Irvine Condo Investment with HOA

D

dream16

New member
Hi Guys,

I own an attached condo in Portola Springs (investment property) [purchase for 550k, 2.5bath/2bed, 4-floor monstrosity with stairs - tandem garage overlooking the 133S toll road and it has $315/month HOA. I just paid a super hefty bill of $8800 (property tax for the full year).

Even if i pay off the property completely in the coming 5 years, i was just thinking that did i do a major mistake by investing in a rental property with HOA? The HOA i have do not have any rental restrictions, but overall on google I have seen people complaining that HOA fees go up all the time due to weird reasons yearly.

My balance sheet is quite bad so far this year as due to my own mistake, it took me 2.5 months to rent it out, typically irvine units should rent out way faster in summers.

Eitherways considering my current P&I = 2k/mo, Condo Ins (HO-6) = $600/year, HOA = $315/mo and this crazy property tax = $733/month, i am not breaking even. Monthly rent i get is $2750. Considering my unit stays rented with lets say an yearly 1 month of vacancy, what sort of losses am i looking at?

1. What sort of depreciation can i claim in taxes next year?
2.  I used an agent to rent it, so the 5% commission fee paid is an expense to be included.
3. I believe since my monthly mortgage is eating 1350$/month as interest from P&I of 2k/month, i believe i can try to claim that?
4. I saw Irvine rental data of last 5 years before making this purchase, rents of 2 beds have gone up from $2000 in 2011 to $2400 something in 2015...going by this trend i am not sure if the rent is ever going to go beyond $2950 for my unit in Portola springs.

Considering some of you are investors here, if this is a really bad investment, my only option is to sell it within next year to avoid taxation losses as i learnt that any property sold within 2 years of its purchase does not incur tax.

Please advice.  :-[ :-[ :-[ :-[
 
BangBros said:
Looks like you're pretty much cash flow negative and it's not likely to improve.  Your current situation is:

$2750 x 12 = $33,000 maximum rent collected possible (-1 month vacation) = $30,250
Expenses PITI + hoa = $3098 x 12 = $37,176
Repairs/Maintenance/Broken appliances/etc. (-$500 to $1000 / yr)
Listing agent commission fee 5% ~= $137.50 x 11 = $1512.50

Total gain: $30,250
Total expenses: $39,188

Total loss per year: $8,938
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Thanks, but isn't IRS going to chime in and pay me an extra $6000 atleast per year for the property depreciation? I read that home ownership is something that IRS likes and will offer benefits, although in no way i belive that Uncle Sam is here to feed me off.
 
BangBros said:
What's really killing your rental business is the high property tax (mello roos) and the HOA. 

Of course, you can continue to keep afloat the rental and just put in money to offset the loss.  Then bet on the fact that in 3-5 years, your home will appreciate 20-25%.  Then sell it.
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Thanks BangBros, so considering property value (excluding land) is 225k, so you divide 225k/27.5 years = Yearly depreciation ? And that is the amount IRS gives me back or its added into the tally of expenses that i can claim as deductions? All i am trying to do is get an approximation on the amount i can get reimbursed from IRS due to owning this property. I also understand that i have to declare any rental income along with whatever pennies i earn on my W2. I fall under the 28% tax bracket. The data i entered here shows $4466 in tax return for home ownership, it does not ask for depreciation etc.
https://www.calcxml.com/do/hom09http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx

Please share if you have a better link
 
Wow deja vu for this post..
like you, I had an investment property in irvine. Cypress village to be exact
It's the high MR's and HOA's that make it impossible to break even as an investment

At that point, you are banking on appreciation but that's no certainly in this market
I eventually did a 1031 swap into a Baker Ranch investment *no mr*and have been netting +$100 after everything now

Advice wise...ask yourself if you want to keep paying $8000/year?
is this an investment to you? or eventually primary residence?
What's the appreciation play for your property? Do you have kids? Need Irvine School district?
If investment, it's probably not the best one long term...maybe look into the resale irvine older homes with lower HOA and no MR to make it a better "investment"

I think your problem is it's a 2 bedroom, you probably will be closer to breaking even if you can afford a 3 bedroom in irvine.  Average cost is probably $3000-3300 minimum for a 3 bed..

PM me if you have any questions.  1031 is very easy if you do it right
 
You should consider yourself lucky that you are able to get $2750/month in rent.  It seems a bit on the high side for your property configuration.
 
dream 16 - you need to make an income statement for your rental property

Income = Rent
Expenses = interest, HOA, insurance, maintenance, gardener, depreciation, taxes
Taxable income or (loss) = income less expenses

the principal is not considered an expense for the purposes of the income statement since that is the reduction of your debt.  so if you have a taxable loss you wont pay income taxes, the only way you pay income taxes is if you have taxable income. So your rent amount is not your taxable income because you have not deducted all of your expenses.  also, keep in mind that rental losses get phased out, going off memory but once you make over 150K you can not deduct rental losses (but you can add to your tax cost basis), so if you make over 150K you can not deduct anything. if you are considered a real estate professional (which it doesnt sound like you are) you can deduct all of your rental losses.

i dont mean to sound rude but this is basic stuff that you should have known before you made your investment.
 
woodburyowner said:
You should consider yourself lucky that you are able to get $2750/month in rent.  It seems a bit on the high side for your property configuration.
Click to expand...

Not really, some lucky landlords have been able to rent out theirs for $2850 in 2015
 
qwerty said:
dream 16 - you need to make an income statement for your rental property

Income = Rent
Expenses = interest, HOA, insurance, maintenance, gardener, depreciation, taxes
Taxable income or (loss) = income less expenses

the principal is not considered an expense for the purposes of the income statement since that is the reduction of your debt.  so if you have a taxable loss you wont pay income taxes, the only way you pay income taxes is if you have taxable income. So your rent amount is not your taxable income because you have not deducted all of your expenses.  also, keep in mind that rental losses get phased out, going off memory but once you make over 150K you can not deduct rental losses (but you can add to your tax cost basis), so if you make over 150K you can not deduct anything. if you are considered a real estate professional (which it doesnt sound like you are) you can deduct all of your rental losses.

i dont mean to sound rude but this is basic stuff that you should have known before you made your investment.
Click to expand...

Thanks Qwerty, my on paper salary <150k, but i have been advised to declare all rental income for taxation purposes as income and once that is added, i exceed 150k. Assuming i include rental income + W2 salary minus home expenses = i am in a minimum hole of 8.5k + more in 2016 due to vacancy, so a bigger hole of 12-13k atleast.

Also, in my case, it was purchased as a dual intent (both primary with flexibility to rent it out), so lets see how IR market pans out in the next 5 years and also i am about to get a reality check once i get my income statement ready for rental property
 
Thanks Qwerty, my on paper salary <150k, but i have been advised to declare all rental income for taxation purposes as income and once that is added, i exceed 150k. Assuming i include rental income + W2 salary minus home expenses = i am in a minimum hole of 8.5k + more in 2016 due to vacancy, so a bigger hole of 12-13k atleast.

Also, in my case, it was purchased as a dual intent (both primary with flexibility to rent it out), so lets see how IR market pans out in the next 5 years and also i am about to get a reality check once i get my income statement ready for rental property

Also, i have plans to pour in 200k in next 12 months from gifted funds to reduce the loan amount on this property


dream16 said:
qwerty said:
dream 16 - you need to make an income statement for your rental property

Income = Rent
Expenses = interest, HOA, insurance, maintenance, gardener, depreciation, taxes
Taxable income or (loss) = income less expenses

the principal is not considered an expense for the purposes of the income statement since that is the reduction of your debt.  so if you have a taxable loss you wont pay income taxes, the only way you pay income taxes is if you have taxable income. So your rent amount is not your taxable income because you have not deducted all of your expenses.  also, keep in mind that rental losses get phased out, going off memory but once you make over 150K you can not deduct rental losses (but you can add to your tax cost basis), so if you make over 150K you can not deduct anything. if you are considered a real estate professional (which it doesnt sound like you are) you can deduct all of your rental losses.

i dont mean to sound rude but this is basic stuff that you should have known before you made your investment.
Click to expand...
Click to expand...
 
Dream why do you pay both installments of Property Tax + Mello Roos 2 months before the first installment is even due.  Who does that!?  OC treasurer loves you, I'm sure.
 
qwerty said:
dream 16 - you need to make an income statement for your rental property

Income = Rent
Expenses = interest, HOA, insurance, maintenance, gardener, depreciation, taxes
Taxable income or (loss) = income less expenses

the principal is not considered an expense for the purposes of the income statement since that is the reduction of your debt.  so if you have a taxable loss you wont pay income taxes, the only way you pay income taxes is if you have taxable income. So your rent amount is not your taxable income because you have not deducted all of your expenses.  also, keep in mind that rental losses get phased out, going off memory but once you make over 150K you can not deduct rental losses (but you can add to your tax cost basis), so if you make over 150K you can not deduct anything. if you are considered a real estate professional (which it doesnt sound like you are) you can deduct all of your rental losses.

i dont mean to sound rude but this is basic stuff that you should have known before you made your investment.
Click to expand...

@dream: If I remember correctly I suggested for you not to get the place.
@dream BTW- When did buy your "rental tower"? (Around what month. For analysis purposes)
 
SoclosetoIrvine said:
Wow deja vu for this post..
like you, I had an investment property in irvine. Cypress village to be exact
It's the high MR's and HOA's that make it impossible to break even as an investment

At that point, you are banking on appreciation but that's no certainly in this market
I eventually did a 1031 swap into a Baker Ranch investment *no mr*and have been netting +$100 after everything now

Advice wise...ask yourself if you want to keep paying $8000/year?
is this an investment to you? or eventually primary residence?
What's the appreciation play for your property? Do you have kids? Need Irvine School district?
If investment, it's probably not the best one long term...maybe look into the resale irvine older homes with lower HOA and no MR to make it a better "investment"

I think your problem is it's a 2 bedroom, you probably will be closer to breaking even if you can afford a 3 bedroom in irvine.  Average cost is probably $3000-3300 minimum for a 3 bed..

PM me if you have any questions.  1031 is very easy if you do it right
Click to expand...

Good Points, however when i was looking at detached condo's, same or bigger size in 2015, nothing was available below 650K & i did not have that much budget. So even with $3300 rent on a 650K 3bd condo, i would have lost money on MR & HOA...IR is super fancy living for the rich, with best schools, close to beaches, high end life = my top 3 reasons to buy here --> location, easy to rent out & my personal interest of living there myself. 

Only way outs are:
1. Is there a special tax clause or something for folks in military (not active duty)?
2. Putting in 200k towards the principal in next 12 months to reduce loan amount
3. Eventually live in it as primary residence before i buy a second home , this time a SFR for 950k'ish when we finally do see a market price adjustment in 2018-2019.
4. Live in it as primary residence till then or i keep taking this negative price hit and live myself into a cheaper place to reduce the ongoing price hit on finances.

I think it all also boils down to how much i get back in taxes and if raising rent to another $100-$150 next year might solve it, but i still do not see myself breaking even. The biggest mistake in this whole thing is the assumption that IRS will give me a fatter return just because i own a property now.



 
aquabliss said:
Dream why do you pay both installments of Property Tax + Mello Roos 2 months before the first installment is even due.  Who does that!?  OC treasurer loves you, I'm sure.
Click to expand...

Yes i think they sure do love me after i also paid the supplemental tax bill i just got. My reason of doing it is to get rid of all these crazy bills as soon as i can, delaying it is not going to change the amount, will only add to my hassles. I have also made the HOA guys richer by paying them years worth of stuff in advance, so...hoping none of this backfires.
 
@dream16 - are you sure you want to pay off 200k down in principal with the gift money?  What is your rate on the property? 3.75% - you don't think you can make $7,500 (200k x 3.75%) in one year in the stock market?

Cash is king, you can take that 200k and leverage into another investment property.
 
irvinehomeowner said:
With mortgage rates so low, putting that $200k into it doesn't seem the best use.

Invest it into qwertycalves.com instead. :)
Click to expand...

I would really want to know some good cities to invest in considering all properties are at a very high now, i am not sure if i will opt for mutual stocks/bonds or bluff it all in the dangerous share market where i have zero experience and expertise.
 
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