Mira Mesa prices

[(former)FormerSanDiegan]

[quote=noone][quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.
[/quote]

I think your math is a bit off. I think you are forgetting that you have to pay the property taxes first. Then the deduction lowers the annual income that you have to pay taxes on. It’s not a tax credit.

You are correct that $225k at 6% with 0% down P&I will be about $1,350 (can you even get 6% with 0% down these days?). Adding taxes an insurance gets you up to about $1,600 a month. If you’re paying 1% in property taxes on $225k that’s $2,250 a year. Assuming the 30% tax bracket, you will be reducing your taxes by about $675 a year or $56 a month. So even including the tax deduction you’re monthly cost is over $1,500 not $1,200. For an older & smaller 3/2 in Mira Mesa that is probably the going rent.[/quote]

Noone – Are you suggesting that the total tax benefit is only $56 per month ? Or did I misinterpret your statement. The $675 would be the tax benefit in a 30% bracket for the property taxes alone. Interest is also tax deductible and constitutes a much larger amount (13,500 in the first year).

[EconProf]

Good point Fearful. Hiring a property manager usually runs 10% of rents–the 8% guy just wants to get a listing when you tire of the losses. 10%+ is more common, and that excludes maintenance and repairs, although they will call and arrange contractors to do the work for you with little regard for cost.
I believe that lenders automatically assume 30% of rents for vacancies, repairs, maintenance, management, etc. That’s before PITI.
Using honest and realistic accounting, we are soooo far away from buying even break-even properties, much less cash flow ones.

[EconProf]

Good point Fearful. Hiring a property manager usually runs 10% of rents–the 8% guy just wants to get a listing when you tire of the losses. 10%+ is more common, and that excludes maintenance and repairs, although they will call and arrange contractors to do the work for you with little regard for cost.
I believe that lenders automatically assume 30% of rents for vacancies, repairs, maintenance, management, etc. That’s before PITI.
Using honest and realistic accounting, we are soooo far away from buying even break-even properties, much less cash flow ones.

[EconProf]

Good point Fearful. Hiring a property manager usually runs 10% of rents–the 8% guy just wants to get a listing when you tire of the losses. 10%+ is more common, and that excludes maintenance and repairs, although they will call and arrange contractors to do the work for you with little regard for cost.
I believe that lenders automatically assume 30% of rents for vacancies, repairs, maintenance, management, etc. That’s before PITI.
Using honest and realistic accounting, we are soooo far away from buying even break-even properties, much less cash flow ones.

[EconProf]

Good point Fearful. Hiring a property manager usually runs 10% of rents–the 8% guy just wants to get a listing when you tire of the losses. 10%+ is more common, and that excludes maintenance and repairs, although they will call and arrange contractors to do the work for you with little regard for cost.
I believe that lenders automatically assume 30% of rents for vacancies, repairs, maintenance, management, etc. That’s before PITI.
Using honest and realistic accounting, we are soooo far away from buying even break-even properties, much less cash flow ones.

[EconProf]

Good point Fearful. Hiring a property manager usually runs 10% of rents–the 8% guy just wants to get a listing when you tire of the losses. 10%+ is more common, and that excludes maintenance and repairs, although they will call and arrange contractors to do the work for you with little regard for cost.
I believe that lenders automatically assume 30% of rents for vacancies, repairs, maintenance, management, etc. That’s before PITI.
Using honest and realistic accounting, we are soooo far away from buying even break-even properties, much less cash flow ones.

[(former)FormerSanDiegan]

RE: Rental income and loans … Last time I checked (a couple years ago), the lender used 75% of my gross rent as income for loan qualification purposes. Presumably this accounts for vacancies, maintenance, prop mgmt, etc.
In my experience for single family homes (I’ve had two rentals and still hold one) this is in the ballpark. You should expect to spend 25-30% of gross rents on PM, maintenance, repairs, etc. If there is deferred maintenance this will be higher.

[(former)FormerSanDiegan]

RE: Rental income and loans … Last time I checked (a couple years ago), the lender used 75% of my gross rent as income for loan qualification purposes. Presumably this accounts for vacancies, maintenance, prop mgmt, etc.
In my experience for single family homes (I’ve had two rentals and still hold one) this is in the ballpark. You should expect to spend 25-30% of gross rents on PM, maintenance, repairs, etc. If there is deferred maintenance this will be higher.

[(former)FormerSanDiegan]

RE: Rental income and loans … Last time I checked (a couple years ago), the lender used 75% of my gross rent as income for loan qualification purposes. Presumably this accounts for vacancies, maintenance, prop mgmt, etc.
In my experience for single family homes (I’ve had two rentals and still hold one) this is in the ballpark. You should expect to spend 25-30% of gross rents on PM, maintenance, repairs, etc. If there is deferred maintenance this will be higher.

[(former)FormerSanDiegan]

RE: Rental income and loans … Last time I checked (a couple years ago), the lender used 75% of my gross rent as income for loan qualification purposes. Presumably this accounts for vacancies, maintenance, prop mgmt, etc.
In my experience for single family homes (I’ve had two rentals and still hold one) this is in the ballpark. You should expect to spend 25-30% of gross rents on PM, maintenance, repairs, etc. If there is deferred maintenance this will be higher.

[(former)FormerSanDiegan]

RE: Rental income and loans … Last time I checked (a couple years ago), the lender used 75% of my gross rent as income for loan qualification purposes. Presumably this accounts for vacancies, maintenance, prop mgmt, etc.
In my experience for single family homes (I’ve had two rentals and still hold one) this is in the ballpark. You should expect to spend 25-30% of gross rents on PM, maintenance, repairs, etc. If there is deferred maintenance this will be higher.

[cv2]

[quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.

At the bottom of last cycle, ~1996, a 2 bed/2 bath apartment goes for $900/month and a 3bed/2bath house were selling for around $150k. Interest rate I think were around 9% back then. PI should be around $1000/month and PITI – tax deduction was about $800/month.

My point is that at the bottom of the last cycle, buying a home with 20% down will cost you 10% above the rent of a 2bed/2bath apartment. @ 10% above today’s rent with today’s interest rate, you’re looking at price of around $325k.[/quote]

Great analysis!

I totally agree with your analysis except that I am in the camp to believe that rent will decrease in the near future. Rent is closely related to income. When people can’t afford the rent, they have to pick up and move. Once vacancy creep up, landlords have to lower rent.

For MM, what’s the typical or median household income? per this http://www.melissadata.com/lookups/TaxZip.asp?Zip=92126&Submit=Submit
the average income is a little less than $50K/year. The median usually is less than average. So the pre-tax take home pay is about $4000/month. It is extremely hard for them to afford a rent of $1,700/month because that’s over 40% of their income.

[cv2]

[quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.

At the bottom of last cycle, ~1996, a 2 bed/2 bath apartment goes for $900/month and a 3bed/2bath house were selling for around $150k. Interest rate I think were around 9% back then. PI should be around $1000/month and PITI – tax deduction was about $800/month.

My point is that at the bottom of the last cycle, buying a home with 20% down will cost you 10% above the rent of a 2bed/2bath apartment. @ 10% above today’s rent with today’s interest rate, you’re looking at price of around $325k.[/quote]

Great analysis!

I totally agree with your analysis except that I am in the camp to believe that rent will decrease in the near future. Rent is closely related to income. When people can’t afford the rent, they have to pick up and move. Once vacancy creep up, landlords have to lower rent.

For MM, what’s the typical or median household income? per this http://www.melissadata.com/lookups/TaxZip.asp?Zip=92126&Submit=Submit
the average income is a little less than $50K/year. The median usually is less than average. So the pre-tax take home pay is about $4000/month. It is extremely hard for them to afford a rent of $1,700/month because that’s over 40% of their income.

[cv2]

[quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.

At the bottom of last cycle, ~1996, a 2 bed/2 bath apartment goes for $900/month and a 3bed/2bath house were selling for around $150k. Interest rate I think were around 9% back then. PI should be around $1000/month and PITI – tax deduction was about $800/month.

My point is that at the bottom of the last cycle, buying a home with 20% down will cost you 10% above the rent of a 2bed/2bath apartment. @ 10% above today’s rent with today’s interest rate, you’re looking at price of around $325k.[/quote]

Great analysis!

I totally agree with your analysis except that I am in the camp to believe that rent will decrease in the near future. Rent is closely related to income. When people can’t afford the rent, they have to pick up and move. Once vacancy creep up, landlords have to lower rent.

For MM, what’s the typical or median household income? per this http://www.melissadata.com/lookups/TaxZip.asp?Zip=92126&Submit=Submit
the average income is a little less than $50K/year. The median usually is less than average. So the pre-tax take home pay is about $4000/month. It is extremely hard for them to afford a rent of $1,700/month because that’s over 40% of their income.

[cv2]

[quote=asianautica]$225k at 6% interest rate will cost ~$1350/month with 0% down. Those houses can easily rent for $1700-1900/month depending on condition. PITI – Tax deduction will bring you to about $1200/month. If you put down 20%, you’re looking @ PI of ~$1100/month and PITI – tax deduction of about $1000/month. That seems too good to be true for a 3bed/2bath house when 2 bed/2 bath apartment rents for around $1400-1500/month. If rates goes to 8-9%, then I can see that happening, but not at today’s rate.

At the bottom of last cycle, ~1996, a 2 bed/2 bath apartment goes for $900/month and a 3bed/2bath house were selling for around $150k. Interest rate I think were around 9% back then. PI should be around $1000/month and PITI – tax deduction was about $800/month.

My point is that at the bottom of the last cycle, buying a home with 20% down will cost you 10% above the rent of a 2bed/2bath apartment. @ 10% above today’s rent with today’s interest rate, you’re looking at price of around $325k.[/quote]

Great analysis!

I totally agree with your analysis except that I am in the camp to believe that rent will decrease in the near future. Rent is closely related to income. When people can’t afford the rent, they have to pick up and move. Once vacancy creep up, landlords have to lower rent.

For MM, what’s the typical or median household income? per this http://www.melissadata.com/lookups/TaxZip.asp?Zip=92126&Submit=Submit
the average income is a little less than $50K/year. The median usually is less than average. So the pre-tax take home pay is about $4000/month. It is extremely hard for them to afford a rent of $1,700/month because that’s over 40% of their income.

[Author]

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