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Old 06-22-2015, 05:36 PM
 
Location: Phoenix, AZ area
2,932 posts, read 2,399,744 times
Reputation: 3362

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Quote:
Originally Posted by Thinking-man View Post
Oh yeah? Where is the 1800 a month income taken into effect for the second decade?
Guy, add it yourself its right there for you.

Quote:
Originally Posted by AZ Manager View Post
At 3.89% on a 10 year term at $275,000 including P&I, Taxes, HOA, and Ins (nothing ever increases) your cost is $380,400. At $1,800 a month in rent, you would have generated (5% - 10% vacancy rate) $205,200 - $194,400 in the first decade. You are down $175,200 - $186,000. In decade 2, assuming all costs remain the same, your cost is $48,000 or $223,200 - $234,000 (previous decade loss plus new costs). In a very very over simplified way it takes over 20 years to break even, and you can never expect real estate to go up even though it likely will specially given the huge time frame here.

Note these numbers include zero repairs which average $1500 a year for me and about that every time I turn the unit.

Decade 2 your costs are $223,200 - $234,000.
Decade income based off of 5% and 10% vacancy rate is $205,200 - $194,400

Two decade your total loss is $18,000 - $39,600

This is your out of pocket, real liquid money, cost for 2 decades assuming nothing changes, rental income is flat as well as property taxes and insurance, and you never have to pay taxes on the income or repair the property or update it ever.

I told you on the first few pages how you should go about both securing your current assets and purchasing an investment home. You want to risk your $500,000 home for a small gain on that money go for it, almost everyone who replied to you says its a foolish move. If you are guaranteed the income to pay for the loan for the next 10 years, and you aren't, then I would 100% support your move. You are a slave to a business owner and there is zero security in that no matter how much money you make, look at them athletes or musicians who were making millions at their peak and have nothing now.
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Old 06-22-2015, 05:45 PM
 
3,483 posts, read 4,621,100 times
Reputation: 2259
Quote:
Originally Posted by AZ Manager View Post
Guy, add it yourself its right there for you.




Decade 2 your costs are $223,200 - $234,000.
Decade income based off of 5% and 10% vacancy rate is $205,200 - $194,400

Two decade your total loss is $18,000 - $39,600

This is your out of pocket, real liquid money, cost for 2 decades assuming nothing changes, rental income is flat as well as property taxes and insurance, and you never have to pay taxes on the income or repair the property or update it ever.

I told you on the first few pages how you should go about both securing your current assets and purchasing an investment home. You want to risk your $500,000 home for a small gain on that money go for it, almost everyone who replied to you says its a foolish move. If you are guaranteed the income to pay for the loan for the next 10 years, and you aren't, then I would 100% support your move. You are a slave to a business owner and there is zero security in that no matter how much money you make, look at them athletes or musicians who were making millions at their peak and have nothing now.
lol you won't even admit that you made a mistake? Lol
compare the bold area above with your post in the previous page.....where you said the 2 decade "loss" is 230k. (Because you had forgotten about the decade 2 rental income). Adding to this the fact that you fail to see that the house has value at the end of the 10 year period, makes you completely unqualified to even give an opinion.
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Old 06-22-2015, 05:59 PM
 
Location: Phoenix, AZ area
2,932 posts, read 2,399,744 times
Reputation: 3362
Quote:
Originally Posted by Thinking-man View Post
lol you won't even admit that you made a mistake? Lol
compare the bold area above with your post in the previous page.....where you said the 2 decade "loss" is 230k. (Because you had forgotten about the decade 2 rental income). Adding to this the fact that you fail to see that the house has value at the end of the 10 year period, makes you completely unqualified to even give an opinion.
I said your cost and I am correct that is your cost. Maybe you don't understand how it works but you have a cost and an income and the difference of those two things is your profit or loss, also known as your margins.
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Old 06-23-2015, 07:05 AM
 
Location: Mount Laurel
4,146 posts, read 8,389,779 times
Reputation: 3409
Quote:
Originally Posted by Thinking-man View Post
HOA is like 38 bucks a month......it's been around that amount for the past 20 years.
property taxes are like 3k a month.....been around that amount for a long time.

yes, good point in your second paragraph....but you have the same risks associated with any other types of investment as well. Investment comes with Risk! more or less....but it has risks. If you put your 100k in the market, you're not guaranteed anything either....
If those numbers work for you go for it. I personally I wouldn't. There are many times when I see similar scenario to what you are describing when I am shopping for properties and the numbers just never works for me. The payoff just isn't there for the "potential" payoff. Yes, you can say you "invested" over 10 years only ~$170K in acquiring a property that has a value of $275K (today). There are too many gotcha in the renting process over the 10 years. These number are great for my primary home but not as an investment.

So I don't have an opinion to your question of using HELOC for the rental property. My only opinion is that is not a good investment.

Last edited by sj08054; 06-23-2015 at 07:17 AM..
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Old 06-23-2015, 10:58 AM
 
3,483 posts, read 4,621,100 times
Reputation: 2259
Quote:
Originally Posted by sj08054 View Post
If those numbers work for you go for it. I personally I wouldn't. There are many times when I see similar scenario to what you are describing when I am shopping for properties and the numbers just never works for me. The payoff just isn't there for the "potential" payoff. Yes, you can say you "invested" over 10 years only ~$170K in acquiring a property that has a value of $275K (today). There are too many gotcha in the renting process over the 10 years. These number are great for my primary home but not as an investment.

So I don't have an opinion to your question of using HELOC for the rental property. My only opinion is that is not a good investment.
I can respect that. I sometimes feel exactly the same and question the decision just as you described it. But in the name of diversification, I think it may not be a bad idea.....and at the end of the 10 year, you have an income generating asset to show for it...
thanks for your input.
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Old 06-24-2015, 07:25 AM
 
Location: MID ATLANTIC
7,602 posts, read 17,634,581 times
Reputation: 8084
Did I just read this right? You are looking at $1300 per month negative cash flow? Even where the vacancy rate is less than 5% for rentals in the DC area, that's a hefty negative.

(I spent this past weekend reasearching the rental market for a report I turned in for policy exceptions. For example when doing this reaseach, at the time there was one rental in 22180 with 3 bedrooms or more. But even in that zip, $1300 negative is a bit much in my opinion - check with your CPA - it's all relative, but that's a huge gap of payment to income).
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Old 06-24-2015, 08:08 AM
 
Location: Mount Laurel
4,146 posts, read 8,389,779 times
Reputation: 3409
Quote:
Originally Posted by SmartMoney View Post
Did I just read this right? You are looking at $1300 per month negative cash flow? Even where the vacancy rate is less than 5% for rentals in the DC area, that's a hefty negative.

(I spent this past weekend reasearching the rental market for a report I turned in for policy exceptions. For example when doing this reaseach, at the time there was one rental in 22180 with 3 bedrooms or more. But even in that zip, $1300 negative is a bit much in my opinion - check with your CPA - it's all relative, but that's a huge gap of payment to income).

It "think" OP is not looking at it as a negative cash flow but that he is buying real estate at a discount over 10 years period and call it investment (I don't agree with this). I don't mind throwing a few hundred away a month (which I currently do on one of my property for just letting it sit as the market rises). Doing what OP is thinking of doing, I just don't see it but like you said, talk to a CPA first.. maybe he is in a situation that makes sense.
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Old 06-24-2015, 10:36 AM
 
3,483 posts, read 4,621,100 times
Reputation: 2259
Quote:
Originally Posted by SmartMoney View Post
Did I just read this right? You are looking at $1300 per month negative cash flow? Even where the vacancy rate is less than 5% for rentals in the DC area, that's a hefty negative.

(I spent this past weekend reasearching the rental market for a report I turned in for policy exceptions. For example when doing this reaseach, at the time there was one rental in 22180 with 3 bedrooms or more. But even in that zip, $1300 negative is a bit much in my opinion - check with your CPA - it's all relative, but that's a huge gap of payment to income).
Quote:
Originally Posted by sj08054 View Post
It "think" OP is not looking at it as a negative cash flow but that he is buying real estate at a discount over 10 years period and call it investment (I don't agree with this). I don't mind throwing a few hundred away a month (which I currently do on one of my property for just letting it sit as the market rises). Doing what OP is thinking of doing, I just don't see it but like you said, talk to a CPA first.. maybe he is in a situation that makes sense.
Thanks very much guys.

I'm not sure why you would look at that as $1300 wasted because if anything that $1300 is going towards the principle of the house. Yes it is negative cash flow but any money aside from the interest is essentially being saved in terms of buying the real estate property itself. The only money that I see as being 'wasted' is the interest that is paid on borrowing from the home equity line of credit.

The way I look at it is that I am buying a property over a 10-year (or 15/20/30) period and there is someone (the renter) who is helping with that purchase by paying all the interest owed, and then some. This is of course over simplified, I agree. Because there is a lot involved with doing this including tax implications, rental property vacancy, renter issues, improvements and maintenance, etc.

Last edited by Thinking-man; 06-24-2015 at 11:25 AM..
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