Analyzing Deals - Phoenix Metro Area

[Peter Khoury]

Hi All,

I am a newbie investor and am working to evaluate properties and want to see if my estimates are in line with the Phoenix area.  Current looking at single family homes, finding it very difficult to cash flow but I want to at least see if my numbers are in line with the market from experienced investors.  This would be a property located in Surprise, AZ, newer construction single family home: 

List Price: 205,000

Purchase Price: 190,000

Estimated Rent 1300

Expenses:

P&I : $891.96

Taxes: $74

HOA: 35.66

Insurance: 62.16

Repairs/Maint (5% of rent) : 65.00

Cap Ex (10% of rent): 130

Vacancy (7% of rent): 91

Total Expense: 1,349.68

Net Income: -49.68

Obviously the purchase price would have to come down for this to make sense from a cashflow perspective but I want to know if the estimates are accurate based on a newer build (20 years old) for repairs and maintenance for a property in Arizona.  Am I overestimating or underestimating these expenses?  I would also be managing the property myself so I did not include that cost in the analysis.

I think the hardest now will be finding a property that actually cash flows.

Thanks in advance! 

[Michael Albaum]

I’d also be careful about not accounting for a management fee. If for some reason you cannot or decide not to manage the house anymore, you’ve not created the potential for a negative cash flow situation. Always calculate it in and make sure the house or building will support a manager. Then if you self manage you’ve just given yourself a 10% raise.

Also, I’d be careful about using a percentage of rent as your repair/maintenance budget. If you take this exact same single family home and move it into the nicest part of the neighborhood, it should obviously rent for higher. But why would there be any difference in maintenance or cap ex expenditures? I would say you need to chat with a local investor about what specific cap ex items look like in AZ. You can probably bet on a new AC unit sooner than in other parts of the country.