When you want to know if a property you’re thinking about buying is a good deal, you need to first consider your goals. The deals you’re looking for will depend on whether you need a lot of cash flow or if you’re earning a good income and you want to focus on appreciation for your retirement later in life. As a company providing property management in Phoenix, the most important advice we can give you without knowing your exact goals is not to get emotional. Don’t fall in love with a property. Crunch the numbers and make sure the math works before you go any further.
Generating Revenue: Cash FlowThere are different ways to generate revenue, and if the deal you’re considering will generate revenue in these ways, you should move forward. You want to consider cash flow, equity capture, appreciation, tax benefits, and the value of having your loan balance paid out. Always evaluate cash flow, but remember it’s not the only thing you should be concerned about. If your investment will only cash flow $50 a month, you might think it’s not a good deal. But that’s just a small part of the picture. Look at other parts, like appreciation and tax benefits.
Generating Revenue: Equity and AppreciationIf you buy a house that’s worth $200,000 for $175,000, you already have captured $25,000 in equity. Your appreciation will also grow if you hold onto the property for 10 or even 30 years. When you put $175,000 into a property and you hold onto it for 30 years, it can be worth $500,000 when you’re ready to sell it. And, if you financed it you probably only spent $35,000 or so out of pocket. That’s a lot of equity and appreciation, and it’s a good deal.
Generating Revenue: Mortgage and TaxesThe tenant living in your property is paying your mortgage. So in 10 years, some of that debt is paid down. In 30 years, the whole property is paid off. Figure out your return on investment in 30 years, and you’ll see it’s probably a fantastic deal. Most rental properties are excellent at providing tax benefits. Talk to your tax accountant. They can advise you on the benefits you’ll enjoy by owning a rental property. You can find significant savings.
If investors tell us they are worried about cash flow, we ask them to look at the whole picture. Think about a three-legged stool. If three out of the five revenue sources are being met with an investment, it’s probably a good deal.
We’d be happy to sit down with you and go through your numbers. If you have any questions about Phoenix property management and how to invest, please contact us at Service Star Realty.