Author Topic: Real Estate Case Study: Clueless in a Condo  (Read 1122 times)

hadabeardonce

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Real Estate Case Study: Clueless in a Condo
« on: October 26, 2017, 05:03:28 PM »
Market Value: $415,000
Original Purchase price: $182,000
Original Mortgage Amount: $182,000
Interest Rate: 4.125%
Mortgage Term: 30 Years (Refinanced 07/2012)
Term remaining: 25 Years
Amount remaining on mortgage: $149,000
Gross Rents: Eww
Principal and Interest (the P&I of your PITI - should match with the above info): $369.21(Principal)  $512.85(Interest) = Total $882.06
Taxes and Insurance (the T&I of your PITI): $296.50(Escrow)
HOA costs: $458/mo.
Deferred maintenance notes: I need to repair some drywall behind the dishwasher and hang some new doors... maybe install double pane glass.

Total Cost / Mo. = $1,636.56

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I was talking to a co-worker about index fund investing and he started talking to me about his real estate investments. He mentioned stuff about keeping my condo, renting it out, how it's beneficial to do a "cash out refi" while the property is still your primary residence and maybe some tax breaks if you own an investment property. He pointed me toward biggerpockets.com, but I thought I'd check for info here on MMM. My wife and I have been thinking about selling the place to use toward the purchase of a small house or condo, but I'd be interested in hearing about options/opinions/experiences.

Here's a similar unit that recently sold for $421k:
https://www.zillow.com/homedetails/980-Kiely-Blvd-UNIT-224-Santa-Clara-CA-95051/19597180_zpid/

I think I could rent my place for around $2,000+/mo. Is it worth doing? How would it affect my taxes if I rented it? What about if just sold it, didn't buy anything else and moved in with my parents?
« Last Edit: October 30, 2017, 11:07:56 AM by hadabeardonce »

SwordGuy

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Re: Real Estate Case Study: Clueless in a Condo
« Reply #1 on: October 26, 2017, 06:58:54 PM »
I love rental property as a route to wealth.

Very few properties people buy at RETAIL prices make good rentals.  If they do it's just because they got lucky that time. 

You are at ~$1250 out of your pocket on an iffy $2000 rent.   
You are wrong about the repair amount.  That's just the problems that are visibly broken enough to require immediate repair.
Every day your roof is nearer to needing to be replaced.   Ditto on the hot water heater.  The HVAC system.   The carpet.  The floors.  The bathtub.   The dishwasher.  The paint.   And so on.  The property manager has to be paid for their time, even if that's you.   If you aren't setting aside money for this out of the rent you're just losing money and the bill just hasn't come due yet.

You need to know how to run the numbers to determine a profitable investment.  There is a sticky thread in this sub-forum.  It lists books to read.  Get them and read them.  Learn how to run the numbers.   I particularly like the book about Cash Flow and other measures.

Then you will know whether to sell or rent.

If you aren't willing to do that kind of in depth homework, then sell.

Jon Bon

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Re: Real Estate Case Study: Clueless in a Condo
« Reply #2 on: October 28, 2017, 07:11:49 AM »
Bigger Pockets is a good site. IMO it is a little get rich quick kind vibe, but RE it is about the fastest legit way to wealth that I know of.

However if your coworker suggests renting out your 400k valued condo for $2,000 a month he has no idea what he is talking about. Can you find somewhere else to live around the 300k range? IF so sell today and pocket nearly 100k, sounds pretty straight forward to me.

hadabeardonce

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Re: Real Estate Case Study: Clueless in a Condo
« Reply #3 on: October 30, 2017, 10:45:41 AM »
I got the same weird vibe from the Bigger Pockets site. My co-worker said the podcasts were really informative, but I'm more of a reader and social learner. I'll check out some real estate investing books to get an idea of what I should be looking for in potential rental properties.

400k is pretty much rock bottom for a place in the Bay Area, unless I want to have a really long commute.

What kind of additional taxes would I pay if I sold my place(primary residence)? I lived in it since 2005 and from this article it doesn't sound like I'd pay anything in capital gains: https://turbotax.intuit.com/tax-tips/home-ownership/tax-aspects-of-home-ownership-selling-a-home/L6tbMe3Dy

Not paying any extra taxes sounds too good to be true. I know I shouldn't be trying to time the market, but it's tempting to pull out that cash and use it in case another investment opportunity comes around.

Cwadda

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Re: Real Estate Case Study: Clueless in a Condo
« Reply #4 on: October 30, 2017, 10:52:59 AM »
First, I would delete the link in your OP.  Meh, don't spread around information on the internet showing where you live.

Quote
However if your coworker suggests renting out your 400k valued condo for $2,000 a month he has no idea what he is talking about.
+1.  And we don't say this out of arrogance, just generally most people don't understand real estate investing, and for that fact, nor do most real estate agents.


Biggerpockets is a good source.  I've also attached my spreadsheet for running numbers.  It'll give you a great idea for your ROI.  It's pretty self-explanatory but if you have any questions, let me know!
« Last Edit: October 30, 2017, 10:55:48 AM by Cwadda »