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Gold Regular Contributor
sheriff
Posts: 2,304
Registered: ‎06-01-2012
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Rent vs buy - Potential for positive cash flow lessening

With the increase in prices lately, the rent vs. buy equation is changing.  Previously (2008-2011), almost any property in the low or middle spectrum would give you good cash flow.  Consider these examples:

 

http://www.redfin.com/CA/San-Jose/1598-Ivycreek-Cir-95121/home/1312558

 

Small 2 bedroom condo, 20% down  P&I  1051

                                                           tax    260

                                                           ins      50

                                                           HOA 389

                                                        Total   1750

Small unit, only 1 bathroom 2 car garage rent is about 1800.  Not much cash flow.

 

Next one SFR neighorhood is so-so, 3br/2ba 1648 sq. ft.

 

http://www.redfin.com/CA/San-Jose/3321-Dias-Dr-95148/home/952400

 

P&I  1915

tax     650

HOA    21

ins      100

total  2686

 

I am guessing this would rent for about $2800-2900.  Still not much cash flow.  Are the opportunities for investors drying up?

 

 

Gold Super Contributor
Jil
Posts: 3,113
Registered: ‎10-24-2011
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Re: Rent vs buy - Potential for positive cash flow lessening

[ Edited ]

Yep! kind of dried out.

 

But, you have missed some maintenance part.

Annually appx $800 to $1200 (monthly $100) like plumber or electric, Painting, carpet clean or some other handyman work. 

Vacancy rate or non-paying renters etc.

 

Silver Trusted Contributor
Michelle1x
Posts: 1,063
Registered: ‎02-17-2008
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Re: Rent vs buy - Potential for positive cash flow lessening

For most of my time as a buyer of houses in the bay area to use as rentals, cash flow was nonexistant initially.  I always hoped for cash flow neutral and appreciaton of the property.  A win on appreciation.

 

Then with the lower interest rates (5%), I started to get cash flow neutral with some appreciation but paydown of the mortgage in my investment properties.  So a win win.

 

Then, in this recent period we had low priced houses to buy (2008-2012 period), RISING rents, and appreciation and low interest rates causing mortgage buydown!  A WIN WIN WIN WIN!  Never before was this the case in bay area real estate investing that I had seen.

 

Now in 2013 we have house prices appreciating so the cash flow postive/cash flow neutral situation, even with the HIGH rents, is kind of going away.  But you still have likely appreciation (esp in areas that are gentrifying), low interest rates and mortgage buydown, and rising rents.  SO not quite the panacea of a year or two ago but still pretty good, historically.

 

Just make sure and buy in the right area- cheap but gentrifying (easier said than done I know)

Silver Regular Contributor
Fishmarty
Posts: 681
Registered: ‎08-25-2012
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Re: Rent vs buy - Potential for positive cash flow lessening


sheriff wrote:

With the increase in prices lately, the rent vs. buy equation is changing.  Previously (2008-2011), almost any property in the low or middle spectrum would give you good cash flow.  Consider these examples:

 

http://www.redfin.com/CA/San-Jose/1598-Ivycreek-Cir-95121/home/1312558

 

Small 2 bedroom condo, 20% down  P&I  1051

                                                           tax    260

                                                           ins      50

                                                           HOA 389

                                                        Total   1750

Small unit, only 1 bathroom 2 car garage rent is about 1800.  Not much cash flow.

 

Next one SFR neighorhood is so-so, 3br/2ba 1648 sq. ft.

 

http://www.redfin.com/CA/San-Jose/3321-Dias-Dr-95148/home/952400

 

P&I  1915

tax     650

HOA    21

ins      100

total  2686

 

I am guessing this would rent for about $2800-2900.  Still not much cash flow.  Are the opportunities for investors drying up?

 

 


Try this: SFH 1,300sf 3br/ 2rm

P&I       720

Tax       375

HOA         0

Ins          58

Total  1,143 (-)

Rent  2,000 (+)

 

Cash    847 (+)

Maintenance ?

 

Only possible when I brought in 2009-2011. As I stated in my previous email, now with the market heats up, I don't see any chance to make it possible to buy another new to rent to be positive cash flow.

 

Gold Super Contributor
Jil
Posts: 3,113
Registered: ‎10-24-2011
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Re: Rent vs buy - Potential for positive cash flow lessening

Both are right, no doubt, it is less attractive nowadays.  Sent a PM.

Silver Trusted Contributor
Michelle1x
Posts: 1,063
Registered: ‎02-17-2008
0

Re: Rent vs buy - Potential for positive cash flow lessening

what was the selling price that you had $720 P&I?  Was this something you bought at the courthouse?

Silver Contributor
DealHunter0
Posts: 399
Registered: ‎04-05-2011
0

Re: Rent vs buy - Potential for positive cash flow lessening


Michelle1x wrote:

what was the selling price that you had $720 P&I?  Was this something you bought at the courthouse?


Tax of 375/month indicates a sales price of at least $450k (assuming 1% property tax), so he/she must have put >25% down to get the P&I down unde $800.  Not really a fair comparison imo to an investment with 20% down.