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Old 09-06-2013, 03:25 PM
 
32 posts, read 97,489 times
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we are a married couple currently living in arlington in a rental 1bd/1bth and paying 1800 in rent. we are looking to buy a condo in the area a 2bd/2bth,for something around 270k. we did find a couple that we are interested in. we might stay in the condo for maybe a year or 2 and then plan on renting it out because we would be moving out of the DC area. Is it a good idea to buy property and rent it out after a year or 2? i did do some research and looks like the property would rent for somwhere around the mortgage price.. maybe a 100$ or so lower but it should not be a huge difference (this is including the high condo fee of around 600$ that we would be paying).
i have used online calculators and according to those it seems buying will be better than renting after 12years. but we dont plan on selling it after 2yrs and we plan on keeping tenants. as for the down payment we dont plan on paying 20% but just the 3%. do you think this is a good "investment" option?

thanks in advance for your inputs.
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Old 09-07-2013, 03:18 PM
 
968 posts, read 1,437,032 times
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It's not much of an "investment" as far as profit if you're losing money on it every month. I am in that situation now (we lose about $150/month on a townhouse we rent out), and it's just...annoying. There is no benefit to us as we sit and wait to be able to afford to sell it so we can stop flushing our money down the toilet.

And if you're moving out of the DC area, would you also have to use a property manager? I would assume so, in which case you can kiss another ~10% of your monthly rent good-bye, plus a hefty fee (typically one month's rent) each time they have to list the unit to find you a new tenant. We are in the process of comparing property management companies, and these seem to be the standard fees/rates.

And don't forget to account for any additional maintenance/repairs you have to do while your tenants are living there not caring about the property like you would...
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Old 09-07-2013, 04:21 PM
 
2,669 posts, read 4,510,075 times
Reputation: 2117
I agree with jillybean. With all due respect, I think it's a terrible idea, and here are some additional reasons as to why.

Generally, it is never a good idea to buy a property unless you are planning to live in it 5+ years, and certainly in most parts of Arlington, rental rates are low compared to the cost of buying most properties. Those conditions make the general idea even worse here.

Have you factored in property (real estate) taxes in your cost estimates of "mortgage"? It appears you have not but I can't tell for sure from your OP. Per bankrate.com, if you put 20% down on a condo in that price range and get a competitive rate, your principal and interest will be $1100-$1200 per month. Add in your $600 condo fee (I am assuming that does not include the taxes), plus miscellaneous repair expenses, and you are close to $2000, WITHOUT property taxes (or utilities). If you factor in 1% RET, that's another $2700 per year/12 ~ $225 per month. Insurance might be another $50 per month, depending on the coverage you take out. So you would have to rent the place, every single month, with no vacancies and no unexpected repairs and no updates, for more than $2200 per month plus utilities including water/sewer, to break even.

And, in Arlington, real estate taxes have gone up well above the rate of inflation since I have lived there.

Have you factored in the risk of value loss due to market changes, the complex's becoming less desirable, etc.? It's possible that the value may go up a lot too, but one should never buy a condo counting on that value increase to make the #s work. I did a quick search of my favorite RE database. The only "active" condos around $270000 and 2 BR/ 2 BA are in zip codes 22204 and 22206. These parts of south Arlington are riskier than most of the rest of Arlington, though some neighborhoods have done very well in recent years (and others have done much worse). It's possible that the values in the areas near Columbia Pike will go up more rapidly than in other areas, depending on the streetcar development, but right now that seems to be stalled due to funding issues.

Have you considered the risk of major damage caused by a tenant? Been there, done that, even with a very high income tenant.

Why tie up your money in that way? You may need that money for other uses later, or it could do better in the stock market.

I think only professional investors who really know the market and are physically here have any chance of making it work.

Last edited by ACWhite; 09-07-2013 at 05:18 PM..
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Old 09-07-2013, 05:07 PM
 
Location: New-Dentist Colony
5,735 posts, read 8,919,318 times
Reputation: 3857
Your mortgage interest will be tax-deductible, but your rental income will not be--nor will your condo fee. If you're going to keep it for 12 years and you can afford having two mortgages, I say go for it. Otherwise, breaking even isn't worth it.

I'm sure AC White is right that the tax rate has gone up way faster than propery values have increased, but given that the property value is higher, that makes it worth it. E.g., if the property is worth 200K now and is 300K in 10 years, the profit more than compensates for the increase in taxes (as much as I hate tax increases).

(FYI, the lack of caps makes it hard to read your post.)
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Old 09-07-2013, 05:14 PM
 
2,669 posts, read 4,510,075 times
Reputation: 2117
C, what I referred to was inflation (the overall rate, not property values). Property taxes have gone up faster than annual general inflation. Part of that is due to property value increases, but part has been attributable to Arlington's increasing the rate per $ of value. The point I was making was that property taxes should not be ignored as an expense.

If the OP buys the place and then rents it to a tenant, s/he has to report rental income on his/her tax return, but s/he can deduct many of the expenses against the gross receipts (a different schedule from the schedule A on which you deduct interest and taxes as a resident owner), including the mortgage interest, taxes, condo fees, etc. Whether she or he can deduct any resulting loss depends on some factors in his/her situation, but since s/he's not in a >100% bracket, s/he will still lose $ if the income doesn't cover all expenses.
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Old 09-07-2013, 07:38 PM
 
Location: McLean, VA
790 posts, read 1,601,691 times
Reputation: 556
I'm curious where you have found a 2 bd/2ba condo in Arlington for $270k? Not that I don't believe you, but I'm wondering if you'll have the kind of tenants who pay their rent on time or those who need a little reminder. Just seems like a low price.

I have a house in Texas that I rent out. It's in a sought-after area and I never have problems renting it. I have a property management company that handles the screening of tenants and emergency calls. It's a PITA at times, but I'll have it paid off in 7 years and plan on keeping it. It all depends on what you want to do in the future, and if the costs are not a burden to you.
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