One landlord’s advice for would-be owners

“Location, location, location” might be the mantra when selecting a promising house or condominium in which to live. But when it comes to purchasing rental homes, other factors also weigh heavily, according to one Phoenix landlord with different types of properties in Las Vegas.

These include keeping a place occupied with responsible tenants and controlling costly repairs.

“The maintenance/repairs really punched me in the nose last year,” wrote Jeremy Kisner in a blog about his landlord experiences. “We had to resurface the pool, repair an HVAC unit and fix a significant plumbing problem.”

But it could have been worse, Kisner noted in the blog and in a follow-up interviewwith Both properties he owns with his wife, Angela, were occupied all last year, and the couple has low-interest mortgages on them.

Kisner, a certified financial planner at Surevest Wealth Management in Phoenix, used their experience with the properties, and last year’s numbers , to draw some observations about what makes a sound rental investment.

Both rentals are in Las Vegas. One property, which he calls the “good rental,” is worth about $260,000, generated $15,600 in total rents for the year and had yearly cash flow of $1,161 after expenses.

The biggest costs were mortgage expenses ($12,420) and property manager fees, ($1,248). The remaining expenses totaled $771 for maintenance/repairs, HOA fees, trash collection and more.

The other property is worth more ($400,000) and generated higher rental income ($26,100), but he considers this the “bad rental” because it incurred bigger costs and resulted in a negative cash flow of $11,270.

The costs included mortgage expenses ($25,224), property-management fees ($2,088), maintenance/repairs ($6,868) and HOA/trash/miscellaneous ($490). Also, the Kisners paid $1,340 for pool servicing and $1,360 for gardening on this property.

In both cases, he included property taxes, insurance and loan interest as mortgage expenses. He didn’t include depreciation, a deduction that helps shelter income taxes for landlords while they own their homes. (Cumulative depreciation deductions become taxable when a property is sold.)

Kisner ignored depreciation because he wanted to focus on the cash flow generated.

As was noted in a recent UCLA study, Kisner found that higher-priced properties don’t necessarily make the best rental investments.

Also, his calculations don’t include home-price appreciation. When coupling price gains with ongoing rental income, the outlook brightens. He assumed the two properties rose about 3 percent in value last year.

“If we add 3-percent appreciation, plus the amount I paid down the loan, the total return improves substantially,” he said.

Kisner sees a national shortage of starter homes, which he predicts could boost the appreciation potential for rental properties and other dwellings.