Current thoughts in 2011...

[qwerty]

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

 

[qwerty]

Akim - also, i think from reading your post it sounds like you and your wife are in AMT land so you would not be able to deduct the property taxes if that was your primary residence. ive run scenarios in turbotax where i input the property taxes and it has no impact on my federal taxes, you can deduct it for state, but the benefit in your case would be around 6-7%.

 

[akim997]

hmm... correct... missed that. thanks.  draconian tax schedules....

 

[panda]

Qwerty, can't you bypass that $150k rental loss rule if you or you wife holds a real estate license?

I've never put in the tax and interest subsidy in my calculations. Is that the proper way to calculate cash flow?

I just make sure that the my rent is slightly greater than my mortgage, HOA, HO insurance, and taxes with 20% equity in the home. I calculate the (amortization + cash flow) / value of 20% equity in the home for my annual return. 

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

 

[usctrojancpa]

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

True for the most part, however in most cases it is the depreciation that throws a property from being cash flow positive to having taxable loss.  Also, as a rental you would deduct everything related to the property including mileage related to driving to the property.  Any unrecognized losses must be carried forward until they are offset against the future positive taxable rental income or an increase in the cost basis in the home when it is sold.  Also, unless the sale is a 1031 exchange you will be responsible for the depreciation recapture tax on the depreciation that was taken on the home.  The question that some people have concerning the rental parity comparison is do you include the equity portion of the mortgage payment as a true expense because they look at it as an equity contribution.

 

[usctrojancpa]

Qwerty, can't you bypass that $150k rental loss rule if you or you wife holds a real estate license?

I've never put in the tax and interest subsidy in my calculations. Is that the proper way to calculate cash flow?

I just make sure that the my rent is slightly greater than my mortgage, HOA, HO insurance, and taxes with 20% equity in the home. I calculate the (amortization + cash flow) / value of 20% equity in the home for my annual return. 

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

It's more than just having an active real estate license.  There is a number of hours requirement and consideration whether you are a real estate professional.  Again, more grey areas Panda. 

 

[panda]

Trojan,
I don't mean getting your license just so you can deduct your losses because I would agree that is a little shady... but in my case if i spent 50% of my time building my brokerage and the 50% of time managing my eCommerce business, I think my CPA would allow me to deduct 100% of my rental losses if my hours were properly documented and I made over $150k. Another example would be If I was a lawyer making $350k and my wife was a full time real estate agent, I would be able to fully deduct 100% of my real estate rental losses against my $350k income. Am I correct right Trojan?

Qwerty, can't you bypass that $150k rental loss rule if you or you wife holds a real estate license?

I've never put in the tax and interest subsidy in my calculations. Is that the proper way to calculate cash flow?

I just make sure that the my rent is slightly greater than my mortgage, HOA, HO insurance, and taxes with 20% equity in the home. I calculate the (amortization + cash flow) / value of 20% equity in the home for my annual return. 

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

It's more than just having an active real estate license.  There is a number of hours requirement and consideration whether you are a real estate professional.  Again, more grey areas Panda. 

 

[qwerty]

Trojan,
I don't mean getting your license just so you can deduct your losses because I would agree that is a little shady... but in my case if i spent 50% of my time building my brokerage and the 50% of time managing my eCommerce business, I think my CPA would allow me to deduct 100% of my rental losses if my hours were properly documented and I made over $150k. Another example would be If I was a lawyer making $350k and my wife was a full time real estate agent, I would be able to fully deduct 100% of my real estate rental losses against my $350k income. Am I correct right Trojan?

Qwerty, can't you bypass that $150k rental loss rule if you or you wife holds a real estate license?

I've never put in the tax and interest subsidy in my calculations. Is that the proper way to calculate cash flow?

I just make sure that the my rent is slightly greater than my mortgage, HOA, HO insurance, and taxes with 20% equity in the home. I calculate the (amortization + cash flow) / value of 20% equity in the home for my annual return. 

Well, can someone help me with this?  I'd guess that the house could rent for $3400 per month... 

Price of house:  $835K, down = 20% or $167K, and financed amount is $668K

Mortgage payment:  $3500
Tax subsidy:  -800
Prop Tax:  $875
Tax subsidy:  -250
HOA: $74
HO Ins:  $120

Total:  $3519

Am  I that far off???

what im saying is that if you bought a house and later had to move and rent it out and your AGI is over 150K you can not deduct the rental loss, so that tax subsidy goes away and now your payment as the owner is 4,569 going out the door and you will be collecting rent of 3,400 so from a cash flow perspective you are down 1,169. Once your AGI is over 150K all you have to compare is cash in vs cash out.

It's more than just having an active real estate license.  There is a number of hours requirement and consideration whether you are a real estate professional.  Again, more grey areas Panda. 

Panda - to be able to fully deduct 100% of real estate losses against your other ordinary income you have to be what the IRS calls a real estate professional. here is the link
http://www.irs.gov/publications/p925/ar02.html#en_US_2010_publink1000104591

here is the definition of a real estate professional

Qualifications.  You qualified as a real estate professional for the year if you met both of the following requirements.

    *      More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

    *      You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

you dont need a license of any kind to qualify as a real estate professional, but im sure it helps to support your position if you were audited.

here is an article that was pretty good as well written by a CPA tax professional
http://www.real-estate-online.com/articles/art-246.html

 

[qwerty]

Qwerty, can't you bypass that $150k rental loss rule if you or you wife holds a real estate license?

I've never put in the tax and interest subsidy in my calculations. Is that the proper way to calculate cash flow?

Regarding your wife having a license qualifying you to deduct your losses - see my previous post with the IRS link

Regarding your cash flow calculation - you are correct, you are comparing gross cash going out the door vs your rent coming in. The calculation becomes more complex if you are a real estate professional since you then have to have a true P&L that includes rental income and your expenses (depreciation, interest expense, insurance, hoa, etc. The principal repayment is not an expense)

 

[qwerty]

Panda - did you delete your question? i was about to do math and now i cant find the post, not sure if it was in this thread or not.

 

[panda]

Sorry Qwerty, I erased it as i thought it may be inappropriate to put a deal i am looking at in Johns Creek on an Irvine website.. but sure, if you don't mind.. are my numbers correct? I am one of those unqiue & odd Asian who is bad with numbers lol and Martin is one of those unique & odd white man (looks like Paris Hilton's younger brother, Perez Hilton) who is good with numbers

These are the cheapest new subdivision that feeds into the best school district in Georgia. There is no apartments in this part of the county.

6th fastest growing county in the nation:http://money.cnn.com/galleries/2010/real_estate/1006/gallery.fastest_growing_US_counties/6.html

13th richest county in the U.S.http://www.facebook.com/notes/fmls-...es-13th-richest-county-in-the-us/377179048519


Qwerty,
Can you tell me if my calculation is correct on an investment deal i am looking at right now?

Sales price is $160,000
20% down = $32,000 investment
80% 30 year fixed investment loan at 5.00% = $687.13 (I'll use my broker license to pay for closing and buy down the points)
Tax = $1280 monthly = $106.66

Carrying cost:
$687.13 - mortgage
$106.66 tax
$50.00 - HOA
$50.00 - Insurance.
$893.79

Comps show me that i can rent this 3/2 SFR for $1400.00 a month

$1400 - $893.79 = $506.21 / monthly cash flow
$6076.52 = annual cash flow
$1896.33 = annual amorization
$7972.85 = annual return on my $32,000 investment = annual return 24.9%

this calculation is not including tax deduction or potential appreciation. I do predict that this home will trade for $300k - $320k in about 10 years.

Panda - did you delete your question? i was about to do math and now i cant find the post, not sure if it was in this thread or not.

 

[qwerty]

Sorry Qwerty, I erased it as i thought it may be inappropriate to put a deal i am looking at in Johns Creek on an Irvine website.. but sure, if you don't mind.. are my numbers correct? These are the cheapest new subdivision that feeds into the best school district in Georgia. There is no apartments in this part of the county.

6th fastest growing county in the nation:http://money.cnn.com/galleries/2010/real_estate/1006/gallery.fastest_growing_US_counties/6.html

13th richest county in the U.S.http://www.facebook.com/notes/fmls-...es-13th-richest-county-in-the-us/377179048519


Qwerty,
Can you tell me if my calculation is correct on an investment deal i am looking at right now?

Sales price is $160,000
20% down = $32,000 investment
80% 30 year fixed investment loan at 5.00% = $687.13 (I'll use my broker license to pay for closing and buy down the points)
Tax = $1280 monthly = $106.66

Carrying cost:
$687.13 - mortgage
$106.66 tax
$50.00 - HOA
$50.00 - Insurance.
$893.79

Comps show me that i can rent this 3/2 SFR for $1400.00 a month

$1400 - $893.79 = $506.21 / monthly cash flow
$6076.52 = annual cash flow
$1896.33 = annual amorization
$7972.85 = annual return on my $32,000 investment = annual return 24.9%

this calculation is not including tax deduction or potential appreciation. I do predict that this home will trade for $300k - $320k in about 10 years.

Panda - did you delete your question? i was about to do math and now i cant find the post, not sure if it was in this thread or not.

Panda - the most common metric on investment properties is cash on cash return which is your net cash flow (pretax) / investment, which in your case is 18.99% (which is your net cash 6076.52 divided by your investment of 32,000).

that is a great investment.

to make sure i was not coming up with the wrong answer i put your inputs into this calculator and came up with 18.98%. the variance is rounding
http://propertycalculator.net/calculators/cash-on-cash-return.aspx

 

[edhne]

Sorry Qwerty, I erased it as i thought it may be inappropriate to put a deal i am looking at in Johns Creek on an Irvine website.. but sure, if you don't mind.. are my numbers correct? I am one of those unqiue & odd Asian who is bad with numbers lol and Martin is one of those unique & odd white man who is good with numbers

These are the cheapest new subdivision that feeds into the best school district in Georgia. There is no apartments in this part of the county.

6th fastest growing county in the nation:http://money.cnn.com/galleries/2010/real_estate/1006/gallery.fastest_growing_US_counties/6.html

13th richest county in the U.S.http://www.facebook.com/notes/fmls-...es-13th-richest-county-in-the-us/377179048519


Qwerty,
Can you tell me if my calculation is correct on an investment deal i am looking at right now?

Sales price is $160,000
20% down = $32,000 investment
80% 30 year fixed investment loan at 5.00% = $687.13 (I'll use my broker license to pay for closing and buy down the points)
Tax = $1280 monthly = $106.66

Carrying cost:
$687.13 - mortgage
$106.66 tax
$50.00 - HOA
$50.00 - Insurance.
$893.79

Comps show me that i can rent this 3/2 SFR for $1400.00 a month

$1400 - $893.79 = $506.21 / monthly cash flow
$6076.52 = annual cash flow
$1896.33 = annual amorization
$7972.85 = annual return on my $32,000 investment = annual return 24.9%

this calculation is not including tax deduction or potential appreciation. I do predict that this home will trade for $300k - $320k in about 10 years.

Panda - did you delete your question? i was about to do math and now i cant find the post, not sure if it was in this thread or not.

don't they also make allowances for the unit being empty some period of time during the year and of course the dreaded maintenance.
But even so, seems like a fantastic "cap rate."

 

[usctrojancpa]

Sorry Qwerty, I erased it as i thought it may be inappropriate to put a deal i am looking at in Johns Creek on an Irvine website.. but sure, if you don't mind.. are my numbers correct? I am one of those unqiue & odd Asian who is bad with numbers lol and Martin is one of those unique & odd white man who is good with numbers

These are the cheapest new subdivision that feeds into the best school district in Georgia. There is no apartments in this part of the county.

6th fastest growing county in the nation:http://money.cnn.com/galleries/2010/real_estate/1006/gallery.fastest_growing_US_counties/6.html

13th richest county in the U.S.http://www.facebook.com/notes/fmls-...es-13th-richest-county-in-the-us/377179048519


Qwerty,
Can you tell me if my calculation is correct on an investment deal i am looking at right now?

Sales price is $160,000
20% down = $32,000 investment
80% 30 year fixed investment loan at 5.00% = $687.13 (I'll use my broker license to pay for closing and buy down the points)
Tax = $1280 monthly = $106.66

Carrying cost:
$687.13 - mortgage
$106.66 tax
$50.00 - HOA
$50.00 - Insurance.
$893.79

Comps show me that i can rent this 3/2 SFR for $1400.00 a month

$1400 - $893.79 = $506.21 / monthly cash flow
$6076.52 = annual cash flow
$1896.33 = annual amorization
$7972.85 = annual return on my $32,000 investment = annual return 24.9%

this calculation is not including tax deduction or potential appreciation. I do predict that this home will trade for $300k - $320k in about 10 years.

Panda - did you delete your question? i was about to do math and now i cant find the post, not sure if it was in this thread or not.

don't they also make allowances for the unit being empty some period of time during the year and of course the dreaded maintenance.
But even so, seems like a fantastic "cap rate."

Yeah, you are talking about doing a "proforma" where you include budgeted items like a one-month vacacancy and repairs & maintenance.

 

[irvinehomeowner]

Maybe Panda should start his own Superfund... he can even buy some gold with it.

 

[roundcorners]

P~

Great plan... check this guy out... I went to one of his seminars & he has some other variables that are broken down more clearly...

http://platinum.propertyshopper.com/index.php?path=investor.property.view.firstyear&agent_property_id=NDAwMTo4YmVjNjdiZWVmM2YxMzc0NDY0YmEzNWZjN2MwZjI0Yw==

Oak Circle
Stockbridge, GA 30281
Built in 1997, 2 Bedroom 1 Bath.

Income Monthly Annual
Gross Rent $695 $8,340
Vacancy Losses ($56) ($667)
Operating Income $639 $7,673

Expenses Monthly Annual
Property Taxes ($97) ($1,160)
Insurance ($24) ($290)
Management Fees ($64) ($767)
Leasing/Advertising Fees $0 $0
Association Fees $0 $0
Maintenance ($21) ($250)
Other $0 $0
Operating Expenses ($206) ($2,467)

Net Performance Monthly Annual
Net Operating Income $434 $5,205
- Mortgage Payments $0 $0
= Cash Flow $434 $5,205
+ Principal Reduction $0 $0
+ First-Year Appreciation $145 $1,740
= Gross Equity Income $579 $6,945
+ Tax Savings $0 $0
= GEI w/Tax Savings $579 $6,945

He came up with "The Annual Gross Rent Multiplier" = Monthly Rent/House Value

Irvine - $3000/$1,000,000 = .3% - Bad Rental Market
Long Beach - $2500/$600,000 = .4% - Starting to be a decent Rental Market
In-Land Empire - $1800/$200,000 = .9% - Excellent

See if you can get 1% in Georgia...

Find a good Property Management Company... someday, I might hand you $25,000 for a DP for a Georgia house...!

 

[iacrenter]

Not to say that Irvine is a Porsche... it's more of a MB C Class or a BMW 3 series... lol (no offense if anyone drives any of the aforementioned cars).

Irvine is neither Porsche, MB or BMW... it is pure Unicorn.

Well... actually... more like an SUV or minivan if you really want to know.

i kept telling myself that a new 4BR SFR  with driveway in Irvine would eventually be available for $700,000, but I just don't see it happening (or will it)?

Las Ventanas... but high MRs/HOA and location may be prohibitive.

I actually wouldn't mind one of those CalPac Portisol Plan 3s in Woodbury... but those seem to never hit the market.

IHO,

I saw this home pop up on my Redfin and thought of you--don't see too many WB Portisol plans come up, thought you might like it. No 3CWG but at least it's a traditional SFR setup and in the A village of WB. 

$874,900
66 RISING SUN
Irvine, CA 92620
5 Bd, 2.5 bath, 2270sqfthttp://www.redfin.com/CA/Irvine/66-Rising-Sun-92620/home/5958993

 

[irvinehomeowner]

IHO,

I saw this home pop up on my Redfin and thought of you--don't see too many WB Portisol plans come up, thought you might like it. No 3CWG but at least it's a traditional SFR setup and in the A village of WB. 

$874,900
66 RISING SUN
Irvine, CA 92620
5 Bd, 2.5 bath, 2270sqfthttp://www.redfin.com/CA/Irvine/66-Rising-Sun-92620/home/5958993

Heh... do you have my Redfin search saved?

Love that plan... only problem... it's over $100k more than I want to pay.

Maricopa Plan 2 is probably better for less.