Last week we took a look at a potential investment property in Phoenix and did a cost/return breakdown . This week we will continue our investment property analysis and focus on a North Phoenix property.
The property we are looking at today is for sale in the Phoenix subdivision of La Crescenta. La Crecenta is a condominium subdivision just north of the 101 at 7th Ave.
Sale price= $92,000 (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=$795 per month
Sq Ft 863
2 BDR 2 Bath
101 and 7th Ave. - RPM Property Owners have had good results with tenant duration and pay history in this subdivision.
Ok, so you plunk down $103,000 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= $795*13=$10335/2 = $5,168 - $389 tax (annual) - $300 insurance (annual) $1620 HOA fees (annual) = = 2.7% ROI annualized
Next three years= $850 *35 (one month to re-rent and realistic rent increase) -$1400 (turnover & marketing costs from first tenants and to re-rent to second tenancy) = $28350 - $1167 taxes (3 yrs) - $1000 insurance (3 yrs)- $4860 3 yr HOA fees with projected increase = $21,323
Annualized return pre-sale =$24,176 revenue /5 yrs / $103000 outlay = 4.6% 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 $99,500 at the end.
5 year Revenue-Expenses = ($7,500 sales gain + $24,176)= $31,676
Initial Expenses= $103,000 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.
There are some interesting things to note about this investment property example in La Crescenta compared to the example from last week in the Pines. Although you are paying much more per sq. ft and more per sq. foot in relation to the rent for this one, you get a break in the taxes and the HOA costs as well as greater projected appreciation so that the investment return is just a bit better.