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Is it worthwhile to buy a condo for 270K in RBA and rent it for 1800/month?

By jasonring follow jasonring   2012 Aug 3, 7:43am 5,968 views   18 comments   watch   nsfw   quote   share    


I saw a condo on the market which asks for 270k. The rent estimation is around 1800/month (from zillow).

If I put down 20% and get a 30 years loan (3.5%). HOA is about 350/month. The rental income seems to break even with expenses in price in 6% vacancy rate. Is it worthwhile to invest?

The wildcard of the investment is that the property may sell for more in next 5 years. But it can go down too, just like those who invest in 2006.

What do you think?

If you were to invest in rental market, what is the magic number you will look into? Return rate or the price appreciate/depreciate or cash flow?

1   someone else   ignore (0)   2012 Aug 3, 8:06am     ↓ dislike (0)   quote   flag        

No, it's not worthwhile:

http://patrick.net/housing/calculator.php?uaddr=%2C+&rent=1%2C450&price=270%2C000

I reduced the rent to you by the HOA amount per month.

2   SFace   ignore (0)   2012 Aug 3, 8:08am     ↓ dislike (0)   quote   flag        

No,

Unless it is a newer (2006 and newer) condo in Palo Alto, Sunnyvale, Mountain View or San Francisco, than yes. Don't use zillow rent, crosscheck with Craiglist and find a comparable.

"If you were to invest in rental market, what is the magic number you will look into? Return rate or the price appreciate/depreciate or cash flow?"

You got the right idea, the best yield is not the best investment. I would prefer the best location possible with an acceptable yield possible.

5% of 500K is $25K
10% of 100K is 10K.

Both requires the same amount of work (1 tenant to deal with), but the former yields more money. The better location is almost always the better investment anyway.

3   Biff Baxter   ignore (1)   2012 Aug 3, 9:33am     ↓ dislike (0)   quote   flag        

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Biff

4   justme   ignore (0)   2012 Aug 3, 9:50am     ↓ dislike (0)   quote   flag        

RBA means "Real Bay Area", the expensive and central sections of the San Francisco Bay Area.

Alternative definition: Any place in the SF Bay Area where prices "never" go down. Mathematically known as "the empty set". For a while used to be a steadily shrinking subset of the SF Bay Area.

5   lonestarmike   ignore (0)   2012 Aug 3, 4:23pm     ↓ dislike (0)   quote   flag        

no - run. you want 1%-3% of sales price in gross monthly rent. depends on area --- older cities are providing opportunity. best - mike

look for opportunity

6   lonestarmike   ignore (0)   2012 Aug 3, 4:23pm     ↓ dislike (0)   quote   flag        

ps f zillow

7   Goran_K   ignore (4)   2012 Aug 4, 3:44am     ↓ dislike (2)   quote   flag        

No, solid loser. At $175,000, maybe. I'd have to do the numbers.

8   thomaswong.1986   ignore (5)   2012 Aug 4, 6:51am     ↓ dislike (0)   quote   flag        

jasonring says

I saw a condo on the market which asks for 270k.

1997 prices plus inflation (35%) > 270K... NO! else if less than yes! Rents do fluctuate even on the downside !

9   REpro   ignore (0)   2012 Aug 4, 9:41am     ↓ dislike (0)   quote   flag        

If this condo is newer, well-built and trendy, p. price 220-240K may be considered.

10   wave9x   ignore (0)   2012 Aug 5, 3:38am     ↓ dislike (0)   quote   flag        

You should buy this place. Your break even point will be less than 2 years if you use reasonable default values in your calculations. Do the math yourself, don't use biased rent-vs-buy calculator's like Patrick's. Here are some questionable default assumptions made by Patrick's calculator:
-1% house price depreciation (yes, value decrease) yet a 3% ROI
-only 1% rent inflation
-5% interest rate, way higher than currently
-25% income tax rate, way too low esp for CA and Bay Area
-too high maintenance costs (he subtracted HOA from your rent amount yet includes it as a cost in his online calculator)
-too high property taxes

11   David9   ignore (0)   2012 Aug 5, 3:46am     ↓ dislike (0)   quote   flag        


No, it's not worthwhile:

Patrick's calculator hasn't been wrong here in LA. (Yes, an upscale open house I went too did sell for nearly the asking price as a realtor pointed out, but the calculator isn't a guage of if it will sell.. :) )

Have any Real Estate / Banking laws changed in the last 4 years? Is Fannie suddenly solvent? Have the hedge funds started renting out their bulk rentals THEY got for way less than 270K?

12   KILLERJANE   ignore (1)   2012 Aug 5, 3:47am     ↓ dislike (0)   quote   flag        

270,000 for 1800 rent is far shy of the 1% rule

13   bubblesitter   ignore (0)   2012 Aug 6, 6:49am     ↓ dislike (0)   quote   flag        

Big question is,will it appreciate 2 to 3% a year for next 5 to 10 years? If the answer is NO then DON'T do it.

14   ohomen171   ignore (0)   2012 Sep 23, 6:37pm     ↓ dislike (0)   quote   flag        

I have owned a condo in San Jose for 6 years. I have seen it drop in value from $415,000 down to about $180,000. On the open market it would rent for over $1,600 per month. I can put it into Chapter 13 bankruptcy and get the loans down to the current value. I see appreciation starting to go up and the tax write offs are great. It still has potential. You have to look at yur total situation.

15   37108605   ignore (0)   2012 Sep 23, 10:05pm     ↓ dislike (0)   quote   flag        

jasonring says

The rent estimation is around 1800/month (from zillow).

Go to Detroit inner city and find a 35K place in a ghetto and see what they claim it CAN rent for and get back to me.

16   37108605   ignore (0)   2012 Sep 23, 10:07pm     ↓ dislike (0)   quote   flag        

bubblesitter says

Big question is,will it appreciate 2 to 3% a year for next 5 to 10 years? If the answer is NO then DON'T do it.

DO YOUR MATH

If you are waiting for that to happen on any real estate you have a long cold wait. You have the right icon.

Btw I thought your name read bubbleshitter. Freudian?

17   37108605   ignore (0)   2012 Sep 23, 10:08pm     ↓ dislike (0)   quote   flag        

David9 says

No, it's not worthwhile:

Patrick's calculator hasn't been wrong here in LA. (Yes, an upscale open house I went too did sell for nearly the asking price as a realtor pointed out, but the calculator isn't a guage of if it will sell.. :) )

Have any Real Estate / Banking laws changed in the last 4 years? Is Fannie suddenly solvent? Have the hedge funds started renting out their bulk rentals THEY got for way less than 270K?

Yes but what is upscale to one is not to another. And it sold for near asking? To whom? There is ALWAYS a story behind the story especially in LA. I don't see any of the 25M or more ridiculous 75M Malibu dreamers selling.

18   dhmartens   ignore (0)   2012 Sep 24, 2:00am     ↓ dislike (0)   quote   flag        

40 years from now will they be saying?, "Remember, Real estate only goes down"


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