Desert Exchange

Early in the pandemic days I met Michelle and Joey, a couple from Los Angeles, at one of my favorite listings, The Onyx House. Dipping their toes into valley real estate and trying out the potential move, the Onyx House showed the couple that Phoenix real estate could really deliver the goods; architecture, space, and style. With Michelle’s parents already living in Scottsdale part-time, they started their relocation to be closer to family, to get a bit more normalcy for their kids, and try a new location- but with some unique and stylish options for housing- their move became easier. After a few visits to Phoenix to view properties- they took the plunge and bought their primary home here in Phoenix.

Fast forward two years, imagine my absolute surprise when I got the call- Michelle and Joey were selling their investment home in Atlanta (their previous home before LA) and wanted to buy another property in the Valley. Not one, but two homes in Phoenix for the couple who thought they would surely be outta here once things got back to normal- I was elated because it really meant they were here for the long haul.

We discussed a the benefits of a 1031 exchange, how to go about it, what it entailed, and constraints of the tax deferred exchange program. We set the wheels in motion and started the search for home/inveestment #2. Although under some pressure- not only from the 1031 exchange, but the market craze- we found the perfect spot. Now, their investment has been re-imagined, re-branded, and running as a successful boutique short term rental experience. Such an absolute success, I wanted to share their story and their space with the Neighborly audience- not only as major style inspo, but as a way to re-imagine a way to invest in your long term financial future, utilize investments you may already have and exchange to something inspiring.

N: Did anything surprise you about Phoenix?

JM: We were pleasantly surprised to discover a thriving arts district full of designers and creators and artists and musicians. We’d taken that for granted in LA. and were really missing it when we got here. It was a bit of a culture shock to move from a cultural epicenter to the suburbs of AZ and it started to feel more like home when we found the art world here. You and Jamie were our first glimpse into that and we were like “See! There’s cool people here!”
I was also surprised by how…easy it is to be here. It’s easy to get around, easy to park, easy to get reservations or concert tickets or whatever. It just doesn’t feel like a battle to leave the house the way it can in LA. 

N: What made you decide to do a short term rental?

JM: We decided to do a 1031 exchange with the proceeds of the rental property in Atlanta so that came with some restrictions on what we could do. It had to be a like-kind property, so a personal vacation home was a no-go. It had to be an investment property. We explored the idea of multi-family but the earning potential of a short term rental was too attractive to ignore. Our average monthly revenue is 2-3x what we could get vs long term rental. Even with the much higher overhead, margins are far higher as a STR than it could be as a LTR. Tourism drives a ton of the economy in Arizona and that doesn’t look like it’s going to abate anytime soon. We saw an opportunity to create a differentiated experience that could service the demand for tourism. Maybe more importantly, it needed to be a passion project. We were drawn to the idea of creating and curating an experience. A place for people to fall in love with the desert, like we did in Joshua Tree.

N: You took on a pretty big project in the remodel and decor of your investment property- what was the scope of the work- and did you stay on target? 

JM: We were already mid-way on a gut reno of our primary residence (our first ever renovation) and had learned a few things along the way. With Ocotillo the goal was to keep it simple. We didn’t move any walls or relocate any plumbing or gut the electrical. All that was in good shape, so there was no need to fix things that weren’t on the fritz. The house already had good bones, it just needed an aesthetic vision. That’s what we brought. We took all the flooring out, exposing the concrete, and did a grind and seal to add a more organic feel to the house that would also be indestructible in a rental. The kitchen and both bathrooms got a full remodel, bringing in more elevated materials, a more contemporary feel and more space and openness. Michelle had the vision to add the portal window between living and dining and that added a ton of interest to the main space. The reno went pretty quick. It was started 2-3 months after our other project and was finished 1-2 months earlier. It was about 4 months start to finish. Furnishing was probably 50% over budget. We underestimated just how much stuff you need to furnish a 2,000 sqft home in a way that is coherent and interesting. Michelle did an incredible job of finding vintage pieces and thrift store finds to blend with high end pieces and that added a ton of character to the space while keeping the budget under control.

N: How has owning a short term rental been so far?

JM: Our hypothesis going into it was that the Phoenix market was hungry for an elevated, curated experience at a mid-tier price point. There’s an ocean of really boring, poorly curated spaces all over the valley in the ~$250-500 per night price point. There are also a good bit of super expensive resort style properties with 6,000sqft, a water slide and a tennis court that are ~$1,000+. We didn’t see many enticing options in the middle of that spectrum so that was our strategy. So far, it’s resonating. We’re seeing 90%+ occupancy rates in peak season and ~80% even in the dead of summer. We’re been blown away by that and have been super excited to share it with so many people. 

N:  What do you wish someone would have told you about the 1031 exchange process or airbnb ownership?

JM: You read the paperwork and you intuitively understand that the time constraints of a 1031 are going to be a little stressful. But then you close your sale and the funds deposit and now the clock is ticking and you’ve got 90 days to identify (and basically be under contract) and you hate every property you’re seeing and the doubt starts to creep in. Oh god. What have we done? I wish someone would’ve told me I wouldn’t sleep for awhile. But if you’ve got the right agent that understands you and what you’re looking for, it’ll come together. You saw how special this location was and you knew that the bones were solid. Walking into the showing was a huge relief. We knew it was going to work. 

N: What has been the most rewarding thing about owning an investment property?

JM: We love the feeling of creating an experience that someone genuinely enjoys. Hosting people who are celebrating together, coming into town for an engagement party, seeing family, or just to spend time together with their kids. It’s pretty special to be a part of that and it’s why we take it so seriously. This is their big trip! We want them to have a great time and it’s really gratifying when they have a blast.
There’s also, of course, the excitement of future opportunities that it presents. We’d love to take our learnings from Ocotillo and put them towards a boutique hotel somewhere in the valley. Small. 6-8 rooms. Maybe built around a shared space for guests, a courtyard or a pavillion. Something that feels more like a compound than a motel.

I love when clients dream big and pull it off, it’s really inspiring to be even a little part of that journey. Joey and Michelle continue to host at their stunning property, The Ocotillo House- they have finished the incredible remodel of their primary home, a super stylish Haver, and are feeling good with their AZ resident status.

Check out the amazing Ocotillo House short term rental property the next time you visit Phoenix or have friends in town needing a fantastic desert getaway.

Airbnb: Ocotillo House

Instagram: the_ocotillo_house

Written by: Misha Renteria

Photos by: Lauren Kay

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