CV Investment Props

[SD Realtor]

Very tough submarket right now. I have a buyer who is pulling her hair out. Wants Airoso but has had no luck. Anything that is decently priced seems to get snapped up pretty quickly.

[Coronita]

Carmel Valley rents are roughly 2/2 rents for about $2200 (maybe up to $2300) for something with an attached garage (Halcyon or Crest@Del Mar). 3/3 is closer to like $2500 +-$100… And that’s in Del Mar Heights area… Airoso is probably comparable, around $2500-2600/month for 3/3

Now assuming you can get a 3/3 around $400k, I think would a good deal for a 3/3 right now (I don’t think it will happen, but let’s just say it did)

My crappy numbers guessimate says

$80k down, borrow $320k
Mortgage (30year @4%: not likely for a investment property ):1,527.73/month
HOA: 235/month
Prop Tax+Mello(1.26970%):423

Total cost/month is $2185/month
Rental using $2600/month… Would be able about $400/month positive…

ROI on the $80k would be about 6%….Not bad…
But again, you gonna find Airoso 3/3 @ $400k?

More like $450k….
Mortage would end up being $360k borrowed: or $1718/month
Total cost would be about $2376 and $225/month positive
ROI on $90k invested would be 3%… That sucks…

But at least it’s +… (Never heard CV attached would be positive until recent times)…
Maybe my numbers or off, so please correct me if I’m wrong.

As owner occupied, would make sense even more so. I think both reasons are why this market in CV is on fire.

[an]

flu, the $425k-450k would be more likely than $400k. The 4%, like you said is not likely for an investment property. It’s more likely to be at least 5% for a no cost loan. So, assuming 5% and $450k, the P&I is $1932. If you add in HOA, Tax, MR, and insurance (~$750) and you have a total cost of around $2700. So, it’s not likely to be cash flowing positive, unless you can get 4% loan AND $400k price. Which, I think is unlikely.

[cvrentguy]

To be more accurate you have to include the amount you have to cough up as
Income tax to Uncle Sam. In your example, if mortgage interest is $1000, then
Tax = 30% of (2600 – (1000 + 235 + 423)) = $500 and there goes the positive
ROI. Add to the mix, the percent time the property is vacant. Beyond that, I will
remain optimistic that our friends in DC would not put a pitchfork into mortgage
interest deduction for rental properties as part of tax code reform. One consolation would be the equity you build up over time thanks to your tenant.

[Coronita]

[quote=cvrentguy]To be more accurate you have to include the amount you have to cough up as
Income tax to Uncle Sam. In your example, if mortgage interest is $1000, then
Tax = 30% of (2600 – (1000 + 235 + 423)) = $500 and there goes the positive
ROI. Add to the mix, the percent time the property is vacant. Beyond that, I will
remain optimistic that our friends in DC would not put a pitchfork into mortgage
interest deduction for rental properties as part of tax code reform. One consolation would be the equity you build up over time thanks to your tenant.[/quote]

Once you start doing stuff on a schedule E, you have other deductions you can take though.. One being depreciation. And other things like cost,etc… So while you might have a positive cash flow, on paper it probably ends up being 0 or negative gain. I’m pretty sure if you can i f youcash flow this with +$500, you can pretty much write it all off as $0 net income on paper, at least for the first couple of years…At least it’s not effectively going to be 30%.

Reality is that the only people who end up paying 30%+ taxes are people on W2 that have no deductions on schedule A or schedule E and don’t have passive income that is taxed at capital gains rate.

[Coronita]

[quote=AN]flu, the $425k-450k would be more likely than $400k. The 4%, like you said is not likely for an investment property. It’s more likely to be at least 5% for a no cost loan. So, assuming 5% and $450k, the P&I is $1932. If you add in HOA, Tax, MR, and insurance (~$750) and you have a total cost of around $2700. So, it’s not likely to be cash flowing positive, unless you can get 4% loan AND $400k price. Which, I think is unlikely.[/quote]

I think one could probably get a loan for a rental for this at 4.5%, maybe I’m wrong. Or you could end up putting 30% down. Half jokingly…since your interest rate in a savings or CD is effective 1% or lower, it doesn’t really matter in this environment,because you aren’t really going to be losing much of your principal “doing something else”… Well, maybe if you gamble in the stock market, you might have a chance for decent returns. But then if you were going to do that, you would be defeating the purpose of investing in a rental property versus higher risk class of investment.

But one thing to consider. The fact that rent does end up being more or at least break even in CV tells me why people are looking to buy. Either as a rental (with the expectation that things will cash flow in the future), or as a primary (because things already seem to pencil out as better than rent).

So unfortunately, I think at least in the short term there will be a floor on prices of attached homes in CV. I don’t see a 3/3 falling $400k or lower anything soon.

[an]

[quote=flu]I think one could probably get a loan for a rental for this at 4.5%, maybe I’m wrong. Or you could end up putting 30% down. Half jokingly…since your interest rate in a savings or CD is effective 1% or lower, it doesn’t really matter in this environment,because you aren’t really going to be losing much of your principal “doing something else”… Well, maybe if you gamble in the stock market, you might have a chance for decent returns. But then if you were going to do that, you would be defeating the purpose of investing in a rental property versus higher risk class of investment.

But one thing to consider. The fact that rent does end up being more or at least break even in CV tells me why people are looking to buy. Either as a rental (with the expectation that things will cash flow in the future), or as a primary (because things already seem to pencil out as better than rent).

So unfortunately, I think at least in the short term there will be a floor on prices of attached homes in CV. I don’t see a 3/3 falling $400k or lower anything soon.[/quote]
Maybe you can get rental for 4.5%, but I’m just going by what aimloan say, and even them are saying you need a few grand in closing cost for 5%. Maybe because it’s a condo. Who knows, but 4.5% seems optimistic based on my guestimate.

Although you might not be able to park your money in CD and get better return. That doesn’t mean CV condo/townhouses are a great investment either. If you want good investment in this general area, I think SFR in MM will get you MUCH better return. They’re going for mid to high $300k for a turn key place for high $200k for a fixer. Based on craigslist, the rent are also around $200k. You have no HOA or MR. So, the ROI is better.

You won’t get any objection from me that rent parity does put a floor on prices. Unless interest rate goes up, then price will go down. But I don’t think CV is cheap enough that investors are flocking to it and put that strong of a floor in.

[SD Realtor]

Your calculations are correct. In two cases I have cash buyers. They are very frugal though and they seem to think they can get undermarket pricing. It is not happening right now for them. A 1700 sf plan in Airoso just went pending recently for a list price at close to 500k.. that surprised me. I am sure that they will not get list but still.

[enron_by_the_sea]

[quote=cvrentguy] Beyond that, I will
remain optimistic that our friends in DC would not put a pitchfork into mortgage
interest deduction for rental properties as part of tax code reform. [/quote]

My guess after reading the talking heads from the right and the left is that mortgage interest deduction for homeowners might go away/scaled back because it is alleged that it is “wasteful subsidy” to “non-poor” which “distorts the housing market”.

No one, however, is proposing to eliminate the practice of writing off mortgage interest (and other expenses) for rental properties on schedule-E, because doing so would hurt “job creators”!

[quote=flu]
Once you start doing stuff on a schedule E, you have other deductions you can take though.. One being depreciation. And other things like cost,etc… So while you might have a positive cash flow, on paper it probably ends up being 0 or negative gain. I’m pretty sure if you can i f youcash flow this with +$500, you can pretty much write it all off as $0 net income on paper, at least for the first couple of years…At least it’s not effectively going to be 30%.
[/quote]

Depreciation sounds sweet but it is like delayed punishment. By claiming depreciation every year you may reduce your taxes for that year. But when you sell, all that depreciation needs to be recaptured at 25% rate in one go. So it is like party today and pay tomorrow 😉

There are ways to avoid depreciation recapture. You could avoid it by buying another property in 1031-exchange. Or you can choose to die and your heirs would inherit it at stepped up basis. But all that guarantees that you will be in pigglording business for life!

[DaCounselor]

Good luck SDR it is slim pickens out there. It’s been a popular location for awhile but the pacific rim money flowing in continues to increase which adds even more demand. Tough sledding with low inventory.

[SD Realtor]

Thanks Counselor… good to see you on board again.

[joec]

I sorta doubt we’d see elimination of mortgage interest deduction on investment property. The tax code seems to be written where pretty much all legitimate business expenses can be written off. An investment property is all business so they can write off the cost of the mortgage payments.

One reason why removing these things just continues to “stick it” to the W-2 middle class wage earner…

If they can’t write it off on their tax return, people would just create LLCs or something for the property and write it all off anyways.

[Author]

Posts