any input on keeping rental or selling, buying another?

[nosuchreality]

Assuming a loan at 4%, 0% vacancy, 5% realtor renting fee, optimistic $2400 rental target (rentometer shows $2095 average), 25% down, HOa, mellow rooms and property tax, I see the need to kick in $30 a month to cover the mortgage principal before covering any maintenance expenses.

With the optimistic 0.5% maintenance reserve, and a two weeks to a month of vacancy between tenants, you're looking at a wash between expenses and principal. 

So basically, absolute best case scenario, a real good tenant lets you cover the expenses while you kick in the principal payment each month.  An average tenant or just a tenant that needs to move, leaves you holding a loss on top of paying that $400+ principal check each month.

As much as I think Kiyosaki is full of it, in the words of Rich Dad, how many of those can you afford to buy?

 

[usctrojancpa]

Assuming a loan at 4%, 0% vacancy, 5% realtor renting fee, optimistic $2400 rental target (rentometer shows $2095 average), 25% down, HOa, mellow rooms and property tax, I see the need to kick in $30 a month to cover the mortgage principal before covering any maintenance expenses.

With the optimistic 0.5% maintenance reserve, and a two weeks to a month of vacancy between tenants, you're looking at a wash between expenses and principal. 

So basically, absolute best case scenario, a real good tenant lets you cover the expenses while you kick in the principal payment each month.  An average tenant or just a tenant that needs to move, leaves you holding a loss on top of paying that $400+ principal check each month.

As much as I think Kiyosaki is full of it, in the words of Rich Dad, how many of those can you afford to buy?

Ummm, no offense but that rentometer site sounds a lot like zillow estimated values..aka garbage.  Here are your model match rental comps since 7/1/14 straight out of MLS...

24 Wildflower - $2,400 rented 8/12/14
135 Sunflower - $2,500 rented 8/1/14
135 Sunflower - $2,550 rented on 7/15/15

Trust me, I don't pull these rent figures out of the sky....I go to MLS which to me is a fairly reliable source (especially when you have more than one data point).  Why do you think the 0.50% maintenance reserve is low for an attached condo?  That % comes from my own personal experience being a landlord of a few newer attached condos for the past 10+ years.  I'm not saying that rental properties in OC are great investments from a cash on cash return since investors have to compete with owner occupants who will get emotional and bid up properties that they want, but it's a potential way for folks to diversify their investment.  Rental properties in TX and the Southeast might perform better but you'll have to pay a property management fee which will eat into your cash flow. 

 

[Harajuku]

What would you prefer?

1) Keep a long-distance rental which is very hard to monitor on your own. Rely on a property manager and hope they do a decent job finding tenants, maintaining the property, etc.

2) Pay the transaction/broker fees to sell the long-distance rental and buy a rental nearby which could be monitored more easily. I think selling transaction costs would work out to 15-20 years worth of property management fees.

Assume both properties would be similar price, similar cash flow, similar appreciation potential, etc. Any input?

If the long distance property is performing well why bother substitute it for similar product?  You lost at least 10% immediately for closing two escrows in addition to capital gain tax (unless you do 1031 exchange).  As long as you have a good property manager that can secure a good tenant I would suggest keeping it.

 

[hello]

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.

So I changed everything that you suggested in your post.  I still got negative annual cash flow of $168.  Cash ROI of -0.16% and Total ROI of 4.92%.  Am I still missing something?  Id love to see what numbers you get specifically.  Thanks in advance.

 

[nosuchreality]

Rentometer doesn't tell you the rent for a given place, just the local rents for same bedrooms.

In this case, the area runs lower.  There are things in this complex that warrant higher, however, notching up has plus & minuses.

Minus #1 is you need to use the MLS and fork over 5% for the placement. The pluses you get higher rent but smaller tenant pool (of hopefully higher quality) which sometimes equates to longer vacacies between tenants.

As for expenses, I find from my own experience in newer condos that 0.5% is a bit low.  But I like things like having an semi-annual HVAC maintenance agreement in place.  And have experienced other things like water heaters flaking out but being under warranty, although you still end up paying a service call.  Or the electric ignition in the range top goes out, tenant moves out and you need to paint, you can hire $$ or do it yourself $$$$ (due to time), cleaning between tenants, carpet replacement, wear & tear touchups on wood flooring, mileage to/from for those intertenant maintenance trips etc.  Piddly stuff, but it adds up, plus like an HOA, I believe in planning for reserve and what I consider the inevitable special assessment from the HOA. 

All that said, I see small rentals as good investments, but not this one.  Assuming the $2400, no vacancy allocation, no misc expenses, not even your 0.5% expenses, just paying the HOA, taxes & realtor placement fee leaves you kicking in money every month to pay the loan with a small down payment.  That's not a way to build weath.

You can ramp up the down payment, but if you take a cushion with a month on tenant turnover, at 40% down, you're running breakeven before misc expenses.

Okay, go biblical, 100% down, cash buy.  0.5% expenses, 100% rented, no vacancies, $2400 on MLS, net, 3.71% return on investment if every thing goes your way all year long.

Buy a muni bond, whole lot less hassle.

 

[usctrojancpa]

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.

So I changed everything that you suggested in your post.  I still got negative annual cash flow of $168.  Cash ROI of -0.16% and Total ROI of 4.92%.  Am I still missing something?  Id love to see what numbers you get specifically.  Thanks in advance.

I was slightly positive because I used a $2,500 rental rate and I used a market mutli family vacancy rate of 5% based upon institutional data for So Cal.  I would have bought the property for a lower price net of all commissions and obviously I would only have half of the rental and sales commissions to pay. 

 

[eyephone]

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.

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. 

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?

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.

I am always looking for rentals and this one just doesnt work out well for me. 

I guess you like chasing rainbows. Because right now is not the time to buy.

 

[hello]

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.

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. 

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?

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.

I am always looking for rentals and this one just doesnt work out well for me. 

I guess you like chasing rainbows. Because right now is not the time to buy.

I agree with you as I do not see any deals out there... nevertheless it doesnt hurt to look and I am always looking.  You never know where and when you find deals...

 

[usctrojancpa]

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.

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. 

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?

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.

I am always looking for rentals and this one just doesnt work out well for me. 

I guess you like chasing rainbows. Because right now is not the time to buy.

I agree with you as I do not see any deals out there... nevertheless it doesnt hurt to look and I am always looking.  You never know where and when you find deals...

Too much "hot money" to find good deals right now, you have to be lucky at the right time and right place for a good deal to come your way now. 

 

[hello]

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.

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. 

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?

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.

I am always looking for rentals and this one just doesnt work out well for me. 

I guess you like chasing rainbows. Because right now is not the time to buy.

I agree with you as I do not see any deals out there... nevertheless it doesnt hurt to look and I am always looking.  You never know where and when you find deals...

Too much "hot money" to find good deals right now, you have to be lucky at the right time and right place for a good deal to come your way now.

I agree.  prices are insane everywhere....

 

[irvinehomeowner]

I agree.  prices are insane everywhere....

Even in the IE?

#notserious