Buying a small condo in UTC as an investment?

[2009 Buyer]

Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[davelj]

[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[/quote]

Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.

Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.

[davelj]

[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[/quote]

Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.

Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.

[davelj]

[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[/quote]

Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.

Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.

[davelj]

[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[/quote]

Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.

Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.

[davelj]

[quote=2009 Buyer]Analysis on owning rentals typically do not take into account the opportunity cost asociateds with the down payment – for example

25% on a $400K unit is $100K

assuming a relative safe return of 6%, we are talking about $500 a month cost that I seldom see in the Break Even or cash flow positive calculations. am I missing anything?

[/quote]

Where is anyone getting a “relatively safe” 6% return? Following this logic 10 years ago, the opportunity cost from stocks was zero to negative, and for cash was 3%… pre-tax.

Anyhow, it’s easier just to assume that the whole purchase price is financed with an interest-only fixed rate loan. That way, you can avoid worrying about the opportunity cost issues and it’s an apples-to-apples comparison with renting (after making an adjustment for the tax deduction and adding in property taxes and HOA fees). This also assumes, of course, that the price you sell the place for down the road is at least equal to the price you paid for it (not a good assumption if you were buying in 2003-2007), so the return on your principal payments isn’t negative.

[2009 Buyer]

thaks davelj:

So, if I undestood you correctly, the right thing to do is to NOT try to increase the down payment to make things “cash flow positive” The bottom line is that in order for the math to work out, you should calculate “cash flow positive” without taking the down payment into account. makes sense to me – did I interpret you statements correctly?

[2009 Buyer]

thaks davelj:

So, if I undestood you correctly, the right thing to do is to NOT try to increase the down payment to make things “cash flow positive” The bottom line is that in order for the math to work out, you should calculate “cash flow positive” without taking the down payment into account. makes sense to me – did I interpret you statements correctly?

[2009 Buyer]

thaks davelj:

So, if I undestood you correctly, the right thing to do is to NOT try to increase the down payment to make things “cash flow positive” The bottom line is that in order for the math to work out, you should calculate “cash flow positive” without taking the down payment into account. makes sense to me – did I interpret you statements correctly?

[2009 Buyer]

thaks davelj:

So, if I undestood you correctly, the right thing to do is to NOT try to increase the down payment to make things “cash flow positive” The bottom line is that in order for the math to work out, you should calculate “cash flow positive” without taking the down payment into account. makes sense to me – did I interpret you statements correctly?

[2009 Buyer]

thaks davelj:

So, if I undestood you correctly, the right thing to do is to NOT try to increase the down payment to make things “cash flow positive” The bottom line is that in order for the math to work out, you should calculate “cash flow positive” without taking the down payment into account. makes sense to me – did I interpret you statements correctly?

[jpinpb]

I don’t know if it’s “right,” but the way I calculate it is if rent will pay the mortgage w/the very minimum down, which nowadays is not zero. As in the complex I’m in, which I’ve given examples in other threads, if I put the minimum 3.5% down, I’m looking w/P&I, taxes, insurance, HOAS and PMI, about 2900. My rent is 1800. Makes no sense to me to buy.

So the answer I’ve heard is put more money down, like 20%. But why? Why tie up cash in a declining market w/economy in turmoil and unemployment rising. Just to break even, if that? Not like I’m getting money every month on 20% down. Who knows when you’ll see real estate go up, up and away again. Maybe I’m wrong for looking at it that way.

I mean, heck, I can put the money into gold or even some CD w/a paltry 2% return. I don’t know. I’m no expert on this. Trying to figure it out.

[jpinpb]

I don’t know if it’s “right,” but the way I calculate it is if rent will pay the mortgage w/the very minimum down, which nowadays is not zero. As in the complex I’m in, which I’ve given examples in other threads, if I put the minimum 3.5% down, I’m looking w/P&I, taxes, insurance, HOAS and PMI, about 2900. My rent is 1800. Makes no sense to me to buy.

So the answer I’ve heard is put more money down, like 20%. But why? Why tie up cash in a declining market w/economy in turmoil and unemployment rising. Just to break even, if that? Not like I’m getting money every month on 20% down. Who knows when you’ll see real estate go up, up and away again. Maybe I’m wrong for looking at it that way.

I mean, heck, I can put the money into gold or even some CD w/a paltry 2% return. I don’t know. I’m no expert on this. Trying to figure it out.

[jpinpb]

I don’t know if it’s “right,” but the way I calculate it is if rent will pay the mortgage w/the very minimum down, which nowadays is not zero. As in the complex I’m in, which I’ve given examples in other threads, if I put the minimum 3.5% down, I’m looking w/P&I, taxes, insurance, HOAS and PMI, about 2900. My rent is 1800. Makes no sense to me to buy.

So the answer I’ve heard is put more money down, like 20%. But why? Why tie up cash in a declining market w/economy in turmoil and unemployment rising. Just to break even, if that? Not like I’m getting money every month on 20% down. Who knows when you’ll see real estate go up, up and away again. Maybe I’m wrong for looking at it that way.

I mean, heck, I can put the money into gold or even some CD w/a paltry 2% return. I don’t know. I’m no expert on this. Trying to figure it out.

[jpinpb]

I don’t know if it’s “right,” but the way I calculate it is if rent will pay the mortgage w/the very minimum down, which nowadays is not zero. As in the complex I’m in, which I’ve given examples in other threads, if I put the minimum 3.5% down, I’m looking w/P&I, taxes, insurance, HOAS and PMI, about 2900. My rent is 1800. Makes no sense to me to buy.

So the answer I’ve heard is put more money down, like 20%. But why? Why tie up cash in a declining market w/economy in turmoil and unemployment rising. Just to break even, if that? Not like I’m getting money every month on 20% down. Who knows when you’ll see real estate go up, up and away again. Maybe I’m wrong for looking at it that way.

I mean, heck, I can put the money into gold or even some CD w/a paltry 2% return. I don’t know. I’m no expert on this. Trying to figure it out.

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