Before you invest in a Phoenix rental property, you need to know how you can expect it to perform financially. You also need to be sure it fits your portfolio and your investment goals.
Whether you’re buying your first rental property or adding to a growing portfolio, we recommend that you surround yourself with professionals and gather as much good advice as you can.
Today, we’re sharing some tips on where to invest in Phoenix.
Phoenix Investments: Cash Flow vs. Growth Potential
You can start your search in a number of different ways. First, you’ll have to decide what’s more important to you – cash flow or appreciating value. Ultimately, you want a rental property that both cash flows and grows in value. But when it comes to choosing what you want to buy, you’ll usually have to prioritize one over the other.
If you’re looking for immediate cash flow, you’ll have to be prepared to structure your financing and loan deals in a way that you’re earning money with your rental income every month. This might be easier with a multi-family property, where you have several streams of rental income.
Evaluate the amount of rent you can earn before you buy; this will be an important factor in your cash flow potential. Remember that negative cash flow the first few years into an investment isn’t necessarily bad, especially in areas where there’s gentrification or new construction. Prices go up quickly in these neighborhoods, and if you get in early you’ll see your rent rise pretty reliably year to year.
If growth and appreciation is your primary goal, a single-family home in a neighborhood with an HOA might be your best bet, and there are a lot of those in Phoenix. A good property manager or real estate professional can help you track appreciation by zip code, telling you where prices and home values tend to increase the most.
Take a look at the neighborhoods where there are higher concentrations of rental properties. You know that tenants want to live in those neighborhoods, so you won’t have to worry about trying to attract good renters to a less than desirable location.
Consider Property Condition and Maintenance Expenses
As you’re evaluating neighborhoods where you might like to invest, consider the age of the properties that are available. Older homes will generally require more repairs. It usually takes about 15 years for appliances to start dying.
A home that’s 18 years old will probably need a new roof soon and maybe a new HVAC system unless it’s been recently replaced. Before you buy, you want to estimate how much it will cost you to prepare the property for the rental market and to maintain it during the period that you own it.
To attract the best tenants, you’ll need to offer a well-maintained property with modern upgrades and updates. If you buy an older property, you’ll have to be prepared to make some functional repairs as well as cosmetic renovations. Work this into your budget to avoid surprises after you’ve signed the deal.
Ultimately, you have to look beyond the neighborhood and even beyond the property itself. Determine what you want to do with your investments, and whether it’s more important for your investment to earn cash flow or to appreciate in value.
We know the Phoenix market really well, and we’d be happy to help you make a smart and profitable decision. Contact us at Service Star Realty, and let’s talk about your investment goals and where you should buy rental property in Phoenix.