who is buying now?

[bobby]

see above post. I don’t think 3% of purchase price is affordable by my potential tenant. also, property tax is 1.2% so now my “investment” is less than 1.8%. then add other expenses. Pretty much goes down to 1.5%. Stick money in high dividend stock is a better choice no?

[quote=flu][quote=bobby][quote=flu]The only question you need to ask yourself is

do the numbers work out with a decent positive cash flow for any random tenant.

Also imho, if I were you, I’d do myself a favor and rent to a complete stranger, not someone I have any sort of relationship with (professional or otherwise).

Either you’re not going to be happy because you won’t be able to get the best price you can get, or the other person isn’t going to be happy, because they think you’re trying to take advantage of the relationship with you….or both…[/quote]

thanks for advice. will take into account and seek advice from friends also.
the numbers definitely don’t work out. ie the “mortgage”* will be higher than rent. Not to mention taxes and maintenance.

*I put “mortgage” b/c this will be all cash transaction.[/quote]

Well, if it’s an all cash transaction. You can look at it the other way…

Figure out how much your cash on cash return will be (factoring a reasonable estimate of your rental income with not 100% occupancy). If you’re around 3-4% in the bay area, that’s not bad. I’d probably do it in a decent part of the bay area. Still beats that 1% CD, and I don’t think you can really go wrong with bay area housing in the long run :)[/quote]

[spdrun]

Sorry, I thought you were looking in SD. For 500k in SF one would likely be better off buying a home in an emerging area like Hunters Point.

[Coronita]

[quote=bobby]see above post. I don’t think 3% of purchase price is affordable by my potential tenant. also, property tax is 1.2% so now my “investment” is less than 1.8%. then add other expenses. Pretty much goes down to 1.5%. Stick money in high dividend stock is a better choice no?
[/quote]

My bad. I meant 3%-4% after most major expenses include property taxes. Because I haven’t found places 3-4% up there, which is why I was surprised if you were able to find any.

My favorite gem was going to milpitas as few weeks back and seeing 1800sqft selling for $800ish.. In milpitas… Then again, I know the moment I say home prices have peaked in bay area, it will go up more.

[Jazzman]

I would think the only time to become a landlord in the Bay area was 20 years ago. The rent to price ratio is 20% above it’s historical average, and I’d suspect that is a very conservative number.

Here’s a hypothetical investment analysis. You can argue the variability of some the individual items, but for a home valued at $500k, with a rent of $2,000 a month, the picture may look some thing like this.

Market or Appraised Value”$500,000″
Purchase Price “$500,000”
Initial Equity

Down Payment 10%
Amount Financed “$450,000”
Down Payment Amount “$50,000”
Closing Costs & Fees “$3,500”
Total Cash Investment “$53,500”

Interest Rate (30 yr Fixed) 4%
Debt Service (P&I) Monthly “$2,021”
Debt Service (P&I) Yearly “$24,248”

Monthly Rent (GSI) “$2,000”
Annual Property Tax “$5,000”
Annual Utilities “$200”
Annual Landscaping “$500”
Annual Insurance Premium “$600”

Vacancy Rate (% of GSI) 8%
Maintenance Rate (% of GSI) 5%
Property Mgmt Rate (% of GSI) 8%

Gross Scheduled Income (GSI) “$24,000”
Less Vacancy Amount “$(1,999)”
Gross Operating Income (GOI) “$22,001”

Annual Operating Expenses
Property Management “$(1,760)”
Annual Property Taxes “$(5,000)”
Annual Utilities “$200)”
Annual Landscaping “$(500)”
Annual Insurance Premium “$(600)”
Repairs & Maintenance “$(1,100)”
Total Operating Expenses “$(9,160)”

Net Operating Income “$12,841”
Less Debt Service “$(24,248)”
Before-Tax Cash Flow (BTCF) “$(11,408)”

Cash-On-Cash ROI -21.32%

Last two years price increases make investing a challenge now even in places like Las Vegas, where prices corrected by 60%, which is twice the drop of metropolitan CA.

[spdrun]

It’s not much of a challenge to find 6+% cash-on-cash in the US, as long as you don’t let fripperies like paying some parasites 8% of your income for management fees or paying some incompetent to maintain what you can do yourself eat into your bottom line.

If you’re a wimp who can’t handle tools and tenants on his/her own, you shouldn’t be buying rentals.

[Jazzman]

[quote=spdrun]

If you’re a wimp who can’t handle tools and tenants on his/her own, you shouldn’t be buying rentals.[/quote]

Really? And how is it you arrive at that conclusion?

[CA renter]

[quote=spdrun]It’s not much of a challenge to find 6+% cash-on-cash in the US, as long as you don’t let fripperies like paying some parasites 8% of your income for management fees or paying some incompetent to maintain what you can do yourself eat into your bottom line.

If you’re a wimp who can’t handle tools and tenants on his/her own, you shouldn’t be buying rentals.[/quote]

If you’re buying out of state/town, or if you have a very busy schedule which makes it entirely unworkable to do all the maintenance yourself, how does that work?

[spdrun]

Choose your tenants very carefully. I would never rent to someone without meeting them in person.

Buy condos where external mx is taken care of by the HOA.

Fix anything that’s likely to break in the next few years during the period of vacancy.

[spdrun]

Really? And how is it you arrive at that conclusion?

Mechanical idiots who can’t be arsed to educate themselves typically get taken advantage of by tradesmen. And kudos to the tradesmen — if they can eat off the backs of clueless loser “investors”, more power to them.

[scaredyclassic]

that seems kind of silly. If I earn $150 an hour, and I can find a handyman to do the work for $20, why is it more efficientfor me to do the work? the logical implication of spdruns statement is that if you earn over a certain amoutn of money, you cannot be int he rental business unless youa re willing to sacrifice income. which sounds intuitively wrong.

[FlyerInHi]

I think that spdrun is saying “work on the rentals rather than sit your fat ass in the front of the TV.” You then make rental profit in addition to your regular income.

Of course, if you have the opportunity to make $150 instead of working on the rentals, then, of course hire the contractor for $20.

I find that you often have to hire a contractor, then meet and watch the contractor do the work. It takes less time and money to do it yourself.

[spdrun]

Further, the consequences of an unwatched worker can be much more expensive and time-consuming. Give you an example of someone whom I know who had quite a few rentals. They hired someone to put new kitchen tile down — well, that someone cleaned off the old linoleum glue with a flammable solvent with the windows closed. That night, heat kicked in. BAM! No more windows.

[Jazzman]

[quote=spdrun]It’s not much of a challenge to find 6+% cash-on-cash in the US, as long as you don’t let fripperies like paying some parasites 8% of your income for management fees or paying some incompetent to maintain what you can do yourself eat into your bottom line.
[/quote]
Of course, yes, but the US is a big place and the OP was referring to the Bay Area, where the median house price is the highest in the US, which is always going make rentals a challenge.

The problem with the “cash-on-cash” ratio is it magnifies gains since it ignores the loan element of a property, which typically makes up most of the value of a home. Leveraged investments also magnify losses making them high risk. Whatever, I’m not convinced that is the best way to analyze an RE investment.

IMHO you are a bigger idiot for not sitting down with a spread sheet, than you are for using a property manager or tradesmen.

[Jazzman]

[quote=spdrun]

Really? And how is it you arrive at that conclusion?

Mechanical idiots who can’t be arsed to educate themselves typically get taken advantage of by tradesmen. And kudos to the tradesmen — if they can eat off the backs of clueless loser “investors”, more power to them.[/quote]

You have a axe to grind with investors, because they have squeezed inventory and forced up prices, yes? I understand that, but don’t discount that many are non-institutional, reluctant landlords, having had their hands forced by the lack of fixed income investments. I don’t think that makes people “mechanical idiots” (whatever that means), just a bit desperate. Getting back to using trades people, a property manager will have their own that they use. If you insist on pictures, invoices and if necessary alternative quotes you should be OK. The key is to manage your property manager, and budget for repairs an replacements. Home owners are as likely to be taken for a ride on their own properties than professionally managed investments.

[spdrun]

You have a axe to grind with investors, because they have squeezed inventory and forced up prices, yes?

Axe to grind? No. They haven’t forced prices up in suburban NYC area much, where I’m looking now and hope to buy this winter. Delayed judicial foreclosures are awesome, and here’s to Chris Christie and two more years of mismanagement in NJ!

I actually LIKE people who are unwilling to get their hands dirty or are mechanically challenged, though I’m also contemptuous of them. More of a chance of them getting in over their heads, running out of money, and my seeing their properties at the fork-loser auction or being nudged into short sale 🙂 I don’t care if they’re willing, unwilling, or barely willing investors.

Same deal as with cars or motorcycles, BTW. A few years ago, I saw an ad for a nice bike, non-running, offered for about 50% of the price it would be in running condition. Owner said that he’d cleaned the carbs, couldn’t get the bike to start, and was throwing in the towel.

Went there to look at the bike, was interested. Paid him his asking price, signed over the title, then came back with a plate. Rode it home — problem was that he’d forgotten to re-connect the vac line for the fuel valve to the nipple on the valve. 30 second fix. (But I was fully prepared to rent a truck if it didn’t work and bike still didn’t start.)

Rode that bike for a few years, then sold it for about 250% of what I paid. Free motorcycle and then some!

[Author]

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