What to look for in investment home? (Phoenix, Mesa: section 8, 2013)

[WSPHXPELON]

I'm sure there must be a lot of CD readers/posters who own Rental Properties in the PHX Metro Area. My question to those folks is: Based on your experiences, what is/are the most important things to consider while looking at homes to purchase for the purpose of renting out. I have also been going back and forth between buying a SFR and a 4-Plex. Any ideas/suggestions/experiences would be welcomed. And FYI, personally I am for properties under $300k and open to any area(s) in the Valley.

[KurtAZ]

Good school district (tend to get young families rather than 3 room mates)...obviously more rent than any outlay for mortgage/HOA/etc...I have a friend that owns a few multi-family units in CA and does pretty well with them. Depends on how much you can get it for/rent it for. 3/2s seem to be the fastest moving although in Gilbert/Mesa I would probably be looking for 4/2s or better. Minimum landscaping or low maintenance landscaping.

[Galaxie Girl]

KurtAZ makes some good points, especially about low maintenance landscaping. Gravel is great, easy/cheap to maintain.

My husband and I own a couple rentals in the metro area. If you're not familiar with how to analyze the financial value of a rental, here is a post where I explained to someone how I determine the value:
//www.city-data.com/forum/real-...etrics-do.html

That is just how we analyze properties, based on our long term plans. Other investors have other ways of analyzing things (such as accounting for tax write offs). One thing you have to decide is, why are you buying? Are you looking to flip, hold until the market improves in a few years and sell, or hold long term and live off the profit? The analysis I gave in the thread above is for holding long term, so you want to know your ROI and net profit.

Generally, we like multifamily better than SFR, because you can typically get a better ROI (it's like buying units in bulk). That said, if you want to flip, maybe you can do better buying a REO SFR, fixing it, and selling it, I don't know.

I'm not so concerned with schools, as Kurt mentioned. I have no problem with renting to single people or young couples without kids, or anything else really. My big concern regarding the area to buy in is: the area. By that I mean, no bars on the windows, not tons of deferred maintenance on surrounding buildings, low(er) crime rates, etc. Basically, we won't buy in an area that we wouldn't be willing to walk around at night, so that we can get the "better" tenants.

Are you familiar with landlording? You'll want to read about AZ landlord tenant laws. FYI, most cities charge a tax on rents. Are you familiar with tenant screening? Credit/background checks, minimum income, etc.? Perhaps search the Renting forum here on CD for keywords like tenant screening criteria or something. Will you be managing it, or will you use a manager? If you manage it, you probably don't want to buy anything more than 15-20 minutes from your home, and you should drive by it weekly.

[homebeyer2013]

Would have been a great idea 2 years ago....not so much now. It's very difficult to find an honest property manager, and it's even harder to find good tenants. Get an estimate on all new carpeting in a 4/2, or a new 5 ton a/c.

[john3232]

Originally Posted by WSPHXPELON

I'm sure there must be a lot of CD readers/posters who own Rental Properties in the PHX Metro Area. My question to those folks is: Based on your experiences, what is/are the most important things to consider while looking at homes to purchase for the purpose of renting out. I have also been going back and forth between buying a SFR and a 4-Plex. Any ideas/suggestions/experiences would be welcomed. And FYI, personally I am for properties under $300k and open to any area(s) in the Valley.

I own a number of rental properties and it all come down to this:

Unless you are fairly confident the property value will show steady appreciation or the rental income is substantial it isn't worth the headache.

You need to factor in 50% of rental income for operating costs and problems dealing with renters.

Something else to seriously consider: being an out of state owner adds more problems.

You might have a property management watching the property but who is going to watch the property management company?

You will need to double check and verify what work is being done and many (I've had five over the past 15 years) don't like this. A PM company can easily become as much of a headache as tenants. Many PM companies deal in volume and it is unrealistic to expect they will monitor repairs or repair costs closely regardless of what they tell you.

[homebeyer2013]

Originally Posted by john3232

I own a number of rental properties and it all come down to this:

Unless you are fairly confident the property value will show steady appreciation or the rental income is substantial it isn't worth the headache.

You need to factor in 50% of rental income for operating costs and problems dealing with renters.

Something else to seriously consider: being an out of state owner adds more problems.

You might have a property management watching the property but who is going to watch the property management company?

You will need to double check and verify what work is being done and many (I've had five over the past 15 years) don't like this. A PM company can easily become as much of a headache as tenants. Many PM companies deal in volume and it is unrealistic to expect they will monitor repairs or repair costs closely regardless of what they tell you.

at least 40%, but 50% may even be closer. Well stated.

[WSPHXPELON]

Thanks to everyone who replied! FYI - I live here in Phoenix already, would not use a Property Management company, and plan to buy and hold (and pay off within 5 years) and use rental income as Supplementary income.

[john3232]

Originally Posted by WSPHXPELON

....- I live here in Phoenix already, would not use a Property Management company.

It makes a huge difference if you are local and can inspect the property and potential problems yourself.

Also the importance of due diligence when screening rental applicants cannot be understated.

[homebeyer2013]

If your're willing to get your hands dirty, take a few risks, and have some capital; it will pay a lot better than the Phoenix job market currently does. Play hardball on pets, late fees, and deposits. If someone uses the word "Section 8," run like Hell.

[WSPHXPELON]

Originally Posted by homebeyer2013

at least 40%, but 50% may even be closer. Well stated.

Are you factoring in 40-50 percent of rental income based on someone using a property management company? If so, what do you think an accurate approximation would be for someone who is local and manages the property themselves?