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Old 10-19-2007, 05:10 PM   #21
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Also, I believe the housing bubble created a surplus of homes - since many people were speculating and buying homes as investments. Wouldn't these vacant homes eventually be rented out, thereby lowering rent prices?
I wouldn't worry too much about people speculating in LA renting their houses and competing with your mom's building because with the cost of housing in many parts of the city anyone who rents out their recently bought house probably won't make enough in rent to cover the house payment for long. Plus, in a lot of areas in LA, the houses and apartment buildings are in separate neighborhoods so there isn't a lot of overlap between the two.

It depends where in LA your mom's place is but if it's in a rent controlled area the property will likely get more valuable and renting probably won't be a problem in the future. If it's a rent controlled area it's likely in a desirable LA location.

Apartment buildings in LA will continue to be valuable as time goes on because it's cheaper to renovate there than build new and the competition is actually less there than in a lot of cities because demand usually stays pretty high. I would totally hold the rental property for as long as possible. If I could buy a rental property anywhere it would be in LA because demand is usually always high there.
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Old 10-22-2007, 11:53 AM   #22
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The $15,000 she makes on the property per year includes her rent money, which means she clears around $3,000 per year after she pays rent.
WOW! THAT's rent control for you ... why on earth anybody would pay 1.3M for this is BEYOND ME. If she sold, would her unit also be rent controlled? If so she can have her cake and eat it too. Invest the 1.3M AND live in the same unit forever. This is a REAL NO BRAINER.

Any assumption about future price appreciation is a fairy tale ... and - therefore - should not be placed in the equation.

Yeah a 1031 exchange is not needed (the tax break comes with being a primary residence).
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Old 10-22-2007, 01:03 PM   #23
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Tryan She will only have $700,000 to invest and she has to pay for housing out of that. In the SFbayarea an owner would not be able to keep their apartment after selling. Even if the new owner allowed her to stay and $1,000 a month is market she would still be looking at $2,700 a month rent payments in the future with the allowable 5% increases.

I'm thinking that a large portion of that $700,000 is fairytale appreciation. Most business decisions are based on anticipation of future events. Home appreciation can be anticipated. California urban areas have enjoyed double digit appreciation for over 40 years. The OP is lowballing this at 3% ($39,000). Why would think that there will be no appreciation in prices in LA? Do you also think rents will not increase?

The OP did not say if the other two units were at market. If not then there is a potential upside should those units become available and she could greatly increase her rents AND her market value of the property. The day she sells she forgoes these opportunities.
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Old 10-22-2007, 02:00 PM   #24
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The day she sells she forgoes these opportunities.
The way I read your posts is that there is never a good time to sell RE. The buyer is always right, the seller always wrong. How can that be? It implies a market permanently out of balance.

Ha
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Old 10-22-2007, 05:13 PM   #25
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Tryan She will only have $700,000 to invest and she has to pay for housing out of that.
700k seems low ... not getting enough info from the OP. Max tax bracket is 36% then add CA state tax. Seems like she's loosing too much to taxes. Unless there's a mortgage ...


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In the SFbayarea an owner would not be able to keep their apartment after selling. Even if the new owner allowed her to stay and $1,000 a month is market she would still be looking at $2,700 a month rent payments in the future with the allowable 5% increases.
5% rent increases are completely acceptable for her since she can park the wad - at no risk - and make a greater return. Bummer if she can't stay ... need to hear from the OP on that.

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I'm thinking that a large portion of that $700,000 is fairytale appreciation. Most business decisions are based on anticipation of future events. Home appreciation can be anticipated. California urban areas have enjoyed double digit appreciation for over 40 years.
Loosers of this game are turning up every day ... that's why we have the mess we do.

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The OP is lowballing this at 3% ($39,000). Why would think that there will be no appreciation in prices in LA? Do you also think rents will not increase?
Ah, because when you buy today at 1.3M you're looking at ~9K/MONTH NEGATIVE cashflow (depending on how you financed this beast). Rent control killed this deal.

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The OP did not say if the other two units were at market. If not then there is a potential upside should those units become available and she could greatly increase her rents AND her market value of the property. The day she sells she forgoes these opportunities.
There are greater opportunities in CDs (even greater in a bond/stock fund). AND no need to wait.
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Old 10-22-2007, 09:24 PM   #26
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The way I read your posts is that there is never a good time to sell RE. The buyer is always right, the seller always wrong. How can that be? It implies a market permanently out of balance.

Ha
Exactly!!!!!!!!!!!!!!!! Unless you're ready to reinvest into a better deal in CA. Most people realize that if they leave CA that they can not return!! It's been posted here by people other than me. If you move from an area that is appreciating by 10% a year and move to a place appreciating at 4% a year you are losing ground rapidly.

Now if you're sure you'll never want to come back then OK! Better still, don't cash out here but buy/rent in the new area and fund your life there with the appreciation HERE! Oh yeah, tenants,toilets trash. It'll cost ya, but how much? Not much for me cause I'm a Captain of Industry!!

Ha, it's just math and a little projection of future events. The market is not out of balance, it's just growing for the forseeable future!
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Old 10-22-2007, 09:28 PM   #27
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700k seems low ... not getting enough info from the OP. Max tax bracket is 36% then add CA state tax. Seems like she's loosing too much to taxes. Unless there's a mortgage ...

yeah



5% rent increases are completely acceptable for her since she can park the wad - at no risk - and make a greater return. Bummer if she can't stay ... need to hear from the OP on that.

no risk > 5% forever

Loosers of this game are turning up every day ... that's why we have the mess we do.

Losers in CA Show Me



Ah, because when you buy today at 1.3M you're looking at ~9K/MONTH NEGATIVE cashflow (depending on how you financed this beast). Rent control killed this deal.

Cash flow



There are greater opportunities in CDs (even greater in a bond/stock fund). AND no need to wait.
OK not much sense debating this until the OP states all the parameters since you want to negate his inputs. I think we have ability to reach a conclusion based on full disclosure. Still, you have not responded to your belief of no appreciation in value or rents! Are you basing your response solely on your belief that the MOM can benefit from rent control?
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Old 10-23-2007, 07:30 AM   #28
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Still, you have not responded to your belief of no appreciation in value or rents! Are you basing your response solely on your belief that the MOM can benefit from rent control?
Appreciation of rents:

Just look at what the past years rent increases have done for her. She's limited to profiting 15k on a 1.3M house. I'ld NEVER bet against rent control ... people grow old, die and pass the apartment onto family.

Appreciation of value:

For any future appreciation you're playing into the greater fool. Your current buyer - at 1.3M - is HEMORAGING 9K/month ... all to obtain 39k per year of the fairy's gold. Rental profits are non-existent due to rent control. Reseting the tax basis to 1.3M will consume even more of your REAL hard earned CASH - no fairy's gold there. So the only question is: when do fools stop coming to the party ... 10k/month negative? Not a bet I'ld make ... especially when CD's are paying nearly 3 fold your current return.

The $$ will chase the higher return. Real estate had a great run. Now it's something elses turn.
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Old 10-26-2007, 05:25 PM   #29
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Some great replies. Good debate.

My mom does have a mortgage loan and that's why she's only left with $700k if she sells.

She also has rents one unit that is around $600/mo below market rent. She is hoping this renter will move out in the next few months, thus increasing market rent and market value on the property.

If she sold and stayed as a tenant, I would imagine this would be similar to her renting a different place in the same area with the same 5% rent cap. If she gives herself a low rent, it will lower the amount she can get for the property, so I don't see the advantage. Anyways, she wants to move into a smaller apartment in the same neighborhood. That's her goal.

It seems that the days of double digit appreciation on CA residential is over. My mom talked to a real estate broker and found out the value of her property dropped around 13% since 2005.

I'm not sure how anyone can think double digit appreciation can keep going on indefinitely, without wages going up at a similar pace.
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