Irvine Rental market

N

NewInvestor

New member
Hi

We bought a new property (3br+2bath) in Cypress Village and the closing date is in April 2016.  Due to un-forseen circumstances, we will not be able to move to Irvine.  We are debating:

1. Rent out this property as investment for at least 5 years.
2. Back out the buying transaction which means we will loose 25K.

We see that current rental market in Irvine is RENTER market; many houses are for rent.  So we are thinking of solution #2.  We are looking for your wise inputs.  Thank you.
 
NewInvestor said:
Hi

We bought a new property (3br+2bath) in Cypress Village and the closing date is in April 2016.  Due to un-forseen circumstances, we will not be able to move to Irvine.  We are debating:

1. Rent out this property as investment for at least 5 years.
2. Back out the buying transaction which means we will loose 25K.

We see that current rental market in Irvine is RENTER market; many houses are for rent.  So we are thinking of solution #2.  We are looking for your wise inputs.  Thank you.
Click to expand...

I dont know what you bought your CV house for.  However without knowing the price you paid, I can guarantee that you will NOT cash flow and in fact will lose money by renting it out.  I just know this from looking at many homes to see if they will cash flow as a rental.  NONE of them in this area do, ESPECIALLY new builds.

My numbers may be a bit off, but lets assume 750K purchase price for a 3bed/2bath around 1700 sq/ft in size.  Rental rates here for something like this will be about $3000 a month, give or take a couple hundred a month.  Assuming a 20% down, 3.75% rate, 8.33% vacancy rate (1 month per year), about 1000 a year for maintenance, 8% paid to property manager then you will have a negative cash flow of about 15k per year.  Even if you managed this yourself, its still about 13K negative a year.  Even if there was 100% occupancy, its still negative almost 10K a year.  If there is any depreciation of this house, which seems very well possible if not likely, then the situation is even worse. 

seriously, take a 25K loss and move on.  Its gonna hurt to lose 25K but in my opinion much better to move on now.  Also its one thing to deal with the headaches of being a landlord when you are making money.  But to lose money and still have to deal with that headache???  Oh man...

 
hello said:
NewInvestor said:
Hi

We bought a new property (3br+2bath) in Cypress Village and the closing date is in April 2016.  Due to un-forseen circumstances, we will not be able to move to Irvine.  We are debating:

1. Rent out this property as investment for at least 5 years.
2. Back out the buying transaction which means we will loose 25K.

We see that current rental market in Irvine is RENTER market; many houses are for rent.  So we are thinking of solution #2.  We are looking for your wise inputs.  Thank you.
Click to expand...

I dont know what you bought your CV house for.  However without knowing the price you paid, I can guarantee that you will NOT cash flow and in fact will lose money by renting it out.  I just know this from looking at many homes to see if they will cash flow as a rental.  NONE of them in this area do, ESPECIALLY new builds.

My numbers may be a bit off, but lets assume 750K purchase price for a 3bed/2bath around 1700 sq/ft in size.  Rental rates here for something like this will be about $3000 a month, give or take a couple hundred a month.  Assuming a 20% down, 3.75% rate, 8.33% vacancy rate (1 month per year), about 1000 a year for maintenance, 8% paid to property manager then you will have a negative cash flow of about 15k per year.  Even if you managed this yourself, its still about 13K negative a year.  Even if there was 100% occupancy, its still negative almost 10K a year.  If there is any depreciation of this house, which seems very well possible if not likely, then the situation is even worse. 

seriously, take a 25K loss and move on.  Its gonna hurt to lose 25K but in my opinion much better to move on now.  Also its one thing to deal with the headaches of being a landlord when you are making money.  But to lose money and still have to deal with that headache???  Oh man...
Click to expand...

Did you factor in the mortgage interest tax deduction?  That would cushion some of the blow.
 
paydawg said:
hello said:
NewInvestor said:
Hi

We bought a new property (3br+2bath) in Cypress Village and the closing date is in April 2016.  Due to un-forseen circumstances, we will not be able to move to Irvine.  We are debating:

1. Rent out this property as investment for at least 5 years.
2. Back out the buying transaction which means we will loose 25K.

We see that current rental market in Irvine is RENTER market; many houses are for rent.  So we are thinking of solution #2.  We are looking for your wise inputs.  Thank you.
Click to expand...

I dont know what you bought your CV house for.  However without knowing the price you paid, I can guarantee that you will NOT cash flow and in fact will lose money by renting it out.  I just know this from looking at many homes to see if they will cash flow as a rental.  NONE of them in this area do, ESPECIALLY new builds.

My numbers may be a bit off, but lets assume 750K purchase price for a 3bed/2bath around 1700 sq/ft in size.  Rental rates here for something like this will be about $3000 a month, give or take a couple hundred a month.  Assuming a 20% down, 3.75% rate, 8.33% vacancy rate (1 month per year), about 1000 a year for maintenance, 8% paid to property manager then you will have a negative cash flow of about 15k per year.  Even if you managed this yourself, its still about 13K negative a year.  Even if there was 100% occupancy, its still negative almost 10K a year.  If there is any depreciation of this house, which seems very well possible if not likely, then the situation is even worse. 

seriously, take a 25K loss and move on.  Its gonna hurt to lose 25K but in my opinion much better to move on now.  Also its one thing to deal with the headaches of being a landlord when you are making money.  But to lose money and still have to deal with that headache???  Oh man...
Click to expand...

Did you factor in the mortgage interest tax deduction?  That would cushion some of the blow.
Click to expand...

Actually I didnt and you are correct.  It would actually cushion a lot of the blow, but he would still be significantly in the red based on assumptions made on this house and assuming his marginal rate is 25%/8%. 
 
Is the $25k the earnest money or deposit?

If the place will be paid cash, then there will be positive cash flow.  No deduction on the mortgage interest portion, just tax.
 
Thank you for your all replies so far.

The house price is 850K.  The 25K is the deposit for new build + minor options.
We planned to put down 20% down.
 
NewInvestor said:
Thank you for your all replies so far.

The house price is 850K.  The 25K is the deposit for new build + minor options.
We planned to put down 20% down.
Click to expand...

You sure the house doesn't have 2.5 bathrooms, instead of just 2?
 
AW said:
Is the $25k the earnest money or deposit?

If the place will be paid cash, then there will be positive cash flow.  No deduction on the mortgage interest portion, just tax.
Click to expand...

Yes, but this is a horrible way of looking at how a rental will cash flow.  By buying a house all cash, EVERY rental could cash flow.  We must look at cash flow based on some assumptions such as a reasonable amount of down payments, etc.  We must factor in opportunity costs as well.
 
NewInvestor said:
Thank you for your all replies so far.

The house price is 850K.  The 25K is the deposit for new build + minor options.
We planned to put down 20% down.
Click to expand...

purchase price of 850K makes the numbers even worse.  3bd/2bath in CV will fetch about 3000 a month.  you will lose money.  its a no brainer.  Your only play to make money or break even here is hoping for appreciation of the house.  Unfortunately that looks bleak at the moment.  If this house depreciates, then you are screwed even more... 
 
hello said:
AW said:
Is the $25k the earnest money or deposit?

If the place will be paid cash, then there will be positive cash flow.  No deduction on the mortgage interest portion, just tax.
Click to expand...

Yes, but this is a horrible way of looking at how a rental will cash flow.  By buying a house all cash, EVERY rental could cash flow.  We must look at cash flow based on some assumptions such as a reasonable amount of down payments, etc.  We must factor in opportunity costs as well.
Click to expand...

You ain't kidding.  I've seen like several cases recently where that happened.  Condos sold, next thing is a for lease status.  Horrible use of cash imo.

Best case scenario here is asking and hoping they'll return the deposit.
 
Yes, I agree with the advice that has been given to you. $850k purchase price, 20% down, fetching $3000 rent is a terrible investment that you need to run from.

Please do not consider take the investment route on this. Agree with AW, see whatever you can do to fight and get your earnest money back. You will certainly lose a lot more from negative cash flow than your earnest deposit. For any worthwhile investment property you should target close to a 10% gross Cap rate : ( rent x 12 / purchase price) and 10% cash on cash return with potential for the asset to appreciate. In your case, it seems like you will have significant cash flow losses from the beginning. It is clear, that you need to cut your losses quickly and run.
 
NewInvestor said:
Hi

We bought a new property (3br+2bath) in Cypress Village and the closing date is in April 2016.  Due to un-forseen circumstances, we will not be able to move to Irvine.  We are debating:

1. Rent out this property as investment for at least 5 years.
2. Back out the buying transaction which means we will loose 25K.

We see that current rental market in Irvine is RENTER market; many houses are for rent.  So we are thinking of solution #2.  We are looking for your wise inputs.  Thank you.
Click to expand...

Go to the builder. Let them know your circumstances and see if you can get your deposit back. It might take a while, but maybe when they sell to someone else you can get it back.
 
There is a good chance to get a good portion of your deposit back if you show any personal hardship or changes in your family circumstances.
 
AW said:
hello said:
AW said:
Is the $25k the earnest money or deposit?

If the place will be paid cash, then there will be positive cash flow.  No deduction on the mortgage interest portion, just tax.
Click to expand...

Yes, but this is a horrible way of looking at how a rental will cash flow.  By buying a house all cash, EVERY rental could cash flow.  We must look at cash flow based on some assumptions such as a reasonable amount of down payments, etc.  We must factor in opportunity costs as well.
Click to expand...

You ain't kidding.  I've seen like several cases recently where that happened.  Condos sold, next thing is a for lease status.  Horrible use of cash imo.

Best case scenario here is asking and hoping they'll return the deposit.
Click to expand...
A lot of that depends on your needs. If you had tons of cash sitting in the bank (or in US Treasuries) and are in the retirement phase or near retirement phase of your life and looking to strategize on how to come up with more fixed income and diversifying your portfolio, you could see where it makes sense (and is a relatively low risk return presuming you don't project capital needs).  Do you lose out on the leverage component, sure, but if you are looking at maximizing fixed incomes without taking on significant risk, argument absolutely could be made. 
 
It wasn't an option in your list but what if you sell the property right away?  Would closing costs cost more than 25k?  Is it really that cold in the market and there is no way you can sell little more than what you paid for?  That way, you could break even after closing costs.

I'm sure there are people out there who would like to buy a brand new ready to move-in place if the price is right.  Oh well, it all goes back to the main question about how much you paid!
 
Bullsback said:
AW said:
hello said:
AW said:
Is the $25k the earnest money or deposit?

If the place will be paid cash, then there will be positive cash flow.  No deduction on the mortgage interest portion, just tax.
Click to expand...

Yes, but this is a horrible way of looking at how a rental will cash flow.  By buying a house all cash, EVERY rental could cash flow.  We must look at cash flow based on some assumptions such as a reasonable amount of down payments, etc.  We must factor in opportunity costs as well.
Click to expand...

You ain't kidding.  I've seen like several cases recently where that happened.  Condos sold, next thing is a for lease status.  Horrible use of cash imo.

Best case scenario here is asking and hoping they'll return the deposit.
Click to expand...
A lot of that depends on your needs. If you had tons of cash sitting in the bank (or in US Treasuries) and are in the retirement phase or near retirement phase of your life and looking to strategize on how to come up with more fixed income and diversifying your portfolio, you could see where it makes sense (and is a relatively low risk return presuming you don't project capital needs).  Do you lose out on the leverage component, sure, but if you are looking at maximizing fixed incomes without taking on significant risk, argument absolutely could be made.
Click to expand...
I'd just lend money to get 8-10% back. Like those real estate crowd funding. 
 
36000 annual rent on 950k price is just 4.23% gross cap rate. Subtract all costs from there and you wud be looking at sub 2 pct. if i have 850k cask on me, i wud better put it in 90 pct treasury and 10 pct in junk bonds and wud come out same minus the headaches of beling landlord.

From cash flow alone standpoint, california is one of the worst markets for investment properties and Irvine is even more terrible with all the hoa, mello roos and all.
 
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