Real Estate in Boston. Buy and hold?

[retire@40]

Thanks.  Don't they use a percentage value?

Here's in Houston, it's around 3% of the appraised value, which is very close to the market value.

Well, Boston is around $11.12 per $1,000

Source: http://www.celebrateboston.com/statistics/taxes/taxratesbyresidential.htm

 

[brewer12345]

What is your definition of "investment real estate"?  Flipping?  Or buy and rent?

Not flipping. That is (crack addict) speculation. Investing in RE means buying something that you could feasibly hold forever on a cash-flow positive basis, whether you actually keep it or not. Wuld you buy a REIT that disclosed that their entire portfolio of properties was cash flow negative but they planned on flipping all the properties within 6 months?

 

[macdaddy]

Retire@40 -- I should have been more precise -- when I said it "clears $1250" I meant after all expenses.

$15k/$290k = 5.2%. The maintenance on these places is really, really low, and priced correctly, they will never sit vacant, so that's close to a true return. I see the return on these as ~ 5% + inflation for the indefinite future. If real inflation is 4%-5% that's a steady 9%-10% return. I believe inflation will pick up and I have a preference for tangible assets, so that's why I like them. The market price on such a place is around $350k now.

I don't think quality, low-maintenance rental properties have ever "cash flowed" if you mean that you can walk in and put 20% down and start to make money. At 20% you should be a little less than break-even. This is what I've gathered from family members who have been in the rental business since the 1930s. You are borrowing large amounts of other people's money to benefit from the compounding effects of inflation over 30 years.

I could find a SFH in South Carolina that would cash flow immediately with 5% down -- 8% cap rate? no problem! -- but it would also be much harder to rent in a recession, much easier for tenants to damage, and have higher long-term maintenance and repair costs. All rentals are not created equal.

 

[retire@40]

I should have been more precise -- when I said it "clears $1250" I meant after all expenses.

In order to have a net positive cash flow of $1250 using my example above, you would need to collect $2,866 in rent. I don't know too many people willing to pay that kind of rent on a $280K property.

 

[macdaddy]

I'm not sure where the $2,866 comes from. In my example the property was paid off, but to finance it, you would lose the spread (mortgage rate minus the cap rate) on whatever you borrowed. Rent is $1750 a month and expenses are about $500-$550 a month, which includes the condo fee, which covers most of the long-term maintenance, and all taxes and insurance. So that's net of $1200-$1250 a month. Taxes are low here (~ 1%), which helps.

It didn't make sense from a cash flow perspective to buy when I did (because rents were 20% lower) nor does it make sense to buy from that perspective now (because prices are inflated). My point was just that if rents stay where they are, and prices slide 20%, then it starts to make sense to buy rentals.

 

[retire@40]

I'm not sure where the $2,866 comes from.  In my example the property was paid off, but to finance it, you would lose the spread (mortgage rate minus the cap rate) on whatever you borrowed.  Rent is $1750 a month and expenses are about $500-$550 a month, which includes the condo fee, which covers most of the long-term maintenance, and all taxes and insurance.  So that's net of $1200-$1250 a month.  Taxes are low here (~ 1%), which helps.

It didn't make sense from a cash flow perspective to buy when I did (because rents were 20% lower) nor does it make sense to buy from that perspective now (because prices are inflated).  My point was just that if rents stay where they are, and prices slide 20%, then it starts to make sense to buy rentals.

Rent of $2866 gives you a net cash inflow of $1250 using my example above.

I know you are making a profit now on what you have, but I'm making a case that it does not make sense to buy the same real estate now as even you just stated.

In my example, prices would have to drop at least 30% for rental real estate to give you a break-even.

Honestly, I would have to expect at least 7% year-over-year increases in market value or rental income when investing initially at break-even real estate. Otherwise, I would just invest in the stock/bond market and avoid tenant/building headaches.

 

[spideyrdpd]

The wheels on the bus go round and round.

You get many advantages when you buy real estate.
Its got the tax deductions
you have the mortgage pay down
You can easily use leverage
you can delay paying taxes on the profits
You can borrow the profits back out and not pay taxes.

 

[honobob]

Spideyrdpd

There are people here that do not understand real estate as an investment IMHO, but have a major opinion of what other people should do with their real estate.  I tend to think of them as the restaurant customer who knows they could "run this place better than the idiot that's doing it now".  That's one reason there is such a high failure rate for restaurants.  But at least those people had the guts, excess cash, b*lls to put up or shut up.  Or maybe they really were just .....stupid uneducated. 

Location.........Leverage..........Discuss amongst yourselfs.

Honobob..bob...bob...bob...bob...bull!