woodburyowner
Well-known member
yaliu07 said:
Why not just get a 2MM umbrella insurance policy and not worry about it? Cost should be under $1k/year.
Rent or Sell?
- Thread starter scubasteve
- Start date
Why not just get a 2MM umbrella insurance policy and not worry about it? Cost should be under $1k/year.
qwerty
Well-known member
here are what your numbers would look like for tax purposes as well as cash flow purposes. couldnt do the cash on cash return since you didnt mention your down payment. i assumed a purchase price of 600K and split that evenly between the land and the house. you cant depreciate the land so assumed a depreciable basis of 300K over 27.5 years. also didnt include any vacancy or monthly maintenance expense. from a tax P&L you are basically break even. from a cash flow perspective you are basically breakeven, any vacancy or maintenance would probably make cash flow negative.you would be getting about 11K of principal reduction though, so that is essentially your only return on the investment, also, didnt know how much money you have tied up in this so didnt include any opportunity cost. if you put somewhere along the lines of 120K down you are getting about 9% on that from the equity reduction. also doesnt consider any appreciation.
ps99472
New member
Akitas are on the bad list:
http://www.bankrate.com/finance/insurance/11-dogs-that-could-raise-your-insurance-costs.aspx
http://www.bankrate.com/finance/insurance/11-dogs-that-could-raise-your-insurance-costs.aspx
J
jmoney74
Guest
Yaliu.. there is insurance for everything. You should get that coverage.. it won't be much.
qwerty said:
This is important to add in as a buffer in your calculation. It's inevitable vacancy will happen. It depends on how often your renter turn over and how much work is needed on move out. You'll have at least normal wear and tear to fix up, which always cost more and take up more time than you'd expect.
scubasteve
Active member
qwerty said:here are what your numbers would look like for tax purposes as well as cash flow purposes. couldnt do the cash on cash return since you didnt mention your down payment. i assumed a purchase price of 600K and split that evenly between the land and the house. you cant depreciate the land so assumed a depreciable basis of 300K over 27.5 years. also didnt include any vacancy or monthly maintenance expense. from a tax P&L you are basically break even. from a cash flow perspective you are basically breakeven, any vacancy or maintenance would probably make cash flow negative.you would be getting about 11K of principal reduction though, so that is essentially your only return on the investment, also, didnt know how much money you have tied up in this so didnt include any opportunity cost. if you put somewhere along the lines of 120K down you are getting about 9% on that from the equity reduction. also doesnt consider any appreciation.
Hey thanks for the analysis! Purchase price was 650k and down payment was 130k. Cash flow would definitely be break even, which was the main thing that I saw when considering selling.
I also did think about just taking the gains and putting it into an etf and assume 5% return and that would give me at least $1000 every month.
Luckily, we don't need the cash now. Maybe I'll take a wait and see approach since I have at least 2.5 years to sell the home and hope for a little more appreciation.
Do realtors fees still cost roughly 6% of sales these days? That is would be roughly 25% of my profits which is pretty high.
In the middle of this same dilemma myself. Unlike you, my property is not in Irvine, monthly rent ~$2,500.
Our tenants of 10 years recently moved out. Great tenants, paid on time every month, very low maintenance, except for some minor repairs from time to time. We had not seen the property in all the years they've lived there. While they did their best to clean and restore the property back to the condition when it was first rented out to them, there are just things I can't slap a coat of paint on to cover up.
We made the decision to upgrade the place and put in ~$40K for renovations. The place now looks great and up to date, everything is new. I struggle with selling it now or continue to treat it as a rental property. What if I get bad tenants that turn over? Everytime you have vacancy, you need to go in and replace the carpet and paint, all of that adds up. Frankly, I just don't have the time to manage that.
It is a P&L and cash flow breakeven property. Based on my rough calculation, after commissions, fees, taxes, pay back the bank, I will basically net $0 gain. Tying up $200K of equity after 10 years...not the best investment, in my mind.
Our tenants of 10 years recently moved out. Great tenants, paid on time every month, very low maintenance, except for some minor repairs from time to time. We had not seen the property in all the years they've lived there. While they did their best to clean and restore the property back to the condition when it was first rented out to them, there are just things I can't slap a coat of paint on to cover up.
We made the decision to upgrade the place and put in ~$40K for renovations. The place now looks great and up to date, everything is new. I struggle with selling it now or continue to treat it as a rental property. What if I get bad tenants that turn over? Everytime you have vacancy, you need to go in and replace the carpet and paint, all of that adds up. Frankly, I just don't have the time to manage that.
It is a P&L and cash flow breakeven property. Based on my rough calculation, after commissions, fees, taxes, pay back the bank, I will basically net $0 gain. Tying up $200K of equity after 10 years...not the best investment, in my mind.
scubasteve
Active member
Right... just wanted to use conservative numbers for the model.
usctrojancpa
Well-known member
General rule of thumb in real estate investing...you don't want too much cash/equity tied up in any home and if possible you want to diversify your real estate holdings (locations, floor plans, size, etc) along with not buying anything that you wouldn't be willing to live in.
nosuchreality
Well-known member
eatthis said:
He's breakeven on before tax cash flow.
What that means is for a little bit of landlord hassle, someone else buys him a $700K house.
paperboyNC
New member
USCTrojanCPA said:
I'd just sell it now. If you plan to sell it in 2yrs and there is a bad market and you have to wait 2 more yrs to sell then you suddenly owe capital gains taxes. Sell it now and if you want rental income, buy more rental properties. Only downside is your property tax goes up..
qwerty
Well-known member
paperboyNC said:
yeah there does seem to be more downside than upside to renting for 2 years and then selling. since you are essentially break even on taxes/cash the only upside is appreciation and given the run up the last couple of years not sure how much is left for the next two years. now if you wanted to hold it as part of long-term strategy, like NSR said, someone is essentially buying you a 700K for the 150K you plunked down.
usctrojancpa
Well-known member
I seeing prices/demand ticking up and inventory remaining stubbornly low...if the economy and jobs continue to pick up that will help elevate prices upward a bit. Just my view of the market from what I'm seeing both on the seller and buyer side. Besides that, renting his home now would be a good way for Steve to find out if you wants/enjoys being a landlord....not everyone will like it and it's better to find out now.
If you had $300K in cash right now, would you invest into one property, multiple properties, or no properties at all? The fact that you already have the house shouldn't change your answer to this question. Its really that simple.
If a rental property or more is desired, then you need to see the CAP rate of your current house vs other properties and decide from there. Irvine has low CAP rates but tends to appreciate better. Areas like Santa Ana have much better CAP rates but different challenges.
If a rental property or more is desired, then you need to see the CAP rate of your current house vs other properties and decide from there. Irvine has low CAP rates but tends to appreciate better. Areas like Santa Ana have much better CAP rates but different challenges.
scubasteve
Active member
Really appreciate all the responses....
One of the reasons we do want to keep the property is because we have an emotional attachment to it since it was the first house we ever purchased and I remember how long it took for us to save and work for it (not really a rational decision, I know). Our house is in pristine condition and I do cringe at the thought of renters messing it up.
From a financial perspective, I think it makes more sense to sell and invest the money elsewhere. I think once we move into our new house, we'll forget about this one and it may make it easier for us to let it go.
One of the reasons we do want to keep the property is because we have an emotional attachment to it since it was the first house we ever purchased and I remember how long it took for us to save and work for it (not really a rational decision, I know). Our house is in pristine condition and I do cringe at the thought of renters messing it up.
From a financial perspective, I think it makes more sense to sell and invest the money elsewhere. I think once we move into our new house, we'll forget about this one and it may make it easier for us to let it go.
Attachments
scubasteve said:
Hate to break it to you, no one will take care of your home like you. If you have an emotional attachment to this place, then get ready to be surprised.
We are in the midst of renovating our place because I am shocked by how some people can live. How do you turn white walls and bath tubs black...did they actually bathe in there?! To think our tenants actually cleaned the place before returning the keys to us, I was stunned when I saw the condition our first home was in.
Making the decision to sell this place was actually cathartic for us, it's been hanging over us for 10 years. We are not cut out to be landlords, we just don't have the time or energy for it.
scubasteve said:
What neighborhood is your home in? We are a family looking for a rental home in Irvine, for July 1.
We are model tenants. Been in our current home 4 years and our landlords are sad we have to leave. Looking to stay in our new place 2-5 years. Job is VERY secure...we aren't going anywhere for at least 2 years.
Hit me up if you decide to rent out your home.