The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: pdxvandal on April 28, 2013, 12:29:16 AM
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I've posted this in the "Ask a Mustachian" forum, but a little surprised by the answers to "not rent the primary residence." What do you think, real estate experts?
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I live in Portland, Oregon, which has a very hit-and-miss public school system. I was raised on public schools so lean toward having my daughter (3) receive a quality public education, which means we'll likely move to a better school district in 1-2 years.
I own a house worth about 280,000 and owe 200k on the mortgage. I figure I could rent it for $1,500-$1,600 per month today, which would mean a cash flow of about 400-475 per month. On paper, this is attractive.
I also know buying a house in a better school district will be more expensive. Do I hold on to the potential rental long-term, rent it for three years and avoid capital gains taxes, or sell once we find a different primary residence and net 90-100k for other investments and savings?
I've been a landlord before, for about three years, so I know the potential pitfalls. It just seems like a cash-flow positive property like this is a good path toward eventual FI by age 50 (I'm 38). I've sought other rental properties in the past year, but the supply is very tight and competition high.
I have about 28 years left on a fixed mortgage at 3.875%. The house was built in 1924, but has good bones and is in good condition (new tankless water heater, new basement electrical, new shed, new exterior paint, simple landscaping, 8-year-old roof, etc.) ... like all houses requires maintenance but is generally low maintenance.
My mortgage is $1,170 per month which includes the escrow account for homeowners insurance, property taxes, etc., and about $315 per month goes toward principal.
I do have enough of a down payment to purchase a more expensive home (~10% DP for 450k house), which like one poster said is a good position to be in.
Does this change anyone's perception/evaluation of my situation? By the time I move in 1-2 years, I could very realistically get $1,600 per month in rent, if not $1,700.
I put 5% down on the 225k overall price in 2005 (~11k), then spent $35k on a basement remodel to bring the livable square footage from 700 to 1,350.
I've refinanced twice, the first time included wiping out the second mortgage.
In doing a quick search, there is a similar property, a slightly trendier area (1 mile away) asking for $1,800 in rent.
Hard to say what the RE market will look like in 1-2 years, but Portland will continue to be a desirable destination.
If I put my house on the market today, I would have multiple offers within a week. $hit's tight here.
Thanks for reading.
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I've posted this in the "Ask a Mustachian" forum, but a little surprised by the answers to "not rent the primary residence." What do you think, real estate experts?
It's the same forum members who post in both places.
I didn't read the other thread, but if you didn't like the answers for whatever reason, then make your own decision about what's best.
Glancing through this quickly - 80k equity that you could put elsewhere (less after costs, naturally), versus a 1600 rent on a 280k home with a 1200/mo payment - that's a fairly clear "sell" to me, barring extreme conditions (knowledge of future appreciation, for example).
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I've posted this in the "Ask a Mustachian" forum, but a little surprised by the answers to "not rent the primary residence." What do you think, real estate experts?
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I think your other post got sidetracked. If you look back you'll see the nay votes could not justify their decision and were using flat out wrong math. I can't say yes or no because there are still very important pieces of information missing. How are you figgering on getting $90-100K out of this property worth $280k with a $200k mortgage?
1. Your remodel/addition of $35,000 makes it hard to determine your appreciation since 2005. If it really didn't add any market value you could say your appreciation has been almost 3% yearly (not bad considering the Market?) or just 1% if you got a 100% return on your improvement. Are you now overimproved? More than likely somewhere between 30-60% but that's just an educated guess.
2. While you do have to look at the financials on the day of purchase you cannot ignore the future. Or the past. As improved what would the place have rented for in 2005? How about 1995? Have rents consistantly grown? Who would your likely tenant be? Is that someone you'd want in your property? If there were 5 similar rentals in your neighborhood and only one tenant why would your property be picked?
3. Appreciation, what has it been, what do you anticipate it to do?
4. The gross rent multiplier on this property is about 14.6. Have you identified other similar properties with better GRM's? Or lower expenses? or better appreciation? or less tenant hassles?
5. There is NO yes or no mathetical answer to your question until you make dollar adjustments for everything.
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I'm sorry, but you have not shown the math is wrong.
If you read what the OP has posted, she has saved a 10 percent down payment for the next house. She has not said she is pulling it from her equity in this house.
There have been a few times in San Francisco or Honolulu when you could justify a 14.6 GRM, especially looking backwards (hindsight is 20/20). And there have been times when that has worked out very badly. Unless the anticipated growth in rents and values is similar to the best periods in San Francisco or Honolulu, I would not for a minute consider buying this property as an investment. Portland? Solid market, but it's not San Francisco.
In Pdxvandal's shoes, I would acquire more real estate education by reading, joining an investors' association, and making friends with some successful investors that have been landlords for a while. I would also do a detailed and honest cash flow analysis of the previous rental property to see what I made in cash flow and in appreciation.
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Oh, honobob was spouting the wonders of appreciation in cherry picked markets and timeframes in the other thread? Glad I missed it.
+1 on AR's final paragraph. Knowledge + action is the key to success. OP seems to want to jump to action without knowledge.
EDIT: Just read the other thread. Here for anyone interested: https://forum.mrmoneymustache.com/ask-a-mustachian/to-sell-or-to-rent-(the-primary-residence)/
I'll stick with my original comment:
that's a fairly clear "sell" to me, barring extreme conditions (knowledge of future appreciation, for example).
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I'm sorry, but you have not shown the math is wrong.
If you read what the OP has posted, she has saved a 10 percent down payment for the next house. She has not said she is pulling it from her equity in this house.
I would not for a minute consider buying this property as an investment. Portland? Solid market, but it's not San Francisco.
Let's not crap on every post by this poster. I'll reply on the original thread. The one where you failed to respond to comment about you assertation that GRM are beneficial when all expenses are similar.
Why are you talking about pulling equity from the rental? Trying to muddle things further.
Correct, you have NOT considered buying this property as an investment. All you've done is do some incomplete math with incomplete information and made an uneducated pronouncement. Are you willing to discuss this further on the other thread?
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As any professional investor or appraiser will tell you, GRM's are useful for comparing properties of the same type with similar expense ratios.
I'm not going to bother to respond further to your trolling.
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As any professional investor or appraiser will tell you, GRM's are useful for comparing properties of the same type with similar expense ratios.
I'm not going to bother to respond further to your trolling.
exactly! But in the other thread you poo pooed that even tho you were using the same expense ratio (50 PER CENT) FOR ALL properties. Anyone can see what you posted. And now you're name calling and runni g scared. Badassity my ass!