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How Much Negative Cashflow?
(04/12/05)
Hi Hank,
Yes, homes here can be rented, although the rental market is a
little soft due to a lot of investors coming to St George and buying
homes to use as rentals.
I recently helped an investor to buy a 3/2 home
in Ivins for $150,000. She put 5% down and got a 30 year loan for
7%.
Her payments (PITI) are about $1150/month. She is getting
$900/month rent. I would take away another $125/ month for
vacancy and maintenance. So she has a negative of about $275/month.
She is managing it herself, or she would also pay 10% of the gross
income for a property manager.
Putting 20% down would get the negative down to about
$125/month.
Of course once you throw the depreciation tax breaks into the
mix ($5450/year) it is nearly a wash.
$150,000 homes are very rare in this market. An average 3/2 St
Georgehome is selling for $215,000. In order to buy a home for
$150,000 you have to be willing to make an immediate offer as
soon as it came on the market, and then hope that no other
buyer found it.
Right now I am only looking at investment properties that are
priced below $70,000. This would include small condos and mobile
homes (yep, mobile homes). These properties are in high demand by
the renters because they can be rented for $600 or below (cheap
rents). I like them because the payments are so low.
A friend and I just bought a 288 sq. ft. studio condo for
$42,500. Our payments (everything including HOA fees) are $340. We
should be able to rent it for $450. I have gotten a lot of calls on
the ad I am running, but haven't yet found the right person.
I hope this information is of use to you.
Warm Regards, Don Glasgow
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Real Estate Investing that "Makes
Sense".
04/29/05
Dear Debbie,
Your husband is wondering why I recommended the tiny
studio condo to you, rather than a condo or single family home.
The reason that I did this is because it makes sense. It is a
no brainer that will continue to make you money, no matter what the
real estate market does.
Let's suppose the worst case senario: real estate sales slow,
then grind to a halt as mortgage rates rise above 7%. Suddenly there
are way more homes for sale than buyers.
Home prices start to slide.
The home that Joe investor bought at the top of the market for
$220,000 is now worth $200,000. Not only that but his payments are
$1500/month, he's is getting $1,100 in rent and paying $110 for a
property manager. All Joe can see is that he is going to take $500
month out of his pocket for years. Bleak. Cut the numbers in half
for a $100,000 condo. Still bleak.
Sure the market will turn around eventually, but how many
"Joe's" are going to become serious don't wanters in the slow
market? How many will walk away from their negative cash
flow rental homes?
You & Randy, however, are on cruise control. I found
you a good number of inexpensive properties that "made
sense". You have little, if any negative cash flow. You can have the
patience to wait for the good market to come back around. By that
time, your rents are significantly higher if they
haven't doubled and probably the odd little
properties that I found for you have also increased in
value as you paid down the mortgages.
Warm Regards, Don Glasgow
P.S. Mobile Homes have almost doubled in value in this good
market. I am working with an investor who can't buy them fast
enough. All of them throwing off $50 to $175 monthly positive
cash flow each month.Food for thought.
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Where to invest now. What will it cost to
own a rental home in St George? (07/05)
Hi Craig,
By making a quick, decisive move at the right time, I can
assist you in buying a nice 3/2 home for slightly under
$200,000.
Taxes on this home would be $700 per $100,000
or $1400 annually. Your insurance might be about
$400/ annually.
I strongly recommend that a property manager manage your
property. Monarch Property Management charges 9% of the gross
monthly income. On a rental amount of $1,000 this would be
$90.
Maintenance and vacancy costs could be about $100/month
(educated guess).
On an up note: You would get about $6900/ annually in
depreciation. This comes directly off of your gross
taxable income. This is the equivalent of about $2000 cash back
in a 30% tax bracket. Talk to your accountant about this.
As far as areas, I like St. George city for obvious reasons. If
I was to make a more risky investment (higher risk, higher reward) I
might buy in Hurricane (9 miles from St George, still good weather).
I think that the next "up market" will have a strong impact on
Hurricane. Nothing really great happened there in this hot market,
but maybe next time.
I think that you might be aware that real estate is cyclical
with good markets and lots of appreciation followed by soft
markets and little if any appreciation. In St George the peaks of
the hot markets have been 10 years apart with our last hot market
ending in 1995. Make sure that when you invest you are in it for at
least 10 years. Buying at the peak of the last market would gotten
you a 3/2 home for $100,000 and then little appreciation and even
some depreciation for 8 years.
The good news is that rents usually rise
(slowly) when the market is down. I have read in "The
Millionaire Real Estate Investor" that rents rise about 5% annually.
I would assume that this number would be influenced by inflation
although this is just a guess on my part.
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