRA is the buyer acting on the investor’s behalf. Purchasing real estate through an IRA usually means being a cash buyer, because securing financing to purchase property inside an IRA isn’t easy. Therefore, the buyer’s IRA balance will have to be high.

The IRA custodian completes the purchase by wiring the funds, including all closing costs, from the buyer’s account to escrow. The IRA now owns the property. The title to the property will read something to the effect of “John Doe Trust Company Custodian [for benefit of] (FBO) [Your Name] IRA.” Once you rent out your property, the lease agreement with the tenant is signed by the self-directed IRA custodian, and rental payments are made payable to the SDIRA account. Similarly, any operating expenses must be paid out of the IRA.

When you purchase real estate using an IRA, it’s important to know that you will have a lot less leeway to use the property than if you bought the property with cash or traditional financing. You can’t use it as a home office, vacation home, a second home, or a place for your children to live. The reason for this is that IRA’s have a firm “no self-dealing” rule, which prohibits you from using an IRA asset in any way that benefits you personally. That includes borrowing money from your IRA, selling property to it, or you or your family spending the night in your property. 

The no self-dealing rule also bars even minimal first-hand involvement with your property. For example, if your property needed a minor repair, you may be tempted to fix it yourself. Unfortunately, the IRS considers this “furnishing services” to the IRA, which is strictly prohibited. The penalties for this are pretty steep. The entire IRA would be considered distributed to you, and therefore taxable, plus you’ll owe a penalty. Of course, this also means that you’ll need enough capital in your IRA to cover any repairs or other expenses your property incurs. To avoid violating the “self-dealing” rule, always keep in mind that your IRA owns and operates the property. So if you need to have work done on your property, your IRA must pay someone else to do it.

When your property generates rental income, all of that income goes straight back into your IRA. Because you do not personally own the property, you can’t access any of the income. Of course, you will eventually get the money when you make withdrawals from your account at retirement.

The Bottom Line

If you do decide to buy property using your IRA, you will have the advantage of collecting rent from your tenants and letting it grow tax-free in your IRA. Having said that, purchasing property through an IRA is an especially risky prospect. If you encounter significant repair or maintenance costs, you might need to make additional contributions to your IRA, which could also subject you to penalties for contributions that exceed the annual contribution limits. If you decide this is for you, make sure that you have a self-directed IRA custodian who is experienced with real estate transactions.

What is an Accredited Investor?

An accredited investor is a person or entity who has been deemed capable of taking on the increased risks associated with certain investment offerings. Accredited investors have the best choices when it comes to investment options beyond exchange-listed securities. At MC Companies, we choose to work solely with accredited investors. 

What Are the Requirements?

To qualify as an accredited investor, a person must meet one of two tests:

1. Have an annual income of at least $200,000 (or $300,000 for joint income with a spouse) for the last two years with the expectation of earning the same or higher income in the current year; or

2. Have a net worth exceeding $1 million, either individually or jointly with their spouse. (The value of your primary residence can’t be included when calculating net worth)

In this segment Ken chats about his investors: ow MC Companies qualifies them, why as a company they choose to only work with accredited people, and how MC Company is different than other companies when raising money and investing. 

Click here to listen.

Active vs. Passive Investing: Which is More Profitable?

There are as many ways to invest your money as there are ways to spend it. Having said that, most investment strategies can be classified in either two ways: active investing and passive investing. Each strategy has its advantages and disadvantages, but one has a stronger track record for return on investment. But first, let’s break down each one.

Active investing is typified by investing in fluctuating assets, such as stocks and bonds. Active investing requires active oversight, typically by a portfolio manager. With active investing, you’re trying to anticipate the way the markets will rise and fall in order to determine the best times to buy and sell. It’s up to the portfolio manager to be laser-focused on market changes in order to strategize transactions.

Passive investing is carried out over the long-term with more stable assets for a buy and hold approach. Index investing in a good example of a passive investing strategy, in which investors buy into a representative benchmark, such as the S&P 500 index, and hold onto it for the long term. This strategy removes the need to scrutinize the ups and downs of each investment. Passive investors need to resist the impulse to buy or sell depending on market fluctuations. It’s basically a long-term investment in corporate profits across multiple companies.

So how do these two strategies stack up against each other?

Passive Investing Pros

  • With passive investing, the fees tend to be lower, since no one is actively managing the investments.
  • There is a clarity and straightforwardness to investing in an index fund. You always know what funds are included.
  • You are unlikely to have a large capital gains tax as the gains are modest.

Passive Investing Cons

  • When you buy into an index fund, those funds are pre-set, so the investor has no ability to specify which stocks to invest in or divest from.
  • The immediate returns on passive investing are smaller than the potential dividends from active investing. With passive investing, slow and steady is the name of the game.

Active Investing Pros

  • With active investing, investors and their portfolio managers have the freedom to invest in whatever stocks they like.
  • Active investors can exit specific stocks when they are underperforming. 

Active Investing Cons

  • Active investing is more expensive. With active portfolios, managers can charge one percent or more, compared with 0.6 percent on average for passive investments.
  • Active investing is inherently uncertain and requires constant attention.

As with most investments, the real question is which strategy will be more profitable.  Surprisingly, multiple studies have concluded that passive investing is more profitable. Only a small percentage of actively managed funds do better than passive indexes. With active investing, there is a higher likelihood for volatility, so whatever quick gains you receive can just as easily be canceled out by a quick drop. While passive investing doesn’t offer the exhilaration of a fast windfall, it ultimately offers a higher return.

Qualities You Need to Look for in a General Partner

A general partner is a partner that manages the deal on behalf of the limited partners, who usually are the investors. This partnership can be a win win situation for everyone involved, but like any partnership there are certain things you need to look for to know if a certain general partner is the right partner for you.

Below are the five things you need to ask yourself when choosing a general partner.

Do Your Goals Align?

Goal alignment is critical for a successful partnership. What are your long-term goals, and are you in sync with the general partner?

Some GP’s want to buy and cash out when the market is hot. Others like MC Companies like the buy and hold for cashflow model. Either is okay, but your plan has to align with the GP you select.

How Much Experience Do They Have?

If you are going to give someone your money to invest you need to make sure they have proven experience. I mention “proven” because a lot of people say they are experienced, but I always trust, but verify. Ask to see deals they have in their portfolio and chat with other investors that have previously invested with them. Make sure you do your homework before making a selection.

How Do They Manage the Cash?

When you invest with someone, you are getting into business with them. You need to know you are okay with the way they manage the cash. How much do they carry in reserves? Do they have to cash call often? Are they straightforward with their numbers?

At MC Companies we carry a year of reserves on each property. This ensures we have a safety net in case it is ever needed.

Do They Invest in Their own Deals

If someone is telling you how great a deal is, why wouldn’t they want to invest in it? A great GP always has their own skin in the game on their deals.

You Can Trust Them

A business relationship is no different than a personal relationship in that you need to like and trust the people you are working with. You will have to be in this relationship a long time, so always keep that in mind when making a decision.