Ten Phoenix Real Estate Investment Tips for Aspiring Investors
When it comes to investing, everybody has individual goals and aspirations. However, I have found these ten Phoenix real estate investment tips are guidelines every aspiring real estate investor should follow:
1. Compare Property Values and Rents
Financial statistics only go so far; the best measure of a property's market value is often recent sale prices of nearby properties and a survey of area market rent. Homes for sale in Gilbert AZ have strong sales and rental comps, making them ideal real estate investment property to own.
If you are financing your investment purchase, your lender will require a rent survey as part of the appraisal to ensure the property will generate sufficient rental income to support the cost of ownership and your “backend ratio” will be evaluated to ensure sufficient discretionary income is available as required.
If you overpay for a rental property, the difference between collected rent and your monthly costs will have to come out of your pocket. Renters who can afford a high rent can afford to buy instead, so market rent is limited by the equivalent cost of home ownership. Reasonable rent is required. The purchase price of your rental property can’t be so high that costs far exceed market rent – unless you this is part of your investment plan.
In the heated Phoenix real estate market where prices of homes for sale in Chandler AZ are climbing, monthly out of pocket contributions may be required to cover the rental income shortfall – which was not unusual in the past. An investor focusing on capital gains and/or tax breaks can justify paying the shortfall. Just beware of your cost and expenses upfront and not find yourself having to pay unexpected costs.
2. Beware - Tax laws are always subject to change
Don't base your investment solely on current tax laws. The tax code is constantly changing - but a good investment is a good investment, regardless of the tax code. The right property with the right financing is what you should look for as an investor.
You should be able to sleep comfortably when your investment objective is to have your Gilbert rental property generate sufficient current rent to cover: your loan PITI and HOA (homeowners association) payments, management fee plus vacancy and repair contingencies. Tax write-offs such as property taxes and depreciation allowance should offset rental income with capital gains being the icing on the cake.
3. Specialize in something you Know
Start in a market segment you know in an area like Chandler and Gilbert AZ, known for buyer and tenant high demand. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payment properties, condominiums, or small apartment buildings, you'll benefit from your experience by specializing in one aspect of investment real estate properties.
4. Know the Costs going in!
Know financial statements inside out. What are the operating expenses? What are loan payments? Vacancy costs? Taxes? What does the cash flow statement look like? These are key issues that must be addressed before you can confirm you are making a solid investment decision.
5. Know where your tenants are coming from
If the last rent increase was recent, the current tenants may be considering a move. If tenants have a short-term lease, the seller may have them living there simply to attract unsuspecting buyers. Collect from the seller estoppel certificates executed by each tenant and request a copy of the current lease(s) showing the amount of the security deposit and who currently holds the security deposits.
6. Assess the tax situation
Taxes are an integral part of successful Phoenix real estate investing, and can often make the difference between positive cash flow and a negative one. Know your tax situation, and see how it can be adjusted to your advantage. It is a good idea to consult with your tax adviser during the 10 day inspection period.
7. Investigate insurance coverage
The Arizona Purchase Contract requires the seller to provide a 5-year insurance claims history. But you still need to contact your insurance company as soon as you contract and open escrow to ensure your insurance carrier will issue an insurance binder on the property at an affordable price. Your insurer will check previous insurance claims of the home to determine the insurance rate.
8. Confirm Utility Costs
Ask the seller for copies of recent utility bills to verify recent utility expenses, especially if any of these costs are included in your tenant's rent. It is ideal to have separate utility services for each tenant. Check into the cost of adding individual meters.
9. Maintain good financial records
We already discussed the importance of an accountant who is well-versed with the constantly evolving tax code. But it is equally to maintain good records of all expenses, planned and emergency maintenance, as they occur, and track additional income stream from onsite laundry, etc. Mistakes are made at the end of the tax year trying to recreate what happened all year long. It will definitely cost you more in the long run not having good record keeping as part of your daily routine! Good maintenance records can add value to your rental when you sell. You can show your buyer the property has been properly maintained and there is no deferred maintenance.
10. Inspect! Inspect! Inspect!
Make sure that you always perform a thorough inspection of the Phoenix investment property before buying it. Never, ever buy any property without at least examining onsite. If you cannot do that, then hiring professional inspectors to examine the structural and mechanical systems is a sound investment. It is important to know what you are buying. Unknown Deferred Maintenance costs can play havoc with your investment plans. Consider purchasing a Home Warranty Insurance Plan to pay for any unexpected repair expenses, as you build sufficient reserves saved from your income stream with the goal of self-insuring yourself.
Thinking of setting up a Self Directed Roth IRA for real estate investments? Let's talk soon about homes for sale in Gilbert AZ and Chandler AZ!
Contact Sam to discuss your Phoenix real estate investment plans and schedule an appointment to discuss how he can turn your plans into action.
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