Three year update from previous thread
https://forum.mrmoneymustache.com/real-estate-and-landlording/this-is-why-i-do-not-like-the-1-rule/Original post was from November 20, 2020. I advocated to keep my Kauai rental. Some agreed and others did not.
I was estimating house value at 900K on November 20, 2020. If I sold, I would have put 386K into the S & P 500 (3798) on January 20th, 2021. Three years later, S & P 500 (4594) is up 21% + 5% for dividends for a gain of around 100K
I kept the rental and I'm estimating the current value at 1.15 million. I calculated 250K for appreciation, 28K for principle pay down and 46K for cash flow for a total of 324K. The cash flow in 2021-2022 was a little low due to deferred maintenance and staying at the property for 17 weeks. The cash flow was better in 2023 because we had less deferred maintenance and only stayed at the property for 4 weeks.
The rental does require work. It's not 100% passive. However, we logged 21 weeks of vacation at the property over the past three years. We also did work while on vacation at the property which makes it complicated from an investment perspective.
Current Rent
Upstairs: 3950
Basement Unit: 2200 (I charge $2300 but I pay $100 for their utility use to the upstairs tenants)
Total: 6150
Monthly Expenses
PITI: 2444
Insurance: 205
Taxes: 407
Utilities: 113 (internet & propane)
Hawaii GE Tax: 281
Total: 3450
Gap: 2700/month
For 2023, we are looking at a 100K gain (stock market) vs. 324K gain (RE), which is a gap of 224K
For 2022, it was a 23K gain (stock market) vs. 260K gain (RE), which is a gap of 237K
Due to good recent stock market performance, the gap shrunk in 2023. However, RE is still ahead.
I'm probably going to pocket an extra $500 in December 2023 because the tenant in my lower level unit is breaking the lease and I'm going to keep their deposit. They are required to stay 6 months, but they only stayed 2 months. It's a 20-year old kid with a rich dad that co-signed. The dad makes 2.5 million/year as a commercial real estate broker.
I will have some vacancy in December, but the deposit will cover it. My upstairs tenants are hosting Christmas and have 12 visitors from Honolulu for 3 days. I told them yesterday they can use the downstairs unit for free because it will be empty and Merry Christmas.
I already have the new tenant lined up and should have a signed lease in about 5 days. The new tenant is a 20-year old in the fitness industry. Most of their income is from endorsements (social media influencer). Their income is $54,000/month. They won't move-in until January 22nd, but they will start paying rent on January 1, 2024.
Paying rent 3 weeks before your ideal timeline is pretty normal for this market, if you are moving from the mainland. My upstairs tenants did the same thing last year. My current tenants upstairs work for a construction company and the company pays the rent. The company had them in a hotel for 5 weeks ($15,000?) before they could secure long-term housing. Paying rent for 3 weeks before you get there seems extreme. However, it's way cheaper than paying to stay in a hotel for 5 weeks.