Author Topic: The rental  (Read 2545 times)

foomanchoo

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The rental
« on: January 26, 2014, 02:26:38 PM »
Greetings. First time post on her. Wife and I live in VA and are currently renting. We also own and have recently payed off our rental in California.
We want to buy a house here where we live. But currently do not have sufficient funds for a down payment.

I'm reluctant to part with our rental in California since it qualifies for the prop 13 (ridiculously low property taxes that can not go up).

Looking for advice on what the best approach here is:
1.) wait and save enough for a down payment (20% down could take a while)
2.) Sell the CA prop and pay cash for property here.
3.) get some sort of loan on rental and either purchase property outright, or use for down payment.
4.) Other suggestions?

I'm leaning towards (3) at the moment. The problem is, since this a rental the interest rate will be slightly higher (around 5%)







Greg

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Re: The rental
« Reply #1 on: January 26, 2014, 03:44:26 PM »
Maybe I'm being a little obtuse, but #2 seems like the clear winner, to me.

foomanchoo

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Re: The rental
« Reply #2 on: January 26, 2014, 03:51:12 PM »
OK I thought about that, but the reasons I'm leaning away from selling it is:
 - it is currently rented out and the rental income - taxes - insurance would be about equal to a loan payment here. 
 - Another point why I'm leaning away from that option is that I've fancied that as a potential retirement house down the road. The prop 13 thing is a one time deal.
 - As a long term investment.

Another Reader

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Re: The rental
« Reply #3 on: January 26, 2014, 04:16:44 PM »
Where is the California house?  Is it a in a high demand rental market?  Is the value rapidly appreciating?  What's the rent and what are your expenses?  What's it worth?  Whether it makes sense as an investment depends on a number of things, not just property taxes. 

foomanchoo

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Re: The rental
« Reply #4 on: January 26, 2014, 04:36:35 PM »
It's located close to Sacramento in the Napa valley.  It seems to hold it's value pretty well :
worth approx 400k Complete remodel completed last year.

rent: ~1875.00
expenses:
taxes: 1K / year
p. management fees: 8%
insurance  $500 (roughly)

Another Reader

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Re: The rental
« Reply #5 on: January 26, 2014, 05:17:50 PM »
You must have owned this property for a very long time or transferred a base year value to have your property taxes only be $1,000.

It's a poorly cash flowing property once you consider vacancy, repairs, and other expenses.  I don't think of the Napa Valley as being near Sacramento.  I would be cautious about outer ring Bay Area suburbs like the American Canyon area, which is about the nearest place to both Highway 29 and Sacramento I can think of.  Appreciation will not be as strong as in closer-in communities.  Vacancy over time will also be higher.

In your shoes, I would consider selling unless there is a good chance you will move back in and you don't mind the low ROI from the net rental income.