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Message
Rental property question
Posted on 1/9/20 at 9:38 am
Posted on 1/9/20 at 9:38 am
TL/DR
I own a rent house in Houston. Worth in the $360-380 range. Owe about $210 on it. 3.75% interest rate.
Mortgage, taxes, ins., etc. come out to about $1700 a month. I have a property manager I pay 8% of the rent to. If all goes well and no repairs, I clear $400. But obviously, some months there are things that need to get fixed.
Question: $400 a month for a property at that price point doesn't seem worth it to me. I'm considering selling and investing the equity back into the market. Taxes really kill me in Harris County.
My only concern with this is the lack of diversification as most of my assets are already in the market.
My other options are to pay down my primary residence mortgage but that seems not so good since my rate is pretty low at 3.75%.
Or, I could try to find a cheaper rental property to invest in but this takes time and real estate knowledge which I lack. I'm only renting the current house because I used to live in it and moved.
What says the money board?
1. Keep renting it?
2. Sell and pay down current mortgage?
3. Sell and invest the $100K+ in the market
4. Sell and buy a new rental property(s) with a higher percentage profit. If this is the winner? Any tips?
If it helps, I have no debt other than the two houses and a pretty big investment portfolio.
I own a rent house in Houston. Worth in the $360-380 range. Owe about $210 on it. 3.75% interest rate.
Mortgage, taxes, ins., etc. come out to about $1700 a month. I have a property manager I pay 8% of the rent to. If all goes well and no repairs, I clear $400. But obviously, some months there are things that need to get fixed.
Question: $400 a month for a property at that price point doesn't seem worth it to me. I'm considering selling and investing the equity back into the market. Taxes really kill me in Harris County.
My only concern with this is the lack of diversification as most of my assets are already in the market.
My other options are to pay down my primary residence mortgage but that seems not so good since my rate is pretty low at 3.75%.
Or, I could try to find a cheaper rental property to invest in but this takes time and real estate knowledge which I lack. I'm only renting the current house because I used to live in it and moved.
What says the money board?
1. Keep renting it?
2. Sell and pay down current mortgage?
3. Sell and invest the $100K+ in the market
4. Sell and buy a new rental property(s) with a higher percentage profit. If this is the winner? Any tips?
If it helps, I have no debt other than the two houses and a pretty big investment portfolio.
This post was edited on 1/9/20 at 9:43 am
13
Posted on 1/9/20 at 10:11 am to ulsaint
Are you currently still living in Houston?
Posted on 1/9/20 at 10:52 am to Peejack84
quote:
Are you currently still living in Houston?
No, I moved to the Hill Country area.
Posted on 1/9/20 at 10:57 am to ulsaint
So rent is approx 2100/month? Have you looked to see how that compares to the market? Can you raise the rent to make it more worth your while?
As far as the market, there are real property investment options available in the market, so you could just invest in those.
As far as the market, there are real property investment options available in the market, so you could just invest in those.
Posted on 1/9/20 at 11:03 am to LSUFanHouston
Rent is actually like $2200 or something close to that. Then subtract the 8%. And I end up with about $400.
The property management started with rent way higher when I first listed it out a year and a half ago. It wasn't getting any views.
Problem is, inner loop Houston has a ton of competition. They built so many new luxury apartments (which is what I'm competing with) that they were giving pretty big incentives (1st month free, etc.). And they really overbuilt town houses, etc. and then oil crashed.
We did raise rent 3 percent this year and that's pretty much the standard. Not sure it would rent at a higher price point.
What do you mean real property investment?
Prices in my neighborhood have been flat to slightly down the last few years. But the area is still booming. New bars, restaurants within walking distance. Right on the Heights bike trail. It's a great area for young people with money.
The property management started with rent way higher when I first listed it out a year and a half ago. It wasn't getting any views.
Problem is, inner loop Houston has a ton of competition. They built so many new luxury apartments (which is what I'm competing with) that they were giving pretty big incentives (1st month free, etc.). And they really overbuilt town houses, etc. and then oil crashed.
We did raise rent 3 percent this year and that's pretty much the standard. Not sure it would rent at a higher price point.
What do you mean real property investment?
Prices in my neighborhood have been flat to slightly down the last few years. But the area is still booming. New bars, restaurants within walking distance. Right on the Heights bike trail. It's a great area for young people with money.
Posted on 1/9/20 at 11:03 am to ulsaint
quote:
4. Sell and buy a new rental property(s) with a higher percentage profit. If this is the winner? Any tips?
This would be my choice. I'm currently doing the same thing to add to my rentals. You can prob buy at least 2 4-plexes with the 100k. You have to buy right tho. Shoot for a minimum of $200 per door net profit per month.
A quick evaluation of a property is that the total rents need to be at least 1% of the purchase price. I try to stay around 1.4%
Visit Biggerpockets and listen to their podcasts. Their rental property calculator on the website is a life saver when it comes to analyzing properties.
Posted on 1/9/20 at 11:06 am to Peejack84
quote:
A quick evaluation of a property is that the total rents need to be at least 1% of the purchase price. I try to stay around 1.4%
Exactly why I think renting a $370kish house for $2250 isn't worth it.
I'll give them a listen but with a toddler and a fulltime job, I want to be as hands off as possible. It took me years or learning and research to understand the stock market, just don't have the time or energy to learn real estate that well. Wish there was a way to just have decent properties sent to me and I just provide the money haha.
Posted on 1/9/20 at 11:32 am to ulsaint
This is my uneducated opinion that I follow that has worked for me so far in my area.
I try to clear 500/mo
I try to keep rent max at 1200 because I feel that beyond that you can afford your own house so your stay with me will be short. I rather not have to deal with re renting every year or two.
I look for properties NOT in a flood zone so I am not forced to get flood ins if I don't want too.
Put at least 20% down so no PMI
I would not sell your rent house to pay down your current principle, your rate is really low. Only way id consider it is if it paid off your house completely freeing up your current monthly payment. But then you loose tax credits. Not sure how that all works out in the books...
I would not put all my $ in the market...IMO people will always need a place to live and I have read here and there that some of the younger generation rather just rent vs buy, so I like rentals. Grew up with my parents having them and a good friend grandfather building a empire.
IMO I would sell and find something closer to me that I could manage and pocket that 8% fee.
I try to clear 500/mo
I try to keep rent max at 1200 because I feel that beyond that you can afford your own house so your stay with me will be short. I rather not have to deal with re renting every year or two.
I look for properties NOT in a flood zone so I am not forced to get flood ins if I don't want too.
Put at least 20% down so no PMI
I would not sell your rent house to pay down your current principle, your rate is really low. Only way id consider it is if it paid off your house completely freeing up your current monthly payment. But then you loose tax credits. Not sure how that all works out in the books...
I would not put all my $ in the market...IMO people will always need a place to live and I have read here and there that some of the younger generation rather just rent vs buy, so I like rentals. Grew up with my parents having them and a good friend grandfather building a empire.
IMO I would sell and find something closer to me that I could manage and pocket that 8% fee.
Posted on 1/9/20 at 11:36 am to ulsaint
quote:
What do you mean real property investment?
You could invest the money in Real Estate Investment trusts and/or funds, or you could buy companies that are in the real estate / residential construction business.
Posted on 1/9/20 at 11:44 am to NOLAGT
quote:
This is my uneducated opinion that I follow that has worked for me so far in my area.
I try to clear 500/mo
I try to keep rent max at 1200 because I feel that beyond that you can afford your own house so your stay with me will be short. I rather not have to deal with re renting every year or two.
I look for properties NOT in a flood zone so I am not forced to get flood ins if I don't want too.
Put at least 20% down so no PMI
I would not sell your rent house to pay down your current principle, your rate is really low. Only way id consider it is if it paid off your house completely freeing up your current monthly payment. But then you loose tax credits. Not sure how that all works out in the books...
I would not put all my $ in the market...IMO people will always need a place to live and I have read here and there that some of the younger generation rather just rent vs buy, so I like rentals. Grew up with my parents having them and a good friend grandfather building a empire.
IMO I would sell and find something closer to me that I could manage and pocket that 8% fee.
Good advice.
Problem is I moved from one booming area to another. Real estate around me is pretty pricey. I'd have to go to parts of town I don't know at all to find houses in that range.
I have no interest in property management. Just seeing some of the dumbass requests they get for my relatively new house is enough to scare me off.
Got one the other day that the freezer was leaking. It's one of those nice Samsung stainless steel french door with the freezer on the bottom ones.
Freezer wasn't leaking. The stupid a-hole used the ice dispenser and not all the ice came through the slot and melted. frick property management.
Posted on 1/9/20 at 11:50 am to ulsaint
quote:
1. Keep renting it?
2. Sell and pay down current mortgage?
3. Sell and invest the $100K+ in the market
4. Sell and buy a new rental property(s) with a higher percentage profit. If this is the winner? Any tips?
I think the question comes does to how much to you want to be involved in real estate.
If you want physical property, cash flow, advantages of tax depreciation, etc. then sure selling the property(or exchanging) and getting a new rental property and adding on from there, may be the best option.
If you are just wanting to diversify your assets with holdings in the real estate markets, then REITs would be where you'd want to look.
Posted on 1/9/20 at 11:50 am to ulsaint
quote:Youre going to want to keep at least a hundred dollars every month aside for maintenance, capex, and vacancy.
If all goes well and no repairs, I clear $400. But obviously, some months there are things that need to get fixed.
Posted on 1/9/20 at 12:22 pm to ulsaint
quote:
Good advice.
Problem is I moved from one booming area to another. Real estate around me is pretty pricey. I'd have to go to parts of town I don't know at all to find houses in that range.
I have no interest in property management. Just seeing some of the dumbass requests they get for my relatively new house is enough to scare me off.
Got one the other day that the freezer was leaking. It's one of those nice Samsung stainless steel french door with the freezer on the bottom ones.
Freezer wasn't leaking. The stupid a-hole used the ice dispenser and not all the ice came through the slot and melted. frick property management.
Yea the request can be a PITA really...as well as getting it rented. My BIL is a agent so I let them vet and rent the place then I take over. I also am lucky to have a good handy man thats not too expensive, fast, and used to be a locksmith so I dont have to go let him in if the tenants are good with it
quote:
Youre going to want to keep at least a hundred dollars every month aside for maintenance, capex, and vacancy
I save 100% of the profit until I save 6 months rent + 2k for each property until I take any.
This post was edited on 1/9/20 at 12:36 pm
Posted on 1/9/20 at 1:15 pm to NOLAGT
Long but consider the following
Not sure if all the specifics but for the rental
Rent minus cost ( insurance,mortgage,taxes, management?)
Throw in two months every other year as downtime to find a new tenant.
If using management they will take half a month fee to find a new tenant to.
Repairs —- usually not bad but be honest with expectations.
Figure that and do you have positive cash flow.
Now for the write offs: you write off all ( and I mean allllll) operating expenses so depending on your tax bracket you get that back 15-33 percent?
You can write off the occasional trip back to Houston to visit property and do some stuff. Be honest about it but it can subsidize an occasional visit.
Depreciation of the value of the house is the big write off. Value of house not land divided by 27 or something like that years. This income will not be counting on your yearly taxes and is good to (legally hide income if trying to keep income low like in retirement)
Consider you can write off repairs to improve it for selling..... but not replacements like change ac. You depreciate that.
You get value of unit appreciation.
Ok so now all figured out.... is this better than just getting 3.7 percent to 5.35 percent from investment grade corporate bonds???
FYI I have in my retirement portfolio: equities, bond ( Corp and fed) annuities ,cash and rentals for diversification
Not sure if all the specifics but for the rental
Rent minus cost ( insurance,mortgage,taxes, management?)
Throw in two months every other year as downtime to find a new tenant.
If using management they will take half a month fee to find a new tenant to.
Repairs —- usually not bad but be honest with expectations.
Figure that and do you have positive cash flow.
Now for the write offs: you write off all ( and I mean allllll) operating expenses so depending on your tax bracket you get that back 15-33 percent?
You can write off the occasional trip back to Houston to visit property and do some stuff. Be honest about it but it can subsidize an occasional visit.
Depreciation of the value of the house is the big write off. Value of house not land divided by 27 or something like that years. This income will not be counting on your yearly taxes and is good to (legally hide income if trying to keep income low like in retirement)
Consider you can write off repairs to improve it for selling..... but not replacements like change ac. You depreciate that.
You get value of unit appreciation.
Ok so now all figured out.... is this better than just getting 3.7 percent to 5.35 percent from investment grade corporate bonds???
FYI I have in my retirement portfolio: equities, bond ( Corp and fed) annuities ,cash and rentals for diversification
Posted on 1/9/20 at 1:20 pm to Thecoz
I have positive cash flow. I had my accountant do depreciation last year (still don't totally understand the concept...)
Lot to consider.
Thanks
Lot to consider.
Thanks
Posted on 1/9/20 at 1:35 pm to ulsaint
Depreciation is a double edge sword.
When you sell it comes back at you in a tax form.
But if you keep the property till you die and pass it down to your kids they zero out the depreciation at your death and kids start it all over from a tax point of view
I am planning on keeping my rentals till I die and they are now part of my dependable retirement cash flow stream
Good luck
When you sell it comes back at you in a tax form.
But if you keep the property till you die and pass it down to your kids they zero out the depreciation at your death and kids start it all over from a tax point of view
I am planning on keeping my rentals till I die and they are now part of my dependable retirement cash flow stream
Good luck
Posted on 1/9/20 at 1:43 pm to Thecoz
quote:
I am planning on keeping my rentals till I die and they are now part of my dependable retirement cash flow stream
My plan as well....id like to get 10 or some sort of mix of multi plex's and SF. Keep them long term, get them paid off, and use as part of retirement income. Once they are all paid off I could afford someone to manage them and take a cut if im too old to do so or dont want too anymore. Not dependent on the market. Pass to my kid when I kick it...
Posted on 1/9/20 at 1:50 pm to NOLAGT
One other reason I was considering selling this year is that I think this is the last year I can see with fewer tax implications since I've still lived in it three of the last 5 years. I need to go back and refresh myself on that rule.
Posted on 1/9/20 at 2:04 pm to ulsaint
i do not know the specifics but am aware of what you are talking about and know others that sold because of it.
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