[no_such_reality]

The problem with seeing the bubble came from the same problem people have with any debt.

They simply don’t understand the actual capital cost and instead focus on the monthly payment.

If you track the run up against payment in the early years, it was flat. If you track the same aginst the exotic loan and insanely low ARMs, it was still flat into late 2004/2005.

[no_such_reality]

My guess, low to mid $200s.

I townhouse is slightly better than an condo. A condo is a glorified apartment. My distinction between a condo and a townhome is townhomes share walls. Condos share ceiling/floor.

I get my number a very simple way, average new (built after 1998) 2 BD apartments rent for $1500. At 7% interest, that’s a loan on $225K. The “owner” then picks up illiquidity, property tax, insurance and HOA dues.

[no_such_reality]

Seems a common complaint many have is the tendency of the PM firm to churn tenants through rent increases because of the fees for cleaning, advertising and tenant placement. Renter’s complaints are slow/poor maintenance and churning on rent increases.

Whenever I’ve dealt with a PM firm or establish larger complex, every lease period would see a rent increase and month to month wasn’t possible after the initial term.

When I’ve dealt with private landlords, after the initial lease period, there never an increase and going month to month was fine when I balked at singing a new lease.

[no_such_reality]

The Prop Mgmt cut in OC is 4-6% with a $100/minimum. But that’s on all units that you have under their assignment.

[no_such_reality]

Probably the Montelongo investors from Flip This House.

They’re in San Antonio and in the last episode after renovating their current place to live in and getting appraised at $600K, promptly concluded that they would be able to sell it for $900K in three years and celebrated “Man, that’s a great flip!”

[no_such_reality]

Since peak is right now, we’re ~14.5X per capita income.

Correcting to historical multiplier (7-9) adjusted for 5% inflation will put it at even to 20% below current prices come 2016. An average multiplier of 8 puts it almost exactly at 10% below current prices.

If inflation is 4%, it’ll be more like 8% to 28% below current prices.

And at a 3% it’s more like 17-35% below current prices.

Those are nominal prices too. So a $500K today in the best case is $500K in 2016. However at 5% annual inflation, your $3/gallon gas will be $5/gallon.

[no_such_reality]

They are taxed at a higher rate. A house that is sold in under two years will be taxed at the capital gains rate.

If sold in under one year, a typical flip, it is taxed as a short term capital gain, which is at the same rate as income.

[no_such_reality]

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

I see we have the same numbers…

[no_such_reality]

FSD, I would typically agree with your 4% appreciation. I suspect inflation near term 1-5 years will push 4% on average.

I question whether renting will track. Or more importantly, whether real renting will track. The published numbers, much like new home sales have little to do with what the real rent deal is. I also don’t know if that average rent includes privately rented homes and condos or if it is just generated by the major complexes.

Also, I don’t think the rental markets have see a substantial oversupply that is coming online. Rental availability has steadily decreased in current years due to the run up in home prices and people selling for the profit. That is about to change.

I think certain areas, such as downtown SD will see oversupply problems.

[no_such_reality]

Secondly, from what I know and truly believe, rents NEVER go down.

In 1996, I moved from a 2br 2ba apartment at $1250 to a 3bd 2ba house at $1050. The house was in a better neighborhood.

Apartment complexes were really uniform on rents. Renting private residences and prices were all over the map.

[no_such_reality]

FSD, will those rents go down? They’re ~$1200 now, but will those prices go down as the condo glut starts to face losses and rents them to stem the bleeding of the cashflow?

Or will owners hold the line on the rent and face longer vacancies since downtown has so many empty condos?

[no_such_reality]

[no_such_reality]

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
Property Tax = $300/month.

I figured Property Tax at 1.25% = $300/mnth. I included it but didn’t list it. Monthly carrying costs before tax benefit is ~$2000 – $2100 give or take assuming interest only at 6%. Add $200 if doing a traditional 30yr loan.

So he’s running short about $600 or $700 month. That’s $7200-$8400/yr. depreciations is 1/27.5ths of the price or just short of $11,000 generating a tax loss of ~$19,000. At a 40% combined tax rate, you’d get a tax savings on your wage/1040-income of between $7200-$7800/yr. Thus doing an after tax breakeven.

If the condo is in the $250-$270K range with a lower HOA (say $200 or even $150), figure maintenance at $100 since HOA cover major external/common area things, you get closer to the $1500/$1600. There’s a bit of funny money calculations with the HOA maintenance, insurance. HOA is set, but will it rapidly climb? Maintenance and insurance can be spun one way or another.

[no_such_reality]

And the big question:

With the condo glut, will you be able to sustain $1400/month in rent?

I don’t see it, a $300K with 20% down and 6% loan rate has a probable carrying costs of $2050 a month. $2250 if you actually pay any principle on the loan.

Ah, I see, they’re breaking even after taking the income loss and depreciation. At a combined 40% state & fed rate, 20% down and 6% loan, assuming 1% HOA, 1% maintenance, $300K purchase, it washes after taxes.

[no_such_reality]

I don’t know. They’re educational. 🙂

I’m not sure which one I saw this weekend, but as we were leaving, the guy, (couple had bought to flip), was on the phone with his boss quitting his job becuase they had missed their deadline for him to get it done. Twice. On top of it, they were broke having blown the budget. Bought in a rough neighborhood, and were living in fear of the mailbox becuase of the bills that kept arriving.

All this before they put it up for sale and it was doubtful they’d even break even…

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