I paid 200,000 at 6% and I also have PMI on the house.
I've been renting the house since fall of 2010 and I am still not breaking even for several reasons:
1. I started off renting to friends to help myself get into landlord mode more easily - and I cut them a break on rent. (But then they stayed way longer than I anticipated and right before that I had to deal with a bad tenant and I am in no hurry to experience that again anytime soon.)
2. I stupidly offered utilities with rent so I pay that as well.
3. PMI is another $233 on top of the mortgage.
Then we did our taxes. And we realized that the PMI and the taxes and utilities all count towards losses that we can write off against the rental income. If I start to increase my rental income and actually make a profit - if I can't "hide" that then I will get taxed on it. My husband thinks that I should maybe not get rid of these "write-offs" so that we can build up that PAL account (passive activity loss) even if it means renting at a loss because he is looking at the long term of one day sellnig and being able to count a massive PAL account against Capital gains. BUT - looking at this from an FI perspective (which he is not) I want to set this place up as a new source of passive income.
This house is in a great neighborhood of a college town - I know this area so well and I know it's going to continue to appreciate in value and always be rentable.
Whew. Okay, now - what do you guys think? (Thanks in advance!)
What's the total fair market rent on the property? What do you think you could sell it for? Everything else is more or less details.
Also I lol'd at honobob's site saying "CAP RATE Per Year (NOI/Initial Invest)" when it can be used for SFRs, a term he rails against using. ;)
Honobob,retireme32 increasing the expenses against your income should not be a problem. Do some upgrades that will increase market value more than rents or that will decrease maintenance expense down the road. Get a better accountant if you're really having trouble with this. ;-)
I was just hoping to increase both without hurting the other.
I also see what you're saying about the PMI, it's just a matter of feeling better about having less cash out of pocket taken from me in the present. But maybe I can just fix that with raising the rent a bit with my next lease. Thank you for the website, it was very helpful.
Also I lol'd at honobob's site saying "CAP RATE Per Year (NOI/Initial Invest)" when it can be used for SFRs, a term he rails against using. ;)
If you can find where "MY" site says 50% of gross rents=NOI then LOL. Find any publication that defines NOI as 50% of gross rents. My site uses actual numbers and categories to get to NOI. For fun go back and enter a total of 50% of gross rents but change the amounts several times in each category. Try 50% all in vacancy and collection first. Then say 10% v/c and spread the 40% among the categories. DIFFERENT result each time. It does matter what the 50% is attributed to. So even if net operating income of ALL properties would magically be 50% it matters how that 50% is allocated. Plus just for comparison you'd want to know why one expense category was so high. Is it a correctable expense?
I always said you could derive a cap rate on a single family property but questioned why you would go to the trouble? If you don't know what cap rate the market is buying at you just have a "sweet 11%" cap but no clue. Just because you're buying at 11% doesn't mean the market isn't buying at 15%. Now if like in commercial properties there are publications that analyze market transactions for single family homes please show me.
This is why trying to use an incorrect method to get a NOI to then get a cap rate ends up with a crap rate.
Please explain how "cap rate" is used and applied in context with residential real estate. I've been doing this for over 40 years and the only time I've heard people talking about a residential "cap rate" has been on the internet. I don't know any professionals that apply or use it. It seems to be mentioned among people that don't understand the concept. Again, yes you CAN mathematically calculate a cap rate but then EXACTLY how would you apply or use it?Also I lol'd at honobob's site saying "CAP RATE Per Year (NOI/Initial Invest)" when it can be used for SFRs, a term he rails against using. ;)
If you can find where "MY" site says 50% of gross rents=NOI then LOL. Find any publication that defines NOI as 50% of gross rents. My site uses actual numbers and categories to get to NOI. For fun go back and enter a total of 50% of gross rents but change the amounts several times in each category. Try 50% all in vacancy and collection first. Then say 10% v/c and spread the 40% among the categories. DIFFERENT result each time. It does matter what the 50% is attributed to. So even if net operating income of ALL properties would magically be 50% it matters how that 50% is allocated. Plus just for comparison you'd want to know why one expense category was so high. Is it a correctable expense?
I always said you could derive a cap rate on a single family property but questioned why you would go to the trouble? If you don't know what cap rate the market is buying at you just have a "sweet 11%" cap but no clue. Just because you're buying at 11% doesn't mean the market isn't buying at 15%. Now if like in commercial properties there are publications that analyze market transactions for single family homes please show me.
This is why trying to use an incorrect method to get a NOI to then get a cap rate ends up with a crap rate.
Reread my post. I'm not talking about the 50% rule, nor was it even mentioned, I'm talking about its use of the term "cap rate."
You rail against the 50% rule, yes, but you've also ranted about the use of "cap rate" when talking about residential (that no professional would use cap rate when talking about residential blah blah blah).
The fact that this site that you recommend uses cap rate and can apply to residential is what amused me.
Hope you understand now. :)
It was indeed answered.I didn't see it anywhere.
After all, he invests in heaven, and only the best tenants get into heaven.If you weren't a regular church goer you'd be surprised how well that threat works. But I'm invested in hell too. Remember, I've had the Vegas property since 1994. Different kind of threat there though. Ain't nobody going to heaven there. Devil emoticon.
Raspy voice..hw do u use a residental crap rate?
We've done this dance before.Are you talking about the Ali Boone post? She's a 2 year expert!? And here are the comments correcting her post that she agrees to and are pretty much what I've been saying all along,
Go read your last locked thread, where I quoted experts talking about it.
Honobob,1. No cap rates on SFR. CHECK
okay so no using cap rates on SFR. Fine. Got it. And no using cash flow to define whether or not my house is profitable. But, I was looking to use this house in the long run to creates passive stream of income to substitute part of my monthly income upon FI so that not all of my monthly expenses were paid for by stock withdrawals. Is there anything wrong with that plan?
What's the total fair market rent on the property? What do you think you could sell it for? Everything else is more or less details.
+1. Some fairly important details, but usually that's the first driver of the discussion.
Honobob,
Thank you for your help. One more question, what do you use to prove that your property has increased in market 2? Are you using things like zillow? Recent in the neighborhood? Tax assessment? Neighborhood growth rates?
Honobob has, unfortunately, been banned from the forums for repeated violation of the rules.
Quote from: arebelspy on February 22, 2014, 05:46:14 pm
Quote from: KingCoin on February 19, 2014, 04:31:53 pm
What's the total fair market rent on the property? What do you think you could sell it for? Everything else is more or less details.
+1. Some fairly important details, but usually that's the first driver of the discussion.
In effect, you can change the form of your investment without (as the IRS sees it) cashing out or recognizing a capital gain. That allows your investment to continue to grow tax deferred. There’s no limit on how many times or how frequently you can do a 1031. You can roll over the gain from one piece of investment real estate to another to another and another. Although you may have a profit on each swap, you avoid tax until you actually sell for cash many years later. Then you’ll hopefully pay only one tax, and that at a long-term capital gain rate (currently 15%).
You banned Honobob??
Yes, there were some confrontational threads with bob and others. Hopefully that is not why he was banned.
Honobob,
Thank you for your help. One more question, what do you use to prove that your property has increased in market 2? Are you using things like zillow? Recent in the neighborhood? Tax assessment? Neighborhood growth rates?
Honobob has, unfortunately, been banned from the forums for repeated violation of the rules.
But I know he has, in the past, recommended http://www.neighborhoodscout.com/ as a resource. (Though I'm personally not a fan of that site, I will toss it out there.)
My answer to that would be: When you have your finger on the pulse of a market, you'll know when it's going up, down, sideways, etc. You'll see what's becoming available on the MLS, how asking prices per sqft are changing per neighborhood, how much inventory is available, how many sales there are, what the distressed property discount is, etc. etc.
You won't need a site to tell you a single number that is most likely very wrong, you'll run comps and look at the market to see how your property's value has changed.
It also sounds like, since you've ignored the "what's it cost and what's it rent for" question three times, that you know it doesn't make sense financially, and you're trying to justify it making sense via appreciation. I'd caution against that, but either way, best of luck. :)
... and one more thing needs to be said: Mahalo nui loa!You banned Honobob??
I wouldn't say I personally did, but Honobob was banned by the moderation team after multiple warnings spanning several months and continued violation of site rules. Hopefully nothing more needs to be said about that.
While I won't comment personally, I don't think Mazzinator is alone in his or her sentiment.
I'm sad to see bob banned because he represented a different, yet still valid and profitable, investing style. And I think his opinion was valuable to new investors because it shows that there is more than one way to buy and hold. And that rules of thumb (1%, 2%, 50%, etc) need to be put into context when evaluating a property.I've been dealing with his schtick for a number of years (including banning him at Early-Retirement.org). While your real estate experience (so far) has anecdotal support from other local investors, Bob has major credibility issues with his data-mining and selective reporting. You've apparently also avoided his personal (offline) attention, so you're able to maintain a much more objective perspective.
As for his claims of increasing rent and prices, my anecdotal experience supports all of it. No vacancy. High rent growth (10% annual past 2 years). Great appreciation (15% per year). Sure, the gravy train may slow down at some point. And yes, price decline is possible (~5-10% during the most recent bubble). But long term, I think this is a very profitable way to invest if supported by fundamentals (population growth, etc).
Personally, I'm grateful he was on this forum because when I learned about rules of thumb, my properties did not meet them. I considered selling. Luckily I was cash flowing decently so I paused. But then I met a few other local investors who confirmed bob's points, and they have made millions by holding a few properties long term (and selling or still holding). Since I bought I'm cash flowing very well now, and looking forward to the next turnover so I can choose how much to raise the rent. Another 12-15% will certainly be possible.
My sub market is different than his, but we are on the same islands and I suspect the characteristics of our markets are different than most of America. But certainly there are pockets that are similar, and I would hate for new investors to ignore this investing style in search of pure cash flow markets. I would hate for them to read any of Ali boone's articles and just go buy a turnkey if they live in an expensive area.
Every investor should be educated on different investing style, and decide which to pursue based on their goals.
Yes, there were some confrontational threads with bob and others. Hopefully that is not why he was banned.
Geez, that explains why Hono keeps "disappearing" everytime I find him .... oh well.Try HawaiiThreads.com...
Hello again,
Sorry I never meant to ignore the question but I think I lost it in the mix of all the sidebar conversation in this thread. My mortgage is $1675 (including taxes, PMI, home insurance). My rent is $1550 and I include utilities so right now I'm renting at a loss of $140 per month. This is largely due to the fact that I rented to friends initially b/c I wanted a "light" start to landlording so I've never tested my house on the true rental market - that is about to happen right now. I am fairly certain though that I can charge about $300+ more than I currently do.