Purchase of Rental House

[calmloki]

...
Bottom line: It's darned difficult not to do well in the long run by buying appreciating assets with only modest amounts of your own funds and then letting someone else pay for it.

+1

Now if i could just convince myself to let the tenants deal with their own problems (drain was working when you moved in - YPYP per Honobob) life would be good. instead i spent 7 hours this sunday dealing with a toilet leak (and the electrical & drywall issues therefrom) that manifested above the ceiling light on the 10 1/2' ceiling of the kitchen of the apartment below. While doing that i did get a tenant at another building to buy and install his own toilet when the tank mysteriously broke. I'll pay the $99.99 for it (Home Depot, American Standard elongated complete w/ seat - good deal) - happy not to have to move or install it.

 

[thefed]

Hello,



I have a house in mind. It should rent for close to piti - it's in a good school district.

So where's the money to be made? Are you hoping for appreciation? Appreciation should be a kicker, not THE reason you buy an investment property. Buy one that WILL cashflow after placing aside reserves for maintenance.

 

[honobob]

So where's the money to be made? Are you hoping for appreciation? Appreciation should be a kicker, not THE reason you buy an investment property. Buy one that WILL cashflow after placing aside reserves for maintenance.

thefed under your purchase guidelines not one of the purchases I referenced would have been made. Hell, none of the sales in the Bay Area or Honolulu would have been made under your guidelines. And yet these people made hundreds of thousands of dollars in a short time. Your guidelines obviously don't work in these areas. I'm not so sure they work in any metropolitan area.

If you can understand the forces of supply and demand and know your market you can reasonably predict future appreciation rates. Most businesses predict future events and plan accordingly. Appreciation does not come as a surprise to a knowledgeable investor. See below.

 

[Westernskies]

MAYBE- but only if you took a hands-off approach and hired a professional property manager-

Tried it on my own (twice- I am a slow learner...)
Becoming involved in how others live is not a good thing...and being the guy (or gal) responsible for the roof over their head, you will whether you like it or not. I have a thousand stories, none of them positive.

The day I sold the last rental house was one of the best days of my life- it felt like I had just been released from a forced labor camp.

Keep in mind that the recent surge in people who are looking to rent today are those same folks who just lost their homes due to foreclosure- they couldn't make good financial decisions or their mortgage payments and just walked away- now they are looking to rent a home from YOU- where they have no equity stake, no financial investment, and no long-term interest in the maintenance or upkeep. You can't ruin their credit if they default on their rental agreement or tear the place up; it is already shot. Their security deposit won't begin to cover the aggravation of repairs, renovations, and re-renting the property.

I say run, don't walk away from being a landlord.

Good luck.

 

[free4now]

If I were to get into the rental market it would be as a job, with a multi-dwelling unit. Nothing wrong with that if it's your thing, and in fact it does offer one tax saving that hasn't been mentioned: Unlike working for someone else, when you work for yourself you can avoid income taxes and payroll taxes. That's one reason I like doing repairs myself... a $70 pro repair visit may require me to earn $90 to cover my taxes, and the repairperson may only yield $50-60 after he's paid his taxes, or $30-40 after his overhead. It's hard to stomach paying $90 of my money so someone can take home $30-40... better to just do it myself.

 

[mathjak107]

after 20 years in new york city (not manhattan) with a rental, putting 20% down when i bought the property after subtracting out all expenses and backing out that bogus depreciation number the property was negative about 100 a month or so. every rent increase was met with higher taxes and expenses. finally sold it for double what we paid but after subtracting out the 100 a month which by the way was a positive number with the depreciation figured in but once we paid the recapure back on it when sold the return wasnt worth the grief.

keep in mind i had quite a few tenants in 20 years,. all were good until one wasnt. that 1 expierience makes me never want to go thru that again.

 

[tryan]

Tryan, you left your long term appreciation $$'s out of your figgering!

When the average owner owns for 7 years, calculating future appreciation is pure fantasy. I've seen 12 year stretches were $$ was LOST and 12 year stretches were values TRIPLED.

The people who bought at the last peak (2005/2006) will not be happy 7 or even 10 years away. Don't need any spreadsheets to prove this one.

 

[honobob]

When the average owner owns for 7 years, calculating future appreciation is pure fantasy. I've seen 12 year stretches were $$ was LOST and 12 year stretches were values TRIPLED.

The people who bought at the last peak (2005/2006) will not be happy 7 or even 10 years away. Don't need any spreadsheets to prove this one.

Tryan Am I on your ignore list or do you not read other peoples posts? The sales I referenced were in 2006 and I would like to think they were OK maybe even a little happy when they got their 27-29% gain in 12-18 months. But I'm thinking you'd find a way to be glum about an extra $350,000-$550,000. I also think you're confusing owner-occupied properties that turn on average about 7 years. If you have other evidence for investment properties I'd like to see it. If you are in a market that depreciates for twelve years and then triples in twelve years then it would not be prudent to invest unless you were in for at least 24 years. Why do you pick bad markets and then complain when they perform like they historically have? Did you think YOU were the part of the equasion that was missing?

Anyway the OP is talking about the Bay Area which has experienced double digit appreciation for at least the last 22 years so I don't believe you trying to convince her to use your Boston market techniques here will do her any good when they didn't do you any good. Spread the pain?

Also, how is it that you can predict the market everywhere for the next 7-10 years but weren't able to predict 12 years of down market in your own home town? I would reread Hellbenders first post.


And get a mirror.


Originally Posted by Kougar2
We bought 1550 sq ft house in SF east bay in 1997 for $215,000. We sold out in Dec 2006 for $660,000.
WOW 9 years of over 13% annual appreciation. FANTASY

 

[CuppaJoe]

Want2wander
Here's your answer, 999 Green Street in San Francisco (2 bedroom condo) Sold 2/2007 for $1,500,000 and resold one year later, 2/2008 for $1,900,000. A 27% increase in one year!! $300,000 down and walk away one year later with $700,000. Genius.

I forgot I promised Wab at least two comps.
188 Minna Street 30F Sold 6/2006 $1,925,000 (2 bedroom condo) Resold 12/2007 for $2,480,000. A 29% increase in 18 months!

"especially now that the bull market in real estate is over" Perhaps spoken a little prematurely.

If ever there was a premium property, 999 Green is it. Whoever buys has George Schultz and Charlotte (S. F. society) for neighbors. 188 Minna, not bad. Location Location Location.

 

[CRABBY JERRY]

Newsletter

FIDELITY INSIGHT

Thanks. I use that also. Did you also use Fundsnet Insight and if you did, What did you do when he closed it down. Sorry to post it on this thread. I should have P.M.d you.

 

[brewer12345]

I have been keeping an eye out for a possible rental, but the prices just are not low enough, even on foreclosures. By the time you cover taxes, maintenance, the mortgage, and a premium for the headaches involved, the returns are paltry at best. Unless prices get a lot lower, I'd rather avail myself of the many alternatives in the capital markets.

 

[tryan]

Tryan Am I on your ignore list or do you not read other peoples posts? The sales I referenced were in 2006 and I would like to think they were OK maybe even a little happy when they got their 27-29% gain in 12-18 months. But I'm thinking you'd find a way to be glum about an extra $350,000-$550,000. I also think you're confusing owner-occupied properties that turn on average about 7 years. If you have other evidence for investment properties I'd like to see it. If you are in a market that depreciates for twelve years and then triples in twelve years then it would not be prudent to invest unless you were in for at least 24 years. Why do you pick bad markets and then complain when they perform like they historically have? Did you think YOU were the part of the equasion that was missing?

Anyway the OP is talking about the Bay Area which has experienced double digit appreciation for at least the last 22 years so I don't believe you trying to convince her to use your Boston market techniques here will do her any good when they didn't do you any good. Spread the pain?

Also, how is it that you can predict the market everywhere for the next 7-10 years but weren't able to predict 12 years of down market in your own home town? I would reread Hellbenders first post.

Hono, you're a great cherry picker .... I'ld like to see someone try carrying one these gems for 7 years with a tenant. Whats the negative cash flow 8-9k/MONTH ?!? Good luck with that.

Fact is they were flipped quickly because they could and the monthly negative cash flow was killing the owner.

The blind squirrel found a nut.

 

[honobob]

CHERRY PICKER! Them's fighting words! Actually they were the first two comps I looked at from a report that came in the day this thread started that had recent paired sales. Now I might be able to find resales that are down in garbage areas where people buy "deals" just because they're getting it at 50% less than the guy before them and then selling them at ..oops 50% less to a guy that's saying "I got a deal cause I'm buying at 50% less than what the guy before me paid. I'd be a fool not to slurp up the blood!" Buying "deals" in property, furniture and jewelery usually doesn't work out. Well, you know that by experience, right?

Anyway, I'm sure the recent buyers are among the tons of people that don't read newspapers and don't subscribe to your newsletter. There must be a ton of these people in the market for multi-million dollar condos. I think another plane load from Boston is arriving today. Gotta go and greet them. Bye.

 

[honobob]

A Whole Bowl of Cherries!!

More resales!! All in 999 Green street
Unit 3104 1/1997 $1,050,000
Resold 2/2002 $1800,000 12% annual appreciation


Unit 2903 4/1999 $1,040,000
12/2006 $2,300,000 12% annual appreciation

Unit 2402 8/2002 $1,170,000
7/2007 $2,250,000 14% annual appreciation

How about them apples, ..er cherries?

Penny wise, pound foolish?

 

[tryan]

Here's a fun interactive link:

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?#


Tells when it's better to rent or buy ... when the home values hit SF range (1.5M) it takes ~8k/month in rent to EVER justify buying. Not sure what rents are in SF ... but where are these people working to pay 8k/month (rent OR mortgage)? Just doesn't pass the sniff test ... Something tells me these things are renting for whole lot less and therefore NEVER justify ownership (unless your looking for the fairy's gold).

 

[CuppaJoe]

More resales!! All in 999 Green street
Unit 3104 1/1997 $1,050,000
Resold 2/2002 $1800,000 12% annual appreciation


Unit 2903 4/1999 $1,040,000
12/2006 $2,300,000 12% annual appreciation

Unit 2402 8/2002 $1,170,000
7/2007 $2,250,000 14% annual appreciation

....

FYI, this is 999 Green Street:

Eichler Network: Feature on File: Summit

 

[honobob]

FYI, this is 999 Green Street:

Eichler Network: Feature on File: Summit

Cuppajoe
Thanks for posting that! I did not realize that although I live in a single family Eichler knockoff. I've only been in one 999 Green unit and although I've been in many a view SF Property I went "OOOOOAH" at the view in a unit that only faces SE and not the NW view to the bay and GG Bridge. Isn't this your NHBD? Anyway I was with a friend of the owner who bought in 2000 and paid $1,000,000 more than market value!!! There was nothing that supported that price even in the crazy .com so I asked why he would pay so much. The answer was that he wanted the unit and $1,000,000 was NOTHING to him to guarantee him the unit. My friend said to Google the owner and he was some major .com guy. Gotta luv SF!

 

[tryan]

Well Hono, once again, we'll have to agree to disagree ...

I say: don't trap yourself into a negative cash flow "investment". Trapped because if the value drops you can't sell or refi and you're stuck with the negative cashflow for years.

Hono says: Values don't drop and past results gaurantee future returns. Negative cashflow? Suck it up.

 

[CuppaJoe]

Cuppajoe
Thanks for posting that! I did not realize that although I live in a single family Eichler knockoff. I've only been in one 999 Green unit and although I've been in many a view SF Property I went "OOOOOAH" at the view in a unit that only faces SE and not the NW view to the bay and GG Bridge. Isn't this your NHBD? Anyway I was with a friend of the owner who bought in 2000 and paid $1,000,000 more than market value!!! There was nothing that supported that price even in the crazy .com so I asked why he would pay so much. The answer was that he wanted the unit and $1,000,000 was NOTHING to him to guarantee him the unit. My friend said to Google the owner and he was some major .com guy. Gotta luv SF!

I’m not competent to evaluate the numbers but it seems logical that property that can be marketed to the ultra-wealthy would appreciate at a quicker clip than others. Tryan is also right to wonder who would you rent those properties to? My property management company used the 3 to 1 rule, that gross income should be more than 3 times the rent. If you google 999 Green, there are tenants who say that many of the condos are pieds-a-terre that sit empty much of the year....


I posted on this thread because several retirement decisions are touched on here:

1) What will I do when I have an extra 40-80 hours a week to myself? When I was semi-retired, I developed many interests, one of which was hanging out at City Hall; (I’m itching to back to it). I chose one issue and followed it through the committees and hearings; it was the proposed extension to the moratorium on "Richmond Specials."

2) The (mis?)conception that you cannot alter another’s viewpoint which I see so often in the Soap Box category. Near the end of the hearing process on the moratorium, a homeowner spoke her 2 minutes of allotted time so convincingly that I woke up and saw her side’s dilemma. Aside: there was a wonderful moment when a fellow spectator turned around to me and said, "this is great theater!" And I met Sue Bierman!, the best of the best at City Hall.

3) Two of the properties Honobob used as examples swirl in controversy. a) the Fontana Apt. complex at the Wharf is credited with sparking the movement to limit heights for new construction. I would have loved to be at City Hall during those hearings where activists might have been yelling, "no more 999 Greens!". b) 188 Minna sits on land that was cleared (of low-rent housing) for the Yurba Buena redevelopment project. It is across the alley from the MoMA and across the street from Yurba Buena Gardens. I’ve been busy working but I think the controversy there is that the project fell way short of providing required affordable housing. The height limits have been in effect since about 1970 and apparently (?) have been thrown out the window for the South of Market area. Gotta research that issue! My experience now is that it is difficult to find noontime sunlight on Mission Street.


4) Yes, Bob, I do live on Russian Hill. The retirement topic here is the oft-discussed concept of a walkable, livable neighborhood. I posit that it would be a far less pleasant, less desirable area without that height cap.

 

[honobob]

Well Hono, once again, we'll have to agree to disagree ...

Tryan
The facts keep proving you wrong! Three new condo sales reported today. Here's the FACTS on all three.

1700 Jones Street #4 Sold 3/2005 $1,225,000
Resold 1/2008 $1,500,000 8% annual appreciation.

1083 Clay Street #201 Sold 3/2005 $455,000
Resold 2/2008 $589,000 9% annual appreciation.

2005? Top of the market? Doesn't appear to be!

Longer term........1170 Sacremento Street 16B Sold 8/1993 $710,000
Resold 2/2008 $3,500,000 12% annual appreciation over 15 years!!
$15,500 appreciation each and every month for 180 months!!

 

[free4now]

No offense honobob, but those "facts" are incomplete... we need to know how much was put into remodelling and other fees/costs to know how much those properties are appreciating.

 

[honobob]

No offense honobob, but those "facts" are incomplete... we need to know how much was put into remodelling and other fees/costs to know how much those properties are appreciating.

Quote:
Originally Posted by JayOh
Just curious, but I am assuming these buildings were flips given the fairly short time between sales. Do you know how much money went into them to update them? I know you're just using ballpark numbers but I have to imagine that the carrying cost for 1 year on a 1.2MM mortgage (plus insurance/tax), not to mention cost of upgrades is going to take a fairly big bite out of that $400k profit you quote on the first example. Just my 0.02

free4now, basically answered in post #43.


Not sure they're what most people would consider a flip. 188 Minna is new construction 2005 and only 1527sf 2/2 so not alot for upgrades. 999 Green is 1964 construction but again only 1681sf 2/2. No permits were pulled on either so 400K goes a long way for paint/carpet and appliances plus most people at that price range don't pay so much for other peoples decorating. So with maybe $100K expenses and a years use or rent of at least $48,000 then you're still up $350,000 on Green and $555,000 on the Minna property. What's the best anyone has made on a $3-400K investment in the last year and a half?

Again these are all condos so not alot of upgrading that would translate into increased market value. These are in Cuppajoe's NBHD. Maybe we can get him to make some window peeks.

But if we're looking at things that way then maybe there really wasn't a bubble, just alot of first time home buyers that didn't maintain their houses which caused their values to plummet...etc. on and on.

This appreciation is reflective of properties that I do have knowlege of conditions and sales prices so I feel that they are reflective of the market now. Also double checked that no permits were pulled on any of these last three properties. From experience I know it is hard to get an illegal remodel past a HOA so I'm thinking at best paint and carpet.

 

[free4now]

I still don't see any accounting for closing costs honobob... When the real estate agent gets 6% and everyone else gets their pieces of the pie, I figure one loses about 8-9% on any round trip sale. That makes the profit on your 8% and 9% examples about zero. I'm not saying there isn't appreciation going on, but your examples don't prove it.

 

[honobob]

I still don't see any accounting for closing costs honobob... When the real estate agent gets 6% and everyone else gets their pieces of the pie, I figure one loses about 8-9% on any round trip sale. That makes the profit on your 8% and 9% examples about zero. I'm not saying there isn't appreciation going on, but your examples don't prove it.

Free4now Sales costs and sales commission have nothing to do with appreciation. You are confusing different concepts. If you want to look at rate of returns, etc. then you would consider those items but you would also be looking at returns in the 20%-30%-40% + on your leveraged amount before you would start subtracting. So if I'm making a 40% return I could spare a little for closing costs or sales costs. Commission, no way! I only buy the best in my price range and would only sell in an up market. I can sell myself.

 

[Pete]

Never again. Unless I have a huge positive cash flow.