Yea that makes sense. How do you treat the HOA dues, sometimes they are quite high. Or do you lump that into maintenance costs that would have to do on SFH? Sometimes those HOA dues really eat into the cash flow.
HOA due is included in the cashflow calculation. If it came out not terribly negative that’s OK.
So Uncle Manch, you are going for appreciation play? You don’t mind slightly negative cashflow? What’s considered terrible or worth the risk for you?
One of the Austin property. One blogger says maintenance is very expensive in Austin but from my experience, other than the initial setup and half-year visit (PM visits houses to check on tenants to ensure no sublets and do whatever minor repairs & maintenance, usually tenants become lazy and don’t report after staying there for awhile).
I am going for appreciation. In my experience appreciation often means cashflow in some future years. If a market’s cap rate holds constant and property value increases, that implies rent will also increase. Therefore if you keep the mortgage payment fixed very likely positive cashflow will follow maybe 5 years later.
One of my properties was negative $500 for a couple years. So $500 is no problem for me. Depending on the location and the purchase price, I think I can stomach as high as $700 to $800 negative. As my own resources grow I can also go more negative as my portfolio is positive as a whole.
Aim for appreciation with stocks. Real estate is better cash flow…
Experience from 2009-2011 to now may not be indicative because is a period of rising property price and rents… my rental house price doubled while rent merely appreciated 60%. This year is the first time I see rising property prices with stagnant/ lower rent which could be the things to come.
I believe you are a landlord for the longest, 20-30 years right? Could you give us a short history of property price vs rent for the past 20-30 years?
Property price vs rent correlation
Unfortunately, @hanera, I really did have to wallow in the shallow end of the pool for many years before making some money. That is why I do not feel real sorry for folks who whine about housing prices yet they aren’t willing to do like I did by starting in the rough and cheaper areas. Sweat equity was coined for a reason…
Is your $500 negative including principal pay down or just a pure income - expenses (maintenance, taxes, mortgage, etc)? I’m finding when looking at some condos in the prime areas, that the HOA really moves the needle into the negative territory often times when you are talking 400-500/month. Obviously not always the case.
Including principal pay down.
Maintenance and repairs are low on new homes… But will need to be done over 30 years… Maintenance is higher in cheaper homes on a percentage basis( land is cheap, depreciation is high) and in crappy weather areas … heaters air conditioners roofs paint all are more expensive to maintain in Austin than the BA.
Plus Hanera doesn’t mention gardening costs… Very few tenants maintain a proper garden… most let it go to hell
Besides it is very naive to think that just because the manager and tenant don’t report maintenance issues to think they are not occurring
That’s why condos might be a more effective way to offload maintenance costs to the HOA. Obviously HOA dues are a double edged sword.
I have a vacation rental in Tahoe… I visit every week… There is always something that needs fixing or painting… To think nothing will need repair after 30 years is nuts … Standard cost is usually 2-3% per year in a cheap house… I assume Hanera paid $300k
So $ 6-9k per year… or in the worst case the total cost of the house in 33 years… In that time the windows, flooring, HVAC, roof (maybe twice) appliances (maybe twice) siding, paint(3 times) will all have to be redone and accounted for…Not to mention plumbing maintenance and electrical issues sprinklers gardener fence repair and driveway replacement
In a high cost area like Cupertino those costs are much less on a percentage basis … The house costs 5 times more… Therefore maintenance in a percentage basis is five times less … In fact in the BA that means maintenance is less that 1%. Insignificant in a 10% appreciation environment. In Austin where maintenance is 3% and long term appreciation is 3% then cash flow is all you get… Appreciation long term is close to net 0 when you deduct the cost of maintenance
The property tax in Texas is extremely high… it will keep going higher and will always limit future cash flow… Almost all of Hanera’s cash flow goes for property tax…
Maintenance costs on a percentage basis doesn’t allow for the descrepency in land costs… But areas like Austin with cheap land are going to have higher relative maintenance costs… Therefore you need to demand higher cap rates.
Using a percentage estimate for a maintenance budget means that a home owner in a popular coastal area will have a higher maintenance estimate, which is obviously incorrect, than someone who lives out in the rest of the country and has a lower land value.
Here is a good analysis of future maintenance costs… of course you can defer most repairs but the future buyer will discount the value accordingly
The one thing this analysis doesn’t do is factor in inflation… For a rental this is not a big concern hopefully the rent increases will track the costs of repairs increases
Correct ! Since Real estate is always leveraged,min 3x, positive cash flow is important decision point.
Back on the market…
What happened? Priced too high? I’d like something higher up the hill though.
Aren’t most/all Millbrae neighborhoods pretty good though? Sure, views and more quiet as you go up but so does the price tag…