House hacking dilemma

[Stephanie Foust]

Hello, this is my first post on BP!!. I've been educating myself on REI for over a year now & am ready to take action. My plan is to rent out my current primary SFR as I should cash flow $600+/mth after all expenses and then purchase another property to live in that has separate guest quarters to also rent out to cut down on my expenses & help pay down the new mortgage. I have found a property that is in an OK neighborhood (probably B-/C+) where the numbers are great for my particular situation. I live in the east valley of Phoenix, AZ area where the market is hot & prices are high! The estimated rental income from the guest house on the B- property would cover at least half of my mortgage payment (incl. taxes & insurance) & overall net effect would be a savings of about $800/mth for my personal housing expenses. I plan to live in this new property for approx 3-5 years then sell or rent it depending on market conditions. Current home values in this neighborhood are $250-$310K range. My other option is to purchase a more expensive ($420-470K) "A" class home in a nicer, rapidly growing neighborhood with a much higher mortgage payment & approx $300-400/mth more in rental income than the first option but my net savings on my housing expenses would only be about $300/month.

From a longer term perspective, am I better off buying the higher priced property in the nicer neighborhood - assuming better appreciation, better tenant pool, higher probability of resale, etc? Is LOCATION, LOCATION, LOCATION worth it vs the $400-500 month difference in savings I'd be giving up going with the lower class property?

I'd greatly appreciate your thoughts and opinions from the seasoned investors out there.