The debate never cools: is it better (financially) to invest in multi-family or single-family properties? That’s like asking whether a hammer is better than a screwdriver. The answer is, of course …it depends. It depends on the job at hand, the materials and fasteners available, and what you’re trying to accomplish. But if, after doing some investigating, you’ve decided go the single-family route, here are 4 tips for investing in single-family properties in Phoenix.
Remember the Lead Funnel
Of all the tips for investing in single-family properties in Phoenix, this is the one most often neglected. Too often investors consider too few properties before buying.
You can visualize the process as a funnel, with lots of properties going in at the top and only a few or one coming out at the bottom. What this means is that you’ll want to consider and analyze lots of properties – we’ve called them “leads” at this point – before deciding on the one that will be the best investment for you.
Besides, getting lots of leads and making lots of experimental offers will give you practice. And the more you practice, the better you’ll get. In short, you will become a better investor and will make more money.
Do the Math
After you’ve narrowed the field and found a handful of likely properties, you need to run the numbers. You simply must figure out whether the properties will be a good investment, one that will move you toward your investment goals on your predetermined timeline.
Will there be sufficient cash flow after making the mortgage payment to cover everything else? Simply subtracting the mortgage payment amount from the amount of monthly rent does not tell you how much you’ll profit. You’ll still have to cover things like taxes and insurance and repairs.
After plugging in all these other expenses, you can determine with some accuracy whether the property will be profitable and will provide sufficient cash flow. If the math works out, the property will be a good investment.
Be Prepared to Research and Plan
With multi-family properties, say, an apartment complex, most of the rental spaces will be fairly similar. You just have to do your research once – for the whole building. But that’s not the case with single-family properties because they vary so widely.
Each property is different with respect to layout, location, history, landscaping, pet friendliness, and so on. Further, each one will require appropriate differences in the leasing contract. So you need to be prepared to do – and actually, do – the necessary research to find out exactly what is involved in each individual property.
In addition, it’s a good idea to have a well-thought-out plan in place to deal effectively with these different properties with their different needs and contractual differences. It’s just too ineffective and too tiring to try to handle things on an ad hoc basis. You might even consider using a property-management company.
Rentability = More Bedrooms
No matter how good a deal you think you’re getting on a single-family property, if you can’t rent it, then it’s not a good deal. So take to heart rentability as of the 4 tips for investing in single-family properties in Phoenix.
It’s a fact that 3-bedroom houses are far easier to rent and command higher rents than 2-bedroom houses. Of all the people currently looking to rent, only approximately 15% will be willing to take a 2-bedroom home. When you’re looking to invest in single-family properties, it’s best (when possible) to choose those with 3 or more bedrooms.
Single-family properties can be a sound and lucrative real estate investment strategy – if, that is, you keep in mind these 4 tips for investing in single-family properties in Phoenix.