any input on keeping rental or selling, buying another?
- Thread starter notTHEoc
- Start date
usctrojancpa
Well-known member
#2 all the way. I don't like paying a property manager. If you find a good tenant, they are worth their weight in gold and the property manages itself. Also, in case something happens with the property I want to be within driving distance of it.
Perspective
Well-known member
C) Sell the property and invest the proceeds in an S&P Index fund - zero hassle and likely a greater ROR.
nosuchreality
Well-known member
If you can do an exchange maybe #2. I'd prefer #2 but around here ROI is pretty weak which would lead me to #3.
usctrojancpa
Well-known member
nosuchreality said:
My 55 Wildflower listing in Ladera Ranch penciled fairly well as a rental property and I considered buying it myself so I'm looking to buy a single story home next year.
eyephone said:
i 100% agree. Especially not in Irvine or surrounding areas. The ROI is pitiful (or actually non-existant) and you will likely lose $. This is even worse since I do not expect much, if any appreciation in this area for some years. In fact I would be concerned about depreciation in the next coming years. As someone mentioned above you will likely be much better off finding a low cost indexed fund...
LongIrvine
Member
given transaction costs, assuming 95% occupancy, unless you have a portfolio of say 6+ properties, would be difficult to say that your expected returns would be higher in OC rentals vs. publically traded REIT's. Assuming they have enough density and scale in a geography, they'll get wholesale pricing on materials and possibly in house contractors/plumbers etc.
LongIrvine
Member
RE: NAV. Capital allocation, diverting capital towards the best risk adjusted returns right? Well depends on how you're calculating NAV, DCF, have tough zoning laws, no brownfield competition, and replacement costs are probably the most relevant for RE. So the thought being to find value where others don't. You're right regarding the largest REIT's, however, there are plenty of REIT's out there, that trade much cheaper than NAV, DCF, have tough zoning laws, no brownfield competition, and replacement costs.
LongIrvine
Member
I'm not trying to inflame. Just spit balling. why buy anything or keep anything as a investment if you could sell it for what it's worth. Isn't the whole point of a investment to purchase something at 50% of what it's worth and wait for everyone else to figure it out? .
I was assuming some things. Ie you'd want to take advantage of the primary residence capital gains treatment.
I was assuming some things. Ie you'd want to take advantage of the primary residence capital gains treatment.
nosuchreality
Well-known member
USCTrojanCPA said:
Do you mean at it's prior purchase price? Otherwise, HOA, Prop tax and mello roos eat close to 50% of your monthly rent before you cover a single expense or have any vacancy.
How you figuring pencils? You banking on pushing rent north of the 2/2 average in that area of $2100?
usctrojancpa
Well-known member
nosuchreality said:
Rents for that 2 bedroom condo is more like $2,400-$2,500 per MLS rental comps...rents have going up a good bit the past few years. Do the math...HOA is $375 and included wireless internet and HO-6 insurance and Mello Roos is only $1,700/yr so it does pencil in my book. I almost bought it myself but I'm looking to buy a 3-car single story house.
USCTrojanCPA said:
I am always looking for rentals and this one just doesnt work out well for me. I wonder how you are getting your numbers and I would love to see the details in how you calculate cash flow. Please do not take this as a challenge, but rather trying to see how other people run their numbers...
This is what I got:
purchase price: 400K
closing costs: 20K
Improvements (estimate): 5k-10K
Downpayment: 20%
interest rate: 4%
mortgage payments: $1528
Total cash Outlay is 116K
Taxes: 5106 (paid in 2014)
insurance: 580 a year
maintenance/repairs: 1000 a year
property manage: 7%
monthly income: 2400/month
vacancy rate: 8.3% (1 month)
With the numbers above im seeing a negative cash flow of 567 a year
Cash ROI of -0.5%
Total ROI of 4.37% only because of accrued equity.
Therefore the only play on a rental like this is appreciation, which I would be VERY concerned about with rentals especially right now with housing starting to slow...
Id love to see if you have a different thought on this... Thanks
PS if you have other potential rentals, Id love to see them.
purchase price: 400K
closing costs: 20K
Improvements (estimate): 5k-10K
Downpayment: 20%
interest rate: 4%
mortgage payments: $1528
Total cash Outlay is 116K
Taxes: 5106 (paid in 2014)
insurance: 580 a year
maintenance/repairs: 1000 a year
property manage: 7%
monthly income: 2400/month
vacancy rate: 8.3% (1 month)
With the numbers above im seeing a negative cash flow of 567 a year
Cash ROI of -0.5%
Total ROI of 4.37% only because of accrued equity.
Therefore the only play on a rental like this is appreciation, which I would be VERY concerned about with rentals especially right now with housing starting to slow...
Id love to see if you have a different thought on this... Thanks
PS if you have other potential rentals, Id love to see them.
usctrojancpa
Well-known member
Your numbers are a little off as follows...
1) Buyer closing costs will be around 1% of the purchase price or $4k
2) Since the property is a fairly newer attached condo where HOA handles everything on the outside and termite repairs, your total improvements/cap/repairs and maintenance budget max will be around .5% of the purchase or $2k/yr
3) HOA includes the wall-ins/betterment HO-6 insurance coverage for the unit so insurance cost should be $0
4) Property managers are a waste of money...I manage all of my rentals myself. If you find a good tenant, the property manages itself and I have all the service providers that I'll ever need
5) Commission costs to re-lease the property will be 5% of the annual rent
6) For rental properties, lenders will require you to put down at least 25% not 20%
If you make those adjustments, you'll find that you have a positive return on your invested capital.
1) Buyer closing costs will be around 1% of the purchase price or $4k
2) Since the property is a fairly newer attached condo where HOA handles everything on the outside and termite repairs, your total improvements/cap/repairs and maintenance budget max will be around .5% of the purchase or $2k/yr
3) HOA includes the wall-ins/betterment HO-6 insurance coverage for the unit so insurance cost should be $0
4) Property managers are a waste of money...I manage all of my rentals myself. If you find a good tenant, the property manages itself and I have all the service providers that I'll ever need
5) Commission costs to re-lease the property will be 5% of the annual rent
6) For rental properties, lenders will require you to put down at least 25% not 20%
If you make those adjustments, you'll find that you have a positive return on your invested capital.