|
|
10-29-2015, 03:13 PM
|
#21
|
Full time employment: Posting here.
Join Date: May 2011
Location: Twin Cities
Posts: 523
|
Quote:
Originally Posted by ArkTinkerer
Brings up an interesting question--at what point do you start figuring the ROI based upon a reasonable selling price of the property? Obviously, given a good market, it would make sense to either sell or refinance when the loan/value ratio gets low and buy another property or two.
|
At least in my market the "good market" means I can't find anything that matches the 8%+ returns that were easy 3-4 years ago. That's the challenge here - finding 1 or more properties to convert it into.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
10-29-2015, 04:30 PM
|
#22
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
|
I just went through this in renegotiating a 10 year lease of my mother's commercial property (I manage it for her... for free). Our 30+ year single tenant asked us to make numerous improvements which will amount to ~20% of the value of the property.
I project our after-tax ROI to be ~14% in the first year of the renewal. After-tax profit/beginning of year value of the property after our improvements. The lease has an annual escalation so the ROI, assuming the same denominator will increase to 16% over the ten year term. Since we own the building, all of these are unleveraged returns.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
10-29-2015, 05:53 PM
|
#23
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
Quote:
Originally Posted by ArkTinkerer
Brings up an interesting question--at what point do you start figuring the ROI based upon a reasonable selling price of the property?
|
I think you have to look at the final net in real estate and compare that to the return you are getting. That is after commissions, depreciation recapture, capital gains, etc.
And find another investment with a better return and the same or lower risk.
I would have a hard time finding one for myself, not outside of a rental.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
10-30-2015, 09:02 AM
|
#24
|
gone traveling
Join Date: Sep 2015
Location: NYC
Posts: 52
|
If you are already a landlord than that's a fine return in my book. However, if your not rent the movie pacific heights. If you get a bad tenant you will have ZERO return. I had an investment property real nightmare. Husband left the wife , she stopped paying , took Eleven months to throw her out. I didn't both to try to get a judgement fit it . It was good riddance to bad garbage. If I want real estate I'll by a reit, besides my home reprints about 20% of my net wealth so that's enough exposure for me
|
|
|
10-30-2015, 09:46 AM
|
#25
|
Recycles dryer sheets
Join Date: Dec 2013
Posts: 331
|
Quote:
Originally Posted by Senator
I think you have to look at the final net in real estate and compare that to the return you are getting. That is after commissions, depreciation recapture, capital gains, etc
|
I'm trying to figure this out mathematically (not trying to hijack, but if we can get a formula I think it would help the OP).
Is the formula I've laid out below how you determine ROI? To keep it simple, I won't factor in depreciation. Depreciation would help, so it should be slightly better than the end result of this equation.
(Sale price)
- (closing costs)
- (mortgage payoff if needed)
- (capital gains)
- (money put in over time (down payment, mortgage, maintenance, management, taxes, etc))
+ (rents paid)
------------
= total return
Then
(Total return) / (money put in) = ROI over time
And
(ROI over time) / (# of years since purchase) = average annual ROI
So, for example: investor purchases a house in Jan 2010 for $200K and sells in Dec 2015 for $300K. 20% down payment. Monthly PITI averages $1200 over the course of the loan. House is rented for $1700/mo and management is $150/mo. Average maintenance & vacancy is $3000/yr.
So:
$300,000 (sale price)
- $18,000 (closing costs)
- $143,000 (mortgage payoff)
- $15,000 (capital gains)
- $136,000 (money put in over time (down payment, mortgage, maintenance, management, taxes, etc))
+ $102,000 (rents paid)
------------
= $90,000 (total return)
Then
$90,000 / $136,000 = .66 or 66%
(Total return) / (money put in) = (ROI over time)
And
.66 / 5 = .13 or 13% avg ROI
(ROI over time) / (# of years since purchase) = average annual ROI
Is that a good way to determine ROI? Other than depreciation, am I leaving anything out?
And before anybody questions a 50% appreciation in 5 years, I'll point out that based on where I live and the years I used this is not only doable but conservative. YMMV.
Sent from my iPhone using Early Retirement Forum
|
|
|
10-30-2015, 09:54 AM
|
#26
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,376
|
Conventionally you would take timing of cash flows into account as well and calculate the discount rate that causes the present value of the cash flows to be zero, also known as the internal rate of return.
Also, since depreciation is not cash flow, depreciation would not be included but the tax benefit of depreciation would be included in the cash flows since it results in a savings in taxes.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
10-30-2015, 03:50 PM
|
#27
|
Full time employment: Posting here.
Join Date: Aug 2015
Posts: 550
|
Quote:
Originally Posted by Fishingmn
As others have said, I'd buy more if I could get 8%. That was always my minimum number and over time that has gone up with rent increases to where I'm now at 9.7% with conservative expense estimates.
Which brings me to the issue of your estimates. You are estimating only $3k/year in expenses? That seems really low to me.
I always figure in 3-5% for vacancy
I figure in $800/year for repairs/maintenance per property and these are townhouses where the HOA covers outside maintenance. This week I put in a $2k furnace and an $800 water softener at different units.
I figure in taxes
I figure in a $150/year landlord insurance policy for $1M in liability coverage
I figure in a $100/year budget for possible evictions - never had one luckily
Many cities have a rental license that I have to pay for as well - around $50/year
I also have HOA dues which cover things like lawncare/snow, garbage, water, insurance and outside maintenance.
Your numbers seem low in other words.
As an example, I have one unit that rents for more than yours at $1,290/mo and I figure that I only clear about $9,800/year.
|
+1. I have higher rent from a small 2br townhome but higher expenses as well. Your income must be counted only after your expenses. 3 to 4% is normal for CA.
|
|
|
10-30-2015, 05:45 PM
|
#28
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
ROI Calculation...
I just figure how much I put into the building, including down payment, fix up expenses, etc. You should also figure holding costs while you get it rented.
Divide the above number into the net rents, after all expenses. The expenses include management (7%), vacancy (5%) and maintenance (10%).
Cash needed to purchase / Rental Profit = ROI
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|