Investor · Fullerton, CA · Member since 2016 · 17 posts · 12 votes
Hello BP,
I am going to close on my first SFR in Phoenix area in a month and I am trying to identify best route to rent and manage it. Should I hire a PM to manage since this is my first rental and I am out of state or should I self manage? If I were to hire a PM, I would probably end up making just about $50 in cash flow per my calculations. Is PM worth it for a first time investor given it eats up the cash flow considerably?
If I were to self manage, could you please guide me with the steps from the moment I close on the property to the moment tenant steps into the house?
Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
9y
Buying an out of state rental as your first one was probably a mistake. Is it really worth the aggravation and liability to make $50 per month under a best case scenario? If you have a moderate repair for say, $300, it's going to take you 6 months to recoup the expense... and that's assuming nothing else goes wrong in the mean time.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
9y
Being out-of-state forces the decision - - you need a PM. That's a hit on the NOI but your already into a problem that doesn't allow self-mgmt, especially for a SFR.
Personally, SFR + PM makes no sense because of the reduced NOI. If you're going out-of-state, at lease buy MFUs where the PM cost has less of an impact.
Investor · Placitas, NM · Member since 2016 · 14 posts · 13 votes
9y
Hello Karthik,
We self manage and use a PM on our rental properties and would recommend using a PM out of state.
That said, if you self manage my suggestions are to check credit history, check past landlord references (call until you talk to someone or ask for other references) and keep your rent at slightly less then market. That gives the perception of value, increases your tenant applicant pool, and helps keep vacancy rates low. The more effort you spend selecting the right tenant, the better off you'll be in the long run.
If you do hire a PM, vet and interview your PM in person. Vet several PMs and pick the best one for you. Require periodic walk throughs with a short report or some other method of verification. You can always switch to self management...or switch back if things don't work.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Karthik Bujuru Get a PM. Taking everything else out of the equation: at the very least they'll drive by the property from time-to-time. How else will you know what's going on in the home? Are they keeping it up? Is there a car on cinder blocks in the front yard? Are you going to fly out to Phoenix and show it to renters? If you drive by the home are there 4 cars parked in the driveway because they've moved other people in (in violation of their lease)? When the drain is clogged the PM can't send their maintenance person by so you'll be paying someone $99...and have to coordinate it. I'm just making up random stuff but it's a long drive from Fullerton to Phoenix.
Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
9y
Buying an out of state rental as your first one was probably a mistake. Is it really worth the aggravation and liability to make $50 per month under a best case scenario? If you have a moderate repair for say, $300, it's going to take you 6 months to recoup the expense... and that's assuming nothing else goes wrong in the mean time.
Investor · Philadelphia, PA · Member since 2016 · 87 posts · 29 votes
9y
I'd have to agree with @Dick Stevens. I don't know what your rent is on this but why is your cash flow so low? Did you take out a huge chunk of equity? $50 cash flow and you'll be in the red with one repair and or just brining it up to rental quality after a move out. I think the bigger question should be what can you do to get a better return, or (I know it sucks to say), should you be exiting out of this sooner than later.
Being out-of-state forces the decision - - you need a PM. That's a hit on the NOI but your already into a problem that doesn't allow self-mgmt, especially for a SFR.
Personally, SFR + PM makes no sense because of the reduced NOI. If you're going out-of-state, at lease buy MFUs where the PM cost has less of an impact.
thanks for the input. I agree that the NOI is pretty low but I think it would be hard for me to secure the capital to invest in the MFUs. My plan was to build some equity through SFUs over the next few years and may be then try MFUs.
We self manage and use a PM on our rental properties and would recommend using a PM out of state.
That said, if you self manage my suggestions are to check credit history, check past landlord references (call until you talk to someone or ask for other references) and keep your rent at slightly less then market. That gives the perception of value, increases your tenant applicant pool, and helps keep vacancy rates low. The more effort you spend selecting the right tenant, the better off you'll be in the long run.
If you do hire a PM, vet and interview your PM in person. Vet several PMs and pick the best one for you. Require periodic walk throughs with a short report or some other method of verification. You can always switch to self management...or switch back if things don't work.
I hope this is helpful. Best of luck to you.
Catherine
I understand that there is considerable amount of work to be done if you were to self manage. I guess with a full time job, and being out state all this work seems impractical. I am leaning towards a PM. thank you for your input
@Karthik Bujuru Get a PM. Taking everything else out of the equation: at the very least they'll drive by the property from time-to-time. How else will you know what's going on in the home? Are they keeping it up? Is there a car on cinder blocks in the front yard? Are you going to fly out to Phoenix and show it to renters? If you drive by the home are there 4 cars parked in the driveway because they've moved other people in (in violation of their lease)? When the drain is clogged the PM can't send their maintenance person by so you'll be paying someone $99...and have to coordinate it. I'm just making up random stuff but it's a long drive from Fullerton to Phoenix.
"When the drain is clogged the PM can't send their maintenance person by so you'll be paying someone $99...and have to coordinate it."- I was planning on using Home Warranty thing to get the service coordinated, but nevertheless its a lot of work. thank you for the input
Buying an out of state rental as your first one was probably a mistake. Is it really worth the aggravation and liability to make $50 per month under a best case scenario? If you have a moderate repair for say, $300, it's going to take you 6 months to recoup the expense... and that's assuming nothing else goes wrong in the mean time.
thanks for the input. I understand that the cash flow isn't much, but if I to hold the property for a few years, I would be building some equity, right? Am I missing something here?
From my research so far, there are not a whole lot of properties in the Phoenix area that can give me a healthy cash flow of over $150. And I live in Fullerton, CA where I couldn't find properties in my budget and hence my next best bet was Phoenix. My plan was to sell the property off in a few years, and buy a rental here in CA with the equity earned. Appreciate the input again
I'd have to agree with @Dick Stevens. I don't know what your rent is on this but why is your cash flow so low? Did you take out a huge chunk of equity? $50 cash flow and you'll be in the red with one repair and or just brining it up to rental quality after a move out. I think the bigger question should be what can you do to get a better return, or (I know it sucks to say), should you be exiting out of this sooner than later.
Here are my numbers using BP's rental calculator. I have included variable expense of $72.45 for vacancy in my monthly expenses along with a home warranty of $40. As it stands right now, Ill have a cash flow of $47 if the monthly rent is 1035 (median rent in that area) without taking PM into account. thanks and I appreciate any input.
Investor · Brea, CA · Member since 2015 · 64 posts · 11 votes
9y
What happens when your Phoenix property appreciates 25%, but your higher price tag goal area from now also appreciates 25%? You'll be even father from affording it. You'd bring that Phoenix money back, and you'd only be able to buy inland empire.
So why not just buy inland empire now? It's starting to get hot...no pun intended.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
9y
Not only do you need a PM, but you should have already thoroughly researched, vetted, followed up on references, and selected your PM well before purchasing the property. I had a decade of REI experience and did all that research before selecting a PM and buying a property in Phoenix, and still I went through 7 PMs in 5 years trying to find a competent and honest one, but never could, and each time I made a mistake and had to switch it cost me thousands. Seems as though the single most important success factor for your out of state investment has been a complete afterthought for you. I wish you all the best.
Fairfield, CA · Member since 2017 · 98 posts · 84 votes
9y
@Karthik Bujuru So I hate to knock your deal... Cause you may have well thought out investment goals that makes this property a good fit... But, I'm not seeing it, or sold on it, based on the calculations you showed.
From my perspective, that deal stinks. 1035/mo in rent divided by 178000 is 0.58%. It is half the 1% rule. Generally if I buy a property at 1% rule when it reaches 0.5% it means it is time to sell my property, not buy.
Also, you have definitely miscalculated the expenses. This property is negative cashflowing every month even if you self manage it. Repairs expense runs 10-20% and capex 10-20%, you didn't include these expenses.
If you're out of state, absolutely get a PM. You'll waste your time calling and scheduling appointments with people, and then think of other scenarios-- what if they lock themselves out, how would an out of state person help? It's worth the $50, absolutely!
I am going to close on my first SFR in Phoenix area in a month and I am trying to identify best route to rent and manage it. Should I hire a PM to manage since this is my first rental and I am out of state or should I self manage? If I were to hire a PM, I would probably end up making just about $50 in cash flow per my calculations. Is PM worth it for a first time investor given it eats up the cash flow considerably?
If I were to self manage, could you please guide me with the steps from the moment I close on the property to the moment tenant steps into the house?
Many thanks,
karthik
Assuming it is not a Turnkey, self managing could be a challenge! Just for the sake of speedy maintenance. Be prepared for that 3AM phone call from your tenant. With a good PM you should not be involved at all and keep it very passive! if it is a Turnkey than you will not even need to shell out for repairs for some time (assuming it was a decent provider!)
St Thomas, Ontario · Member since 2013 · 575 posts · 408 votes
9y
Another for PM given you are out of state. Although to be honest I would say that you really should not buy a first rental property out of state as your first unit, it is just asking for trouble. You need to understand the business and for that you need to do it yourself with something local, less than 20 minutes drive from your home ideally. There must be something cheaper in your area of CA. If not, save more.
What happens when your Phoenix property appreciates 25%, but your higher price tag goal area from now also appreciates 25%? You'll be even father from affording it. You'd bring that Phoenix money back, and you'd only be able to buy inland empire.
So why not just buy inland empire now? It's starting to get hot...no pun intended.
Point taken. But, In 5 years my plan is to buy 5 rental properties worth @200K each I would need a $1MM, which is, to me, possible in less expensive areas like Phoenix. In Inland empire though, I would need $2M ( actually implying higher down payment), and hence leaning towards Phoenix. Well, regardless, I am thinking hard now to see if I should save a little more and buy SFR in Corona. thanks for the input, Dan
Not only do you need a PM, but you should have already thoroughly researched, vetted, followed up on references, and selected your PM well before purchasing the property. I had a decade of REI experience and did all that research before selecting a PM and buying a property in Phoenix, and still I went through 7 PMs in 5 years trying to find a competent and honest one, but never could, and each time I made a mistake and had to switch it cost me thousands. Seems as though the single most important success factor for your out of state investment has been a complete afterthought for you. I wish you all the best.
thanks for the input. I appreciate you could share some references to the PMs that you have dealt with and thought are alright. I haven't made the purchase yet, but wanted to get everything in order if I decide to go with Phoenix SFR
@Karthik Bujuru So I hate to knock your deal... Cause you may have well thought out investment goals that makes this property a good fit... But, I'm not seeing it, or sold on it, based on the calculations you showed.
From my perspective, that deal stinks. 1035/mo in rent divided by 178000 is 0.58%. It is half the 1% rule. Generally if I buy a property at 1% rule when it reaches 0.5% it means it is time to sell my property, not buy.
Also, you have definitely miscalculated the expenses. This property is negative cashflowing every month even if you self manage it. Repairs expense runs 10-20% and capex 10-20%, you didn't include these expenses.
thank you for the input on the deal. I havent closed this deal yet. The other options I have are renting at $1250/month (close to 0.7% ratio), but the problem with these is that vacancy rates are higher in higher in those areas. I haven't come across any other deal so far that has 1% rule in the Phoenix area. One of the reasons I chose to go with Phoenix is that the Maricopa county has had the highest population growth rate in the recent years, so there is good prospect for the properties to appreciate well and earn me some good equity.
If you are investing out of state why did you choose Phoenix? Why not the mid west where you can get some serious cash flow?
thanks. I have plans to venture out into midwest in the next few years. The reason I chose Phoenix is that it is in driving distance from where I live ( well, 6 hours isn't driving distance according to some but..) so it'll be less expensive for me to go and check properties out before I close the deals.