What to Know Before Buying an Income Property
Are you thinking about buying an income property in Phoenix, AZ?
With competitive prices, plenty of job opportunities, and housing for everyone – from the millennial just starting out to the retiree looking to settle down – Phoenix seems like the perfect place to start a rental property business.
And it is. But as with all business ventures, investing in rental properties is not something to take lightly, especially if you’re looking to buy in a specific region.
In fact, investing in rental property can be risky if you don’t know what you’re doing.
Luckily, we have some insight into what you should know before you buy an income property in Phoenix, AZ so you can decide whether becoming a landlord is the right choice for you.
4 Things You Should Know Before Buying an Income Property in Phoenix, AZ
1. Where Your Finances Stand
Buying a rental property is a major investment and a long-term commitment. And there will likely be times when money is tight because your rental needs a major repair or it becomes vacant for longer than you’d like.
Not to mention, coming up with the funds to invest in the property can be tough if your finances aren’t in order from the very beginning.
Before you start thinking about investing in a rental property, it’s a good idea to tackle the following:
- Keep a steady stream of income that can cover the cost of investing in a property, making repairs, and paying for unexpected expenses
- Save up for a down payment and know how long you can cover the mortgage before you place tenants in the property
- Lower the amount of high-interest debt you have (g. school loans, credit cards, car loans, etc.)
- Find a reliable financial planner and tax specialist to help you take on this major investment
- Decide what your goal is, such as quit your 9-5 job, create passive income, or fund your retirement
Knowing the state of your finances before you commit to an investment property will protect you from getting into financial trouble from the start.
2. The Local laws
State landlord-tenant laws can be difficult to understand, especially because many of them are in a constant state of change.
Unfortunately, no one cares whether you’re up to date on the latest rules and regulations when you become a landlord. If you break the law, you’ll be in trouble.
Here are some common concepts you should familiarize yourself with:
- Security deposits collected from tenants cannot exceed one and a half month’s rent and must be returned within 14 days after a tenant moves out of your property
- There are rules about the amount of notice you must give tenants before raising the rent
- Tenants have the right to withhold rent or “rent and deduct” if you fail to handle important maintenance and repair issues
- There are strict rules in place concerning the eviction process
- You cannot violate the Fair Housing Act or Fair Credit Reporting Act
- And so much more
If you plan to self-manage your rental property, understand that there are laws in place to protect you and your tenants that you have to follow no matter what.
3. How Much You Can (Realistically) Expect to Get
You can imagine how exciting it would be to find a great rental property in a down and out neighborhood.
After all, if you can invest a lot of time and money into an average property and turn it into something spectacular, think about all the rent you’ll be able to collect.
The experts aren’t lying when they say that the location of your rental property can make or break your chances of success.
Just because you own an amazing rental property doesn’t mean the people in the area can afford the rent you hope to collect. If you go in with high expectations and discover your estimates were all wrong, you might find yourself in some financial trouble.
Right now, Phoenix continues to be one of the few affordable areas in the country when it comes to housing prices. This is reassuring if you’re looking to become a landlord for a few reasons:
- It means you’ll be able to buy an income property in Phoenix without having to spend all your money
- The neighborhoods are likely to have high-quality people living in them (as opposed to vacancies and foreclosures that bring the value of the neighborhood, and rent rates, down)
- People looking to rent will be able to afford the rent rates you set so you can cover the mortgage, maintenance, and repairs, and make a profit
Buying an overvalued rental does you no good if the people looking to lease in that area cannot afford the rent you need to cover the basics.
4. How Much Work Being a Landlord Really Is
You may think that self-managing your rental property is a good idea. And for some, it is.
But the truth is being a landlord, especially when you have other obligations, can become overwhelming fast.
By hiring an experienced property manager to handle the daily tasks associated with your rental property, you avoid the following problems:
- Running out of time to enjoy the income you’ve collected
- Paying to advertise your property to the wrong tenant pool
- Legal issues related to landlord-tenant laws you didn’t know about
- Time and effort wasted on inspecting your property on a regular basis
- Having to handle all maintenance and repair issues yourself, when you don’t have the time or the experience
- Problem tenants that damage your property or don’t pay their rent on time
- High turnover rates because you lack the customer service skills needed to secure lease renewals
Having a property management company like Brewer & Stratton on your side not only helps you prepare for the things you should know when it comes to investing in a rental property, it also helps you save time and money.
In fact, the property managers at Brewer & Stratton are dedicated to advertising your properties for quick tenant placement, screening for high-quality tenants, collecting rent on time, and even managing property inspections, maintenance, and repairs – all so you don’t have to.
If you’re looking to invest in a rental property in the Phoenix area, contact Brewer & Stratton today for a free rental analysis!