[quote=Ren] . . . Of course I look at the rate of return, but never count on appreciation. That’s just not the point – income is. I like to view the entire rent as adding to it. Someone else will buy me multiple properties – paying the PITI and maintenance for 30 years and then funding my retirement (not to mention my primary residence, the kids’ college, and all our car payments). . . [/quote]
I have to question a few things mentioned here. Firstly, Ren lives in Riverside County, CA, no? If he is considering buying investment properties in these rather lower-end, “investor-type” areas in the (transient) cities of FL and AZ that he mentioned, he will attract marginal tenants, IMHO. He will also likely need to pay a local property mgr (10%?) of the rental proceeds on top of PITI for each property. If he gets 30-yr mortgages on them (at non-owner-occupied rates, no less) and he is currently past 30 years old, he will be 60 or older before these loans are presumably paid off by tenants, assuming he never refies them back to 30 years. This is true only IF they are all actually occupied each and every month and don’t end up vacant 1-6 months per year awaiting qualified tenants.
If I read his post right, he will then expect to send his kids to college, pay off his cars, his primary residence and retire on the proceeds from sale of these properties, lol. IOW, even though he stated otherwise, he is obviously expecting not only to hold them past 30 years but make substantial profits upon their sale in order to accomplish these goals.
Sorry, but I just don’t see this constellation. PHX and Orlando really haven’t gone up that much in the last 20 years. Especially Orlando. I have relatives who purchased in both Orlando and nearby Vero Beach over 20 years ago and neither of their properties are worth today what they paid for them … and both of them have been owner-occupied the whole time and NOT rentals! My Vero Beach relative even installed a pool with waterfall which added virtually zero value to their property.
Ren seems to be forgetting that if his kids are already born, they will have long finished college in 30 years and his cars might still be running but will have long been paid off by then.
Perhaps the proceeds from the sale his rental properties could be deployed for retirement purposes, but like SDR said, he will need to allow for “recapture upon sale” at that time. If he 1031’s his rental properties at the time of or past the time of his retirement, he won’t be able to later “retire” in one of his 1031’d properties without paying the capital gains tax on it as it has to be traded “like for like.” For AZ and FL properties, I just don’t see much of a “profit” after taxes, if any, even if a profit was made upon sale …. sorry.
Also, if Ren is currently in “family raising mode” and still wants to move to SD County, as he has stated before here, I wouldn’t get more than ONE rental property if I was him because his lender for the residence he buys in SD is not going to count more than nine months of annual rental income even on a “seasoned” rental. This “artificial deficit” applied to his “Schedule C biz income” will be magnified with each additional rental property he buys with a mortgage.
I don’t know if I believe it, but my RE newsletter subscription “First Tuesday,” predicted this week that prime 30 yr-fixed mortgage rates will go up to 4.5% in SoCal by October/November 2013.
Practically speaking, and knowing how much it costs to raise kids these days, I just think Ren’s rosy prediction is a bit over-the-top and doesn’t take into account all that can happen to him and his family members here in CA between now and then, while his cash is deployed elsewhere and he undoubtedly finds himself robbing Peter to pay Paul for carrying costs on multiple properties and “between-tenant” fix-up expenses.
Now, if Ren was currently an able-bodied 55-65 yr-old cash-paying investment property shopper, that is a completely different story. I’d then tell him to pack up his pickup/SUV/RV with his ladders and diagnostic tools and head east with his clipboard and blank “earnest-money (cashier’s) checks” made out in $5K increments and get back to me in 2-4 weeks with his “results” :=]
Nothing personal, Ren. I’m just using the scenario you described as an example here … for discussion purposes 😉
