[(former)FormerSanDiegan]

(Previous Post was tongue-in-cheek)

Seriously, I think SD realtor is giving generally good advice. Except that I think a bird in the hand is worth two in the bush and you should ignore seasonal sales trends. Don’t wait for Spring when sales increase. You are interested in one sale, not trends. Yours.

I am sure there will be a number of exhausted sellers who take their homes off the market between now and Nov/December. Perhaps there will be activity from bargain hunters or a short-term pull-back in interest rates, bumping a few buyers into your range.

If you must rent it out … Run the numbers very carefully on renting it out. Use a property management company. Consider worst-case scenarios and whether you have enough cash reserves to stomach them.

[(former)FormerSanDiegan]

Here’s an idea …

1. Have your agent lay out a case that the condo can be purchased with 20% down on a 30-year loan and could be rented out at nearly break-even cash flow over the next 5 years, assuming 5% annual rent increases.

2. Have your agent advertise on Arizona State University Alumni newsletters in the San Diego area.

[(former)FormerSanDiegan]

sdsundevil –

Not to quibble over $50/month on insurance, but landlord’s coverage is typically 30% higher than personal residence if you add on vandalism coverage and increase your liability to protect yourself.

Re: rents and postive cash flow “within reach”
The example in this thread does not produce positive cash flow, and will require about 5 years of 4-5% rent increases before it does so. This is not “within reach.”

Give me another 25% reduction in price (down to ~200K from 270K) and steady rental rate at 1400 and I’d buy it.

[(former)FormerSanDiegan]

n_s_r –

Published rental rates are typically apartment complexes. It’s harder to get large-scale info on SFRs and condos. SFRs tend to track them however, IMO. My reasoning is that most would pay a premium to have a yard, no common walls, etc. If this premium is small, then people move out of apts and suppress those rates. Apartment rents are a good indicator.

Downtown is the monkey wrench …
I agree that downtown SD oversupply will eventually suppress rental rates in some nearby areas. Would I rather rent a 2BR apt in PB or a downtown condo if they were the same price? It depends on the number of bums (I mean transient non-occupants, to be PC) I pass while walking my dog at night.

[(former)FormerSanDiegan]

n_s_r –

Rental rates will depend on the economy, namely jobs, weage inflation and interest rates. Average rents tend to track inflation.

I’d bet on 4% annual rental increases over 5 years.

[(former)FormerSanDiegan]

This thread should be re-titled:

“Beware ! Objects in the mirror are farther than they appear.”

[(former)FormerSanDiegan]

OOPS My bad ! I should be harshly scolded for excluding property tax. Need to consult my spreadsheets rather than off-the-cuff.

So, the condo would have to be in the 250-270K to make sense for the renter to purchase IMO. Must be cheaper still for a landlord to consider wrt cash flow.

I’ve scoured ZipRealty in the areas that I know well (central and Central coastal SD), and found maybe a handful in the $325K range that are in areas that might rent out near $1200-1300. Most would rent for 1100-1200 at best. Must be somewhere else in SD.

Maybe it is adjoining rooms at that National City hotel conversion.

[(former)FormerSanDiegan]

I wouldn’t buy it …
but one might justify it for the son in the example.

From a landlord’s perspective, this price is still about 25% too high to make it cash flow. Not good enough for me.

However, consider it from a renter’s standpoint:
1. Pay 1400 / month rent
or
2. Put 60K down (gift from parents), pay 1550/month + 250 maintenance per month.

Assuming 30% combined state/federal bracket the renter, now buyer, comes out within $50 per month of break even. If you assume that they are also making principal payments of ~$250 per
month, that renter might consider buying the place with a fully amortized 30-year loan, rather than making upgrading their clunker for a late-model used car.

When SFRs get to this level, it’a time to buy.

[(former)FormerSanDiegan]

n_s_r – Your math is off.

For a 6% loan, 20% down, you have 240K financed.
Ignoring principal payments, the monthly interest is $1200.
1% HOA = 3000 per year = $250 / month
1% maintenance = $250/month
Assume Insurance is ~ 100/month

I get 1800/month.

I think you included 300K as the loan amount (ignoring the 20% down).

[(former)FormerSanDiegan]

sdr –

I’d like to see the purchase price range to evaluate where we are in the cycle.

I own a rental property (SFR) that I purchased about 5 years ago that currently has positive cash flow. I like to run numbers every 6 months or so to gauge the market. I haven’t been able to find anything (SFR) that cash-flowed since about 2001. During the run-up condos were even more difficult to cash-flow, but now you’ve piqued my curiosity.

I did a “guesstimate” on what I thought this property should go for, to produce monthly rent in the 1400 range and carrying coasts in the 1500-1600 range. Assuming 20% down, interest-only 30-year fixed, and a combined $300 for HOA and insurance, I come up with a purchase price of around 300,000-325,000. Mortgage ~ 1300/month I/O $300 per month HOA & Insurance.

Can you confirm or deny whether I am close ?

[(former)FormerSanDiegan]

Purchase price (or range) please.

This is a critical piece of info to evaluate GRM or rent-to-price multiples or cash-on-cash return from an investment property to determine the degree of the current sell-off.

Thanks.

[(former)FormerSanDiegan]

Why are people lending money to the Government in 10-year T-bonds at 4.8 % ? When they can make >5% in 1-year CD’s.The market currently “thinks” that rates are flat or coming down.

Possible theories :

1. Maybe these highly educated folks believe what the market is telling them.
2. Maybe they have high incomes (or other assets) relative to the debt and are willing to take on the added risk.
3. Maybe they are just taking whatever the loan broker is selling them.

Thoughts ???

[(former)FormerSanDiegan]

JES –

I agree on most points, except one. I don’t see how laws could be tightened to “bad” speculation without also negatively affecting others. How do we legally separate the speculators from the poor soul who bought a house in January, is diagnosed with cancer in April and sold in the summer for a profit ? Or the guy who gets a job transfer notice out of the blue, three days after closing escrow, in a rising market. Both of these “lucky” homebuyers would have effectively flipped for a profit during the heyday of 2003-2004.

In the end, I think we agree that the market participants (traditional buyers) and people with vested interests (neighbors) ultimately will win out over the speculators and irrational buyer behavior.

[(former)FormerSanDiegan]

On whether speculative flipping is ethical …

Suppose person #1, the breadwinner of a family of 4 investigates the real estate market in 2004 and sees an opportunity to flip a house for $50K profit to pay towards his kids’ education. Is this ethical ?

Suppose person #2 investigates the real estate market in 2004 and sees an opportunity to cash in and sell their primary residence to pay for their kids’ education when they think real estate has peaked, plans to rent for a while, and buy in later at a lower price. This is also speculation. Is this ethical ?

Assume that the houses are identical and sell for the same price and all aspects of the property are disclosed.

I have to believe that these are both ethical. There is nothing inherently morally wrong with a person identifying a legal way to produce income or savings by buying or selling a property based on speculating what value that property may have in the future.

[(former)FormerSanDiegan]

PS –

It’s easy.
Here’s how … (with Windows)

1. Display your plot on your screen.
2. Press ALT-PrtScr (Hold down Alt and press the print screen button).
3. Paste the plot into Paint (or any other image manipulation program)
4. Crop to size
5. Save as JPEG

6. Press Add-Image button just below the edit window and upload your image.

and … voila

[img_assist|nid=1255|title=Mr Bubble|desc=|link=node|align=left|width=321|height=400]

[Author]

Posts