Irvine Condo Investment with HOA

[dream16]

Dream16.  I know bangbros calculated 9k loss a year but I recalculated with my spreadsheet because some costs factors that affect NOI were not included.

I use some assumptions which you can see below, which you can adjust for yourself by simply adding or subtracting the difference based on what you feel is appropriate.

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.5%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 6k/yr
MR: 8800/yr
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state)
Cap Ex/Maintenance: 2000/yr

considering the info you provided and some assumptions like vacancy/cap-ex/maintenance, you have a negative cash flow of 16,000 a year.  cash on cash of negative 13.4% and total ROI of negative 6.3%.


These are really really bad numbers and you should STRONGLY consider selling.  Im sure some realtors would be happy to help you...

THanks, i have fixed some numbers here :

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.75%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 9k/yr (including $3200/yr MR)
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state) --> i am not using any.
Cap Ex/Maintenance: 2000/yr --> everything covered under warranty for initial 12 months

 

[dream16]

I thought putting 200,000 into the mortgage only shortens the re-payment period (30 yr mortgage becomes 24 yrs).  It doesn't make the monthly nut any less.

You are correct. He would have to refi to get the monthly payment less with the additional $200. But who knows what the interest rate will be for a 30 yr fixed. I'm not sure if he considered an arm.

You guys are correct, since i moved to SF, the refinance option does not exist for me at this time, would love to grab that 3.1 my friend managed to get for his SFR in Corona. Also, i did not consider 5 yr ARM as it was my 1st purchase here and i wanted to go traditional 30 year as fake market speculations on Feds raising the interest rates, doing meeting etc were at an all time high during the time of my purchase.

I am not sure if that 5 year ARM option is available to me anymore since if i do refinance, bank will do it as investment property and i will loose the 1% rate reduction in that.

 

[dream16]

I thought putting 200,000 into the mortgage only shortens the re-payment period (30 yr mortgage becomes 24 yrs).  It doesn't make the monthly nut any less.

that's what i meant.. i think he will refinance it (another 30 year) dropping the $200k. 

Seems to me PS is such a poor rental investment given its high MR/HOA.  Easier to take that $200k, buy the 4 stocks at $50k a piece: Tesla, Google, Amazon, Apple.  I guarantee after 5 years, he'll still come out on top.  Tesla for the higher risk/reward.  Google for the steady.  Amazon for the growth and stability.  Apple, well that's apple.  That's what I called a diversified portfolio  ;D

Hahhahaa...especially on the Apple Stocks when i was about to out my money on it in 2008, would have seriously earned big time had i gone in full-swing on it at that time.

 

[dream16]

Dream16, you want an investment home?  I'm being serious.  You should buy this unit and sell your portola home now:
https://www.redfin.com/CA/Irvine/96-Golden-Glen-St-92604/unit-4/home/5329753

You will come out on top.  $460k, (you can negotiate it down more) no mello roos.  $92k down payment.  Low tax rate, even with $325 HOA, your monthly will be: $2,351.  It's still a 2 bed/2bath.

PLUS... I guarantee you, this will have ZERO problems renting.  Why?  Because it's next to 99 Ranch Plaza...where all the anchor baby momma's congregate.  Remember, location location location.

Where did you get $2351 from? Just curious
Principal and interest is at $1700 (assuming investment mortgage rate, I low end at 4.25% at 25% down
$456 property tax a month (from Redfin) will be more as selling price is higher than before
325 hoa
$80 forinsurance

= $2560  already

Not including if you wanted any warranty on items or accounting for vacancy

And it's $115k down for 25% investment

I haven't done much research there but will they get $2600/month for 1000 sq feet?

The other negative I don't like is its built in 1970 so it's already almost 46-50 years old already so there's bound to be things breaking down/renovation needed in a few years

You can get a 3.75% 30-year fixed for an investment property loan today.  And your insurance is way high, I pay $800/year for a 2,500sf detached home.  For an attached condo you'll just need walls-in betterment coverage which should be like $40/mo.  Property tax will be just under $400/mo since there's no Mello Roos on that condo.

The best bet is to buy a 3+ bedroom property to rent so you aren't competing against apartments and opens you up to a bigger rental pool and buyer pool when it's time to sell.

Yes, you are correct, i wish i would have listened to my spouse on taking a bigger nose dive of 650K to get a detached condo, but even in that i think i was only getting 2 bedrooms, we are not a fan of 3 or 4 bedrooms squeezed in 1300-1600 square feet, those bedrooms end up becoming useless (little match-boxes), so i remember this being another reason to not put in 650k for a detached condo last year.

Also, my rental calculations/analysis on a 2bed/2.5 bath "Detached vs Attached" condo was inclining me towards buying an attached one - as i couldn't see a major rental price difference between the two. Please enlighten me if you have more info on it.

And in order to make mine more fancier, i did put in thick carpet upgrades, wooden laminated flooring (that all potential walk-in-to be tenants & my friends liked) along with tile & window treatment upgrades to give it a high-end feel and not just a bare-bones condo.

 

[dream16]

My interest rate for that rental was set at 3.25%.  The assumption is that you own it as primary residence for 1 year (per the agreement of most direct lenders) before you can rent it.  Why would anyone pay 4.75% for rental property these days is absolutely absurd and mind boggling.

Everyone should be taking advantage of the primary residence loan rate like me...then live in it (or atleast pretend to live in it) and then rent it out.  In the case of dream16, that is what he was doing.  It was his principal residence for some time before he moved to GP. 

Come on...there are ways to "muck" with the paper work. 

I thought dream16 lives and works in Silicon Valley. His KB home is an investment property. (Correct me if I'm wrong. There's too many back and forth,  and many threads. Lost in translation may happen)

Yes eyephone, with the only difference that this condo i bought was a dual intent purchase --> meaning i will rent it out unless i come back in a few months to So.Cal, but my next primary residence purchase will be a single family home as i cannot deal with neighbors complaining, ringing my bell for playing music and i need a much bigger house (atleast 2200+ sq.ft with a big lot 5000+), so i think it will be somewhere around $1.1M in IR for me to buy something like that around 2019, but then the bigger Q is how wise is it to keep all your houses/properties in the same city.

One of my friend picked up a 1961 built SFR (4 bedrooms crammed in 1450 square feet but big 6800 sq ft lot) in "Brea" with No MR & No HOA at 3.5 (30yr fixed) only with 80k down-payment for 605k this month (was lucky to get upgraded plumbing/kitchen appliances etc) . Schools are 9/10 & his kid is going to walk across the street to it, but since i have never been to Brea, i don't know if it can come close to matching IR lifestyle, amenities etc. So this is just an FYI for folks who want to buy SFR on a budget, but then again the renters in Brea are only at 32% so you do have to deal with lot of vacany and being a 1960's house, i am not excited about all sort of fix-ups that will be required over there.

 

[hello]

Dream16.  I know bangbros calculated 9k loss a year but I recalculated with my spreadsheet because some costs factors that affect NOI were not included.

I use some assumptions which you can see below, which you can adjust for yourself by simply adding or subtracting the difference based on what you feel is appropriate.

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.5%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 6k/yr
MR: 8800/yr
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state)
Cap Ex/Maintenance: 2000/yr

considering the info you provided and some assumptions like vacancy/cap-ex/maintenance, you have a negative cash flow of 16,000 a year.  cash on cash of negative 13.4% and total ROI of negative 6.3%.


These are really really bad numbers and you should STRONGLY consider selling.  Im sure some realtors would be happy to help you...

THanks, i have fixed some numbers here :

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.75%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 9k/yr (including $3200/yr MR)
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state) --> i am not using any.
Cap Ex/Maintenance: 2000/yr --> everything covered under warranty for initial 12 months

using all your numbers you are negative $6483 a year, -4.71% cash on cash and 1.17% total ROI.  I would however caution not calculating cap ex and maintenance since warranty does not cover maintenance costs and also the warranty is only for 12 months.  My point is that -$6483 a year is BEST case scenario.  In any case, good luck to you.

 

[dream16]

Thanks, lets see what i can do

 

[stevers]

I'm seeing some conflicting statements here. 
DISCLAIMER: I AM NOT A CPA.  Software dude, with sometimes hazy memory .

1.  I believe the 27.5 depreciation is on the building value (thread mentioned the depreciation is on bldg only, then on land only).
2.  Capital losses do deduct against personal W-2 income, but only to a certain point.  $3k/year for married, $1.5k/year for single.  Not a huge deduction if you own multiple rental properties, but can help with the ROI analysis if you have one small unit.  $3k/year for 27.5 years backs into a maximum depreciation for building value at $82.5k.  Irvine properties are pretty much over $82.5k for assessed bldg value.
3.  Since interest-only mortgages are pretty much non-existent now, the mortgage payment includes reduction in principal. 

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.75%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 9k/yr (including $3200/yr MR)
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state) --> i am not using any.
Cap Ex/Maintenance: 2000/yr --> everything covered under warranty for initial 12 months

Depreciation benefit @ $3k/year @ 28%/9.3% fed/cal income tax:  $1,119
Avg principal first 3 years: $8,400/year
Mortgage cost: $2037


3 year analysis:
Total cost: $2037*36 + $9,000*3 + $600*3 + $3780*3 = -$113,472
Total income: $2750*36 *0.95 = $94,050
Net: -$19,422, or -$6,474/year

So you're banking on the property appreciating at more than $6,474/year to cover just the operating losses.  When it comes time to sell, you're expecting the appreciation to cover the losses, plus selling costs(~5%), plus opportunity cost (~4% compounded in index fund).  In this 3 year view, you'll have to sell for more than ~$624k to turn a profit ($31k selling costs, $19k total operating loss, $23k opportunity). 

Of course the longer you hold the property, the more principal you pay off, the (hopefully) higher appreciated value, and the less impact of selling costs.

I personally see PS increasing in value in the long haul (10 years), but not sure if it's worth the hit to your monthly balance.

I'm interested to see what other TI investors think of my analysis.  Could be holes, or false assumptions.  Welcome any criticism (I'm in the market for a second property, and I go through these numbers often...)

 

[usctrojancpa]

On an attached condo (especially a newer one), I'd be shocked if you had more than $500-$1,000 in maintenance costs (speaking from my own personal experience).  You can also partially mitigate your maintenance costs by purchasing a home warranty policy.  Unless you get an ARM loan, you are looking at over 4% on a 30-year fixed loan.  I opted for 7/1 and 10/1 ARM loans on my rentals and those loans got me into the high 3% interest rates.  Your insurance also looks a little high for an attached condo with the HOA covering building insurance....should be closer to $30-$35/mo for the HO-6 walls-in coverage. 

 

[dream16]

On an attached condo (especially a newer one), I'd be shocked if you had more than $500-$1,000 in maintenance costs (speaking from my own personal experience).  You can also partially mitigate your maintenance costs by purchasing a home warranty policy.  Unless you get an ARM loan, you are looking at over 4% on a 30-year fixed loan.  I opted for 7/1 and 10/1 ARM loans on my rentals and those loans got me into the high 3% interest rates.  Your insurance also looks a little high for an attached condo with the HOA covering building insurance....should be closer to $30-$35/mo for the HO-6 walls-in coverage.

This is what KBHOME SOLD ME:
$1K Deductible is $594.15  OR  $2500 Deductible is $561.15

I opted for $1k Deductible.

Please note that mine is a Rental - earlier i was offered the same policy for $426 but due to tenants, it goes up-to $594

Here's what i purchased:

1. Dwelling Coverage Max Coverage: 80,000
2. Water/Flood Coverage ? FLOOD requires a policy from FEMA - you are however covered for water damage due to a pipe or water heater leaking.
3. Personal Property Protection (contents)  Max Coverage: 40,000
4. Acts of Nature ?This policy does not cover for Flooding (FEMA flood policy required) or Earthquake (separate Earthquake policy required)
5. Fair Rental Income Protection ? This policy is being written as OWNER-OCCUPIED ? you would need to change the policy type in order to have Fair Rental Income Coverage)
6. Legal/Liability/Medical Coverage ? Max Liability is 500K and Medical Coverage is 1K.

Please advice on cheaper options offering same sort of coverage for a rental. Geico asked for more than $600 for the same thing.

 

[usctrojancpa]

I bought two detached condos from 2 clients and one insurance policy was $428/yr and the other was $476/yr.  If I only got the HO-6 coverage, the amounts would have been lower.  For the record, I use an insurance broker as they are cheaper than any other insurer that I got quotes from. 

 

[Alana]

$310 Per year for attached property ; it is a HO6 walls-in coverage ; Building property protection for upgrades $56000;
This is from All state ; Deductible -$1000 ;

 

[hello]

I'm seeing some conflicting statements here. 
DISCLAIMER: I AM NOT A CPA.  Software dude, with sometimes hazy memory .

1.  I believe the 27.5 depreciation is on the building value (thread mentioned the depreciation is on bldg only, then on land only).
2.  Capital losses do deduct against personal W-2 income, but only to a certain point.  $3k/year for married, $1.5k/year for single.  Not a huge deduction if you own multiple rental properties, but can help with the ROI analysis if you have one small unit.  $3k/year for 27.5 years backs into a maximum depreciation for building value at $82.5k.  Irvine properties are pretty much over $82.5k for assessed bldg value.
3.  Since interest-only mortgages are pretty much non-existent now, the mortgage payment includes reduction in principal. 

Purchase price: 550K
Downpayment: 20% (110K)
30 year fixed at: 3.75%
Monthly Rent: $2750
Vacancy rate: 5% (although it took you over 2 months i set it for 2.5 weeks)
Property taxes: roughly 9k/yr (including $3200/yr MR)
Insurance: 600/yr
HOA: 3780/yr
Property management: 8% ( I recall you saying you were out of state) --> i am not using any.
Cap Ex/Maintenance: 2000/yr --> everything covered under warranty for initial 12 months

Depreciation benefit @ $3k/year @ 28%/9.3% fed/cal income tax:  $1,119
Avg principal first 3 years: $8,400/year
Mortgage cost: $2037


3 year analysis:
Total cost: $2037*36 + $9,000*3 + $600*3 + $3780*3 = -$113,472
Total income: $2750*36 *0.95 = $94,050
Net: -$19,422, or -$6,474/year

So you're banking on the property appreciating at more than $6,474/year to cover just the operating losses.  When it comes time to sell, you're expecting the appreciation to cover the losses, plus selling costs(~5%), plus opportunity cost (~4% compounded in index fund).  In this 3 year view, you'll have to sell for more than ~$624k to turn a profit ($31k selling costs, $19k total operating loss, $23k opportunity). 

Of course the longer you hold the property, the more principal you pay off, the (hopefully) higher appreciated value, and the less impact of selling costs.

I personally see PS increasing in value in the long haul (10 years), but not sure if it's worth the hit to your monthly balance.

I'm interested to see what other TI investors think of my analysis.  Could be holes, or false assumptions.  Welcome any criticism (I'm in the market for a second property, and I go through these numbers often...)

I think your analysis is spot on.  The way you analyze deals is pretty much exactly how I do mine.  Unfortunately with any deal analysis you have to make assumptions.  I have seen many TI'ers will either underestimate or completely leave out vacancies, maintenance costs and cap ex costs.  As you probably know, these underestimated costs are usually why people dont cash flow with their rentals.  Even if you completely leave out vacanies, maintenance and cap ex costs, nearly all Irvine homes purchased as rentals today will not cash flow.  Dream16 is living this exact problem.  Im sure you already figured this out but if you are looking for rental property, Irvine is not the place to look right now. 

 

[stevers]

I think your analysis is spot on.  The way you analyze deals is pretty much exactly how I do mine.  Unfortunately with any deal analysis you have to make assumptions.  I have seen many TI'ers will either underestimate or completely leave out vacancies, maintenance costs and cap ex costs.  As you probably know, these underestimated costs are usually why people dont cash flow with their rentals.  Even if you completely leave out vacanies, maintenance and cap ex costs, nearly all Irvine homes purchased as rentals today will not cash flow.  Dream16 is living this exact problem.  Im sure you already figured this out but if you are looking for rental property, Irvine is not the place to look right now.

Thanks for reading through the analysis.  I agree that Irvine is terrible for cash flow properties, but timing the market can yield some hefty appreciation.  I'm thinking about buying in a new community (CV East, Eastwood) and hoping the value goes up significantly when the community is fully built out.  I'll be living in the unit and renting my current SFR, so I can "hide" the losses by saying I'm living there!  My current place in El Camino Glen has no HOA, no mello roos, and probably rent out to cover my PITI, but not maintenance/vacancies. (Sorry for the threadjack)

Back to Dream16's situation, I think Portola Springs (and all of Irvine) will appreciate in the next 5 years.  So long as you can absorb the monthly hit, it might not be too bad.  Or just keep your eyes on comps in the area in the $625k range.  Once it hits that price, sell the property and take a mulligan.

 

[marmott]

They are pretty close to finish Willow. Plan 3 is selling for 570k in the second to last phase, with worst location because it's the buildings against the 133 and next to the pool.

Edit: plan 3 not plan 2.

 

[dream16]

They are pretty close to finish Willow. Plan 3 is selling for 570k in the second to last phase, with worst location because it's the buildings against the 133 and next to the pool.

Edit: plan 3 not plan 2.

Is plan 3 the 1614 sq. ft (which is mine)? Luckily, i am little shielded from 133 due to building in front of me. On my last visit there, at sales office, everything was sold out.

 

[dream16]

$310 Per year for attached property ; it is a HO6 walls-in coverage ; Building property protection for upgrades $56000;
This is from All state ; Deductible -$1000 ;

Thank you, will try All State this year to save $300

 

[eyephone]

$310 Per year for attached property ; it is a HO6 walls-in coverage ; Building property protection for upgrades $56000;
This is from All state ; Deductible -$1000 ;

Thank you, will try All State this year to save $300

But you previously mentioned that the policy covers a lot.

 

[SoclosetoIrvine]

This is what KBHOME SOLD ME:
$1K Deductible is $594.15  OR  $2500 Deductible is $561.15

I opted for $1k Deductible.

Please note that mine is a Rental - earlier i was offered the same policy for $426 but due to tenants, it goes up-to $594


Please advice on cheaper options offering same sort of coverage for a rental. Geico asked for more than $600 for the same thing.

This is mine for rental property, SFR

dwelling $290k
dwelling extra replacement: $58000
dwelling extension $29,000
Personal property: $14,500 (things like stove/washer/dryer)
business liability $300,000/each occurrence, $600k aggregate each year
medical payment $1000
loss of rent: no limit first year (due to accidental damage of property)

deductible $2000
premium $476/year

Also state farm

I think your policy covers more, but the rental one I have covers the loss of rent and business liability I guess.. Saving $100/year is not worth it I Think, try to get Alana's deal if you want that