Investing in single-family homes is always a good idea. They earn higher rents, attract more stable tenants, and appreciate faster than multi-family units. They make especially great investments for first time real estate investors.
Does that sound like you?
If so, you’re making a smart move. Investing in real estate can help you establish wealth and financial security. Single-family homes are found in a number of diverse neighborhoods throughout Phoenix, Mesa, and the East Valley.
Success requires some preparation and a lot of expert advice.
Every investor is different, and every investment property is different. People venturing into the real estate market for the first time need to establish their investment goals and stay consistent as they move through the process of financing their purchase, identifying the right opportunity, and preparing that home for the rental market.
Once the investment goals are established, the best thing to do is carefully choose some experts who can provide the support and resources needed for an exceptional and successful investment experience. At TCT Property Management Services, we are a boutique company specializing in real estate asset management. We understand the importance of customizing a management plan to the investor and their goals.
This is especially critical when the investor is buying rental property for the first time.
Here are a few things to keep in mind as the process begins.
Investment Basics: Establish a Process
Your investment process will determine whether you’re successful or in over your head. If you dive right into the market and start buying things up without intention, you might find yourself at a disadvantage. Instead, you want to make a plan and move strategically. A lot of new investors will see an opportunity in real estate and are quick to invest without considering all the necessary information.
Before you even begin looking at properties, you need to decide where you are with:
- Real estate knowledge
- Expert help
Before you start building your plan, there are some questions you should ask yourself:
- Does an investment in real estate make sense for me right now?
- Can I participate in a market as strong as the one we’re now in?
- Do I have enough time and capital to make smart investments?
- Do I have clear goals for this investment?
- Do I have a process or checklist for investing in property?
- Is the market right for me?
When you’re deciding on the right market to start investing in, you have to think about the local economy, tenant demographics, vacancy rates, and school ratings. Once you identify an actual property you might want to buy, you’ll have to consider the age of the property and the cost of renovations and upkeep. Think about whether you have the time, skills, and resources to maintain the property. Most first-time investors wisely hire a professional property management company.
Prepare for Likely Investment Benefits and Challenges
Investing in single-family homes comes with benefits that few other investment options offer. You get a tangible investment compared to stocks and bonds. Additionally, the tax benefits can be substantial. When you invest in real estate, you are in control of what changes you put into your investment. Real estate value typically appreciates over time making real estate a long term profitable investment.
You’ll also have your tenants paying down your mortgage.
Though the benefits are substantial, there are still some drawbacks associated with real estate. Some of those being:
- A property is a non-liquid asset
- Vacancies damage your cash flow and profits
- Benchmarking your property is more difficult than stocks and bonds
Know how you’ll measure success and what it will look like to you.
Treat Every Real Estate Investment as a Business
Many first time investors find real estate to be pretty emotional. After all, we’re dealing with houses. The property you buy is yours, but someone else is living in it. You’ll have to detach from the property and even from the process if things become overwhelming and stressful.
Even if the single-family home you acquire is one you’d love to live in yourself, it’s an investment with a single purpose: to earn money. This is a business.
Every decision needs to be made based on data, facts, and the recommendations of local investment experts.
Focus on what the investment property should provide; consistent rental income in the short term and ROI in the long term.
Understanding the Local Rental Market
Before investing, research is important to understand the rental market in the East Valley.
There are nuances and trends from neighborhood to neighborhood in this area, and there are also state and local rental laws that require compliance. It’s impossible for a new investor to know everything about the local market and its rental laws, but at least understanding the rental values, maintenance expenses, and vacancy rates for an area will help with budgeting and forecasting.
Educating oneself on single-family homes available in the market will help with:
- Competitive and profitable pricing.
- Marketing strategies during the leasing process.
- Preparing the property for the rental market.
Depending on the home you have and the location, typical tenants may be families looking for good schools, professionals who want an easy commute to work, or retirees who will want access to recreational and entertainment activities. Understanding these details will drive important investment decisions.
Access Professional Property Management Before You Buy
Property managers are an excellent resource for new investors, but no investor should settle for a company that’s content to find a tenant, collect the rent, and schedule vendors when maintenance is needed.
An asset management company that can assist with every step of the investment process will deliver better results. Find experts in the market who can help identify opportunities, evaluate potential investments, and assess the income and expenses that can be expected.
Don’t wait until you already have a rental home to contact your property manager. When you partner with a property management company before you buy, you’ll get a lot more value from the relationship. Your property manager can tell you what a single-family home is likely to rent for, how much work will be necessary to get it ready for the market, and whether the location will be a draw or a hindrance.
Look for a Profitable Single-Family Home
When you’re investing in real estate, you need to know what you’re looking for and how the acquisition will fit your investment goals.
Think like a tenant who is looking for their next rental home. Look for a well-maintained home in a desirable neighborhood that will be easy to rent.
Many first-time investors make the mistake of buying a cheap property that needs a lot of work. This is not a great strategy when you’re starting out as an investor. The work that’s needed means there will be a delay in getting that property listed on the market. While the prices are certain to be lower than other homes on the market, the amount you’ll have to spend to get that property into rent-ready condition may be more than you expect.
Not only will you have to invest in repairs and rehab, you’ll also wait longer to begin earning rental income.
Price Your Rental Home Competitively
New investors can struggle with how to price their first single-family rental home. You want to earn as much as you can, of course. You’d like to have some positive cash flow coming in. This is another excellent reason to consult early with a property management company. You’ll get a good idea about what rental values are in the area, and you can project what you’ll earn before you buy.
Maybe you have a vague idea about what you’d like your property to earn every month, based on your mortgage payment and other expenses.
You need to know that the market is going to impact what you can charge in rent more than anything else. It doesn’t matter how much cash flow you’re after or what you’ll need to make your mortgage and tax payments. Evaluate the local market thoroughly and check the prices for competing properties that are similar to yours.
Other things that will impact your rental value include:
- Property location
- Property condition
- Amenities and upgrades
Prioritize Preventative Rental Property Maintenance
The condition of your single-family rental home matters a great deal. It matters before a tenancy and during your tenancy.
Maintenance is always going to cost money, and the expense is never a fun reality for new investors. But, it’s an expense you should be willing to accept. You don’t want to risk allowing your property’s condition and value to deteriorate. Deferred maintenance will also lead to frustrated tenants who are unlikely to renew their leases. When a tenant makes a maintenance request, respond to it right away, or at least let the tenants know when you’ll be able to take care of the problem.
Handling problems while they’re small will save you money and avoid headaches. In our years of property management experience, we can tell you that we’ve never had a maintenance issue become cheaper with time.
If you’d like to talk with us about your investment goals and your search for the right single-family rental investment, we’d love to see how we can help. Please contact us at TCT Property Management Services. We manage homes in the East Valley, including Mesa, Gilbert, Chandler, Scottsdale, and Phoenix.