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  #1  
Old 05-15-2011, 07:11 AM
nanci2539 nanci2539 is offline
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Default Rental Property

Who owns rental property here in TV? I'm talking from a purely investment purpose.

I feel buying a small villa or home to rent out is a good investment because re-sales will eventually be the only property availabe to prospective buyers so a return on your investment should be healthy.

However, my hubby doesn't see it that way. He offers several debatable reasons why owning investment property isn't a potential golden egg.

I am curious - who owns rental property here and in short, what are the pros and cons. The most obvious of course is the ability to keep it rented in the slow summer months. But what are the other pros and cons?

Whether we do this remains to be seen but I am curious to other folk's points of view.
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  #2  
Old 05-15-2011, 07:23 AM
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Don't rent out my property in TV but isn't it merely a case of doing the math? Know all of your costs, know the vacancy rate, know the monthly rental rates and come to a number.

Others who have experience will answer but without knowing ALL of their numbers it would be hard to judge the real answer.

Just my 2 C!
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Old 05-15-2011, 10:32 AM
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OK Nanci, here goes. We've had a rental for the past 6 years, a 2+den, golf cart incl. Let me give you the numbers. We rent weekly in the summer and monthly during the season. Most of the time we have 6 straight months rented plus some weeks in the summer giving us an annual amount of $12,000-$20,000 received. The expenses account for $10,000-$14,000. Expenses below are based on approx. $12,000-15,000 year income.

Utilities 2,900 Repairs 1,200
Fl Taxes 1,100 Insurance 600
Pest and lawn 1,400 Improvements 700
Prop taxes 3,000 Advertising/acct. 200
Amenities 1,700 Misc./supplies 1,500

TOTAL IS $ 14,300

You can see this does not include mortgage payments. We have none. If you do, it will be very difficult to cover them and come out even. Renting is not easy. We do not have to pay a property manager, we do it, we live here. Yes, at some point the increase in the value of the home will bring in some profit. We will continue to rent it to break even and give us a little profit some years. It does give us a break on taxes as there is depreciation built in. Right now the home prices are low and seems like a good time to buy. It's certainly not a gold mine! We've met some wonderful people in our renters and enjoy renting it out short term.
  #4  
Old 05-15-2011, 11:34 AM
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With or without a mortgage you still need to include the cost of the home. If the home is 250K then you need to see what money you could make elsewhere with that 250K. When you do the math I don't see how it makes actual profit for many, many years. But some people do it so maybe I'm missing something. Tax reasons perhaps?
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Old 05-15-2011, 12:54 PM
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Yes, Russ, the savings on taxes is good but I don't have a dollar figure. Most years we can take out 3-4% of the initial investment to pay for other personal expenses. That's not bad. We just can't sell it yet until we can make more.
  #6  
Old 05-15-2011, 08:16 PM
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Quote:
Originally Posted by nanci2539 View Post
Who owns rental property here in TV? I'm talking from a purely investment purpose.

I feel buying a small villa or home to rent out is a good investment because re-sales will eventually be the only property availabe to prospective buyers so a return on your investment should be healthy.

However, my hubby doesn't see it that way. He offers several debatable reasons why owning investment property isn't a potential golden egg.

I am curious - who owns rental property here and in short, what are the pros and cons. The most obvious of course is the ability to keep it rented in the slow summer months. But what are the other pros and cons?

Whether we do this remains to be seen but I am curious to other folk's points of view.
I've rented my place for six years when I am not in TV. I think it is an incorrect assumption that the demand for housing will be greater when the buildout occurs. That should be just about the same time the baby boomer generation subsides. And the time when deaths of boomers who flooded to TV
will sharply increase the number of properties available. Also it is very possible the Morse's will expand the boundaries farther than many people currently think they will go.
Hubby is right about golden eggs. Renting requires that you stay on your toes. It can work, but only if you do. To rent successfully, many details have to be lined up correctly, especially if you are not living close by. Good luck!
  #7  
Old 05-16-2011, 04:29 AM
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I have two rental properties. I bought when the stock market was a bad idea and price and mortgage interest were very low. The real estate market is cyclical. It has been for a 1000 years. The last valley was not as low as the prior one and the next peak will be higher then the last one. The peaks and valleys run in 8 to 15 year cycles. My numbers are a little better then Borjo, but I have been very successful in keeping mine rented an average of 9 months a year plus I do more of everything myself. And it does provide a tax break. I break even plus a minor profit plus equity build as the mortgage is paid down. However I also expect the real profit will be once the housing market returns to normal, not the rental income. I add most profit which is small to continue to pay down the mortgage. I have done all the math and I need to get about a 10 to 14% market appreciation over 5 years to make the ROI be more attractive then other investments. I am a little ahead of that curve on one home and a little behind on the other.

There are some other benefits. Once there full time it will provide me about a day a week of meaningful work and additional profit as I will do everything myself so my time will be well paid. I have met some really nice people. It helps diversify my investments. Tax benefits. I have flipped homes my entire life, almost entirely waterfront property until now. I will continue to do that as well. Being rental savvy allows you to work that market and when you hit a down cycle like now, you can hold and still not lose money. The two investments work very well together.
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  #8  
Old 05-16-2011, 05:45 AM
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Default Return on Rental investment

Rental real estate investment is generally not for the lazy or faint of heart. In order to show signifigant profits you need to "buy low and sell high" . One investor that I financed for years would often sale " don't fall in love with the real estate" remember the objective is to make a profit.

Almost all real profits in RE are made when you buy not when you sell. Many amateur investors also make major financial errors buy making modifications and upgrades which will not improve ROI and will not provide any additional return on sale. Even in the previous few posts you can see that many investors spend a good bit of time working with the physical and business aspects of their property. In most cases , if the return per hour is calculated it is most probably below minimum wage.

Other areas of concerns are adequate liability insurance to protect that nest egg that you now depend on , replacement reserves (a new roof can cost $6 to $12,000 -or more), etc,etc,etc.

Finally, what would be the magnitude of the no or low risk return you could derive by investing your equity some other way.

Not trying to talk Villagers out of investing in rentals just hope they will fully understand the transaction and ongoing issues before buying.
  #9  
Old 05-16-2011, 06:26 AM
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Challenger is right on most items. The one he forgot to mention is leverage. When you purchase a 250K home you put up 50K. A 10% return on home value over 5 years turns into a 50% return on invested capital, or 10% per year. So factor that into your calculations as well. This does not work for everyone. It takes time, hard work, and dedication to be successful. You have to look at all aspects, be willing to accept the risks, and be willing to work at being successful.

hummmmmmmmm, seems like that is the case with all investments.
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  #10  
Old 05-16-2011, 06:48 AM
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Quote:
Originally Posted by l2ridehd View Post
Challenger is right on most items. The one he forgot to mention is leverage. When you purchase a 250K home you put up 50K. A 10% return on home value over 5 years turns into a 50% return on invested capital, or 10% per year. So factor that into your calculations as well. This does not work for everyone. It takes time, hard work, and dedication to be successful. You have to look at all aspects, be willing to accept the risks, and be willing to work at being successful.

hummmmmmmmm, seems like that is the case with all investments.
  #11  
Old 05-16-2011, 08:31 AM
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Default Leverage

Quote:
Originally Posted by l2ridehd View Post
Challenger is right on most items. The one he forgot to mention is leverage. When you purchase a 250K home you put up 50K. A 10% return on home value over 5 years turns into a 50% return on invested capital, or 10% per year. So factor that into your calculations as well. This does not work for everyone. It takes time, hard work, and dedication to be successful. You have to look at all aspects, be willing to accept the risks, and be willing to work at being successful.

hummmmmmmmm, seems like that is the case with all investments.
I do agree and on the other hand a 20% reduction in value on the $250,000 property would provide a 100% loss of your $50,000 equity investment. I used to think that such a thing was impossible-not anymore. Leverage is a two edged sword as many foreclosed homeowners will tell you.
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