Guidance on first rental property

[Gordon F.]

Hi BP.

I'd like to buy my first rental property as soon as I find something that makes cents. I wanted to get some second opinions from you all to see if my logic is sound...

I'm looking at the greater Phoenix and surrounding AZ areas for a single family residence. Smaller houses right now can be found for around 110k-160k and many seem to rent at around 1% of home value. Check. 

This would be my very first real estate purchase.

I'd like to hold the property for at least a few years or more. (If I need the equity later for another RE purchase, I'd sell.)

I can put 20% down for a home in the price range stated above. 

I'm handy and could do most updates or renovations on my own, but I'm only interested in something that wouldn't take longer than a week or two of work to update as I'm out of state.

I live in San Diego so I'd need a quality PM.

My reasons for looking at AZ are the general lower costs of entry level homes. I'm open to buying something more locally but the market here is easily 3-5x that of AZ in most areas, making it impossible for me to get in at this point without traditional financing.

My questions are:

What amount of cash flow should I consider as "safe"? Being negative is out of the question for me, even if the value would be projected to appreciate for any reason. I've run some numbers including overhead costs, PM, vacancy, repairs, taxes, etc on a few properties and found a couple that may cash flow a couple hundred conservatively. is this a reasonable amount?

Should I expect home values to drop at all over the next few months-year due to current events with the pandemic?

Should I expect any issues with rent prices fluctuating due to current events?

I understand that these questions may be relative, but I am open to second opinions and advice.

Thanks so much!

[Pamela Sandberg]

$110k-160k is reasonable in the outskirts, but it will be difficult (if not impossible) to find something at that price in the city/suburbs, other than mobile homes. But at that price in the outskirts (Coolidge, Casa Grande, Florence, AZ City) you could reasonably expect to cash flow a couple hundred a month. Be prepared for very slow appreciation in these outskirts. 

So far, the Phoenix real estate market has only had a little slowing due to COVID-19. We still have big growth projections in the coming years due to job growth. IMHO, there probably won't be any major drops in home values. I strongly suspect the market will stabilize and continue to grow once the crisis has passed in the coming months. Of course, real estate is hyper local, so it's important to see exactly what is happening in the particular area you are interested in. The outskirts tend to follow Phoenix trends on a much slower and less exaggerated basis. 

Happy to answer any questions you have about Phoenix and surrounding areas!