Last week we took a look at the Greater Phoenix Rental market data and broke it down by city in different categories. This comparison showed the rental market patterns in Phoenix over the last three years
All of the data was good for landlords. Rental prices have gone up Valley wide and inventory is down. This is resulting in many less vacant days while waiting for a renter.
So is it a good time to buy a rental property in the Phoenix market now? Perhaps, but while the rental market has been getting better over the last three years, the price of buying a home has also gone up.
Over the next few posts, we will take a look at whether buying a rental property makes sense. We will focus on specific subdivisions and "run the numbers". At least the basic numbers to see if further investigation is warranted.
We will take a look at actual and current for sale properties. So if you keep reading you may want get a started with being a landlord.
The property that we are looking at is at 14002 N. 49th Ave. #1020 in the Pines Unit subdivision. It is currently listed at $82,300. Let's take a look at the basics of a five year investment.
Sale price= $79,000 (you probably can get a 3% reduction off the list)
Turnover= $5,000 includes new paint and carpet
Marketing Costs= $400 for tenant placement services from RPM West Valley
Rent=$750 per month
Sq Ft 842
2 BDR 1 Bath
T-Bird and 49th - Pretty good location for renters
Ok, so you are out $89,400 which includes the sale price, a pretty decent turnover budget and hiring a company to lease it for you. At this price, it should conservatively rent in a month and you have a pretty high percentage of keeping it occupied for at least two years (just a bit less than the average tenancy projection for this location).
First two year return= $750*13=$9750/2 = $4,875 - $520 tax (annual) - $300 insurance (annual) $1,848 HOA fees (annual) = $2,207 = 2.4% ROI annualized
Next three years= $800 *35 (one month to re-rent and realistic rent increase) -$1400 (turnover & marketing costs from first tenants and to re-rent to second tenancy) = $26,600 - $1,650 taxes (3 yrs) - $1000 insurance (3 yrs)- $6000 3 yr HOA fees with projected increase (these are painful)= $17,950
Annualized return pre-sale =$20,157 revenue /5 yrs / $89400 outlay = 4.5% ROI per year.
So lets say you sell the home after 5 years, there is good chance it will increase in value. Let's assume the price will go up 2% per year (a very conservative estimate judging by today's market figs). You will get $85,512 at the end.
5 year Revenue-Expenses = ($6,512 gain + $20,157)= $26,669
Initial Expenses= $89,400 initial outlay
This assumes your 5K maintenance reserve will be exhausted over the five year's of tenancy and does not include any tax advantages or disadvantages. The market rent and appreciation numbers or conservative and based on present and historical facts of the Phoenix rental market.