rent income does not cover all the property cost ?

[slcchyd]

Hello All;

I just switch my residential house to rent property; here is my situation for a month:

Rent income $1400 < $1460 all cost (including mortgage payment $1250 + tax $ 160+ insurance $50)
It means I lose money every month.

Thanks for the low mortgage rate, it almost makes even without considering maintenance cost.

But I don¡¯t see this is very good investment.

Could you give me some advice? Should I keep the house or just sell it right away.
Thank you in advance

[Speed_69]

how is this not a good investment?
someone else is still paying the mortgage for you.

A lot of people are in your situation. A lot of people are in a worse situation then your $60 per month that you have to pay out of your own pocket each month.

[HHURICANE1]

Don't forget that you will also get to write off a lot of stuff as well so at end of the year you will likely come out ahead of the game.

[yoda124]

you can write off the interest to your mortgage.That itself is worth it.

[SJW]

i'm subsidizing 250 every month to float my second mortgage on rental.

Shit man the guy is payin down my mortgage. 2 years of mortgage gone. Plus the house will appreciate more than any other investment i have now. Consider yourself lucky.

[extm88]

In a years time you will have + $16,000 paid off on your mortgage all at a cost of under $1,000 out of your own pocket.
As mentioned you will also incur several write offs.
Several people are in the same situation as you. Situation sounds like its not a good thing but in this case 3 years down the road you will have almost 25% of the principle mortgage paid off. I say 25% because at $1400 a month i am assuming the property is in the 2-3 hundred k range. You also mentioned it was your residence prior to renting meaning the mortgage has already been paid down.
With the above being said, its only a matter of time until you are free and clear of a mortgage and pretty soon that $1400 rent payment can pay your monthly rate on a new porsche:thumbsup: or you could do the smart thing and take on another property.
The rich get richer and the poor get poorer:poosie:

[sxtasy]

Originally posted by extm88
in this case 3 years down the road you will have almost 25% of the principle mortgage paid off.

I think your math is off a bit

[bmeier]

agree with everyone.

your renter is paying for all the interest, taxes and insurance plus a sizable amount directly off your mortgage.
The money you are paying is going straight to the principle.

when the time comes to sell the house assuming it doesn't go down in value you will get all that money back plus more if the house appreciates in value.

on top of that you can write off interest, maintenance, etc

[Meback]

lol wow, strong calculations. As stated someone is MAKING your morgage payments. That means in the future when u sell the thing you make your profit. As of now so what if ur losing out on a couple hundred. Don't be silly. This proves that people with money can be dumb.

[whodiman]

you are not actually losing a couple hundred. You are cashflowing negative but of that 1250 mtg payment a portion of that is principal so only the interest portion is considered an expense. I don't know how much without knowing all the details but i would make a guestimate of 1050 intest and 200 prinicpal. If this is the case you are breaking even and cashflow negative 200. The cashflow won't change but every month your profit situation changes and soon you will be more and more in the green each month. The main thing is that exact breakdown of the principal and interest on that 1250 mtg payment

[Cos]

The first question should be, how much do you have tied into the property. If you have 5% down and maybe 20 grand into it then yes renting it is worth it.

However if you have 200,000 in the house, I am pretty sure you could make more money investing it, plus less headache.

[alloroc]

If you are not making at least $300 a month you are taking a risk (maintenance and damage).

If you are renting make damned sure you get good renters (over 25 NO pets, married, and both make over 45k/yr. Do a very thorough house inspection prior. - with pictures - and get the Tenants to sign it. Without it you don't have a leg to stand on if they trash the place.

On the good side, you can write off many of the losses on your taxes.

[scat19]

IMHO 60 dollars a month is nothing.

When I was renting my condo, he had to pay 300 on top of my rent.

[masoncgy]

Unless that $60 a month is breaking the bank for you, I'd just hold on to the property.

In a years time, depending on market conditions, you might be able to move the rent up to $1450... then you're only out $10 a month... who cares... that's nothing.

You won't be paying any significant taxes on that income anyway, so in the end, it's a pretty favourable position considering you are getting money stuffed into your pocket every month in the form of principle reduction.

I once had to subsidize my rental house in the form of about $500 a month for a couple months between some crappy tenants... sure, it sucks... but at the end of the day, that money just goes back into your pocket as a principle reduction.

[bubbley]

i no several people feeding their mortgage alot more than that, consider yourself lucky and keep your fingers crossed that the market comes back sooner than later...i sure am.

[2002civic]

I'll take it over if you don't want that deal...

[Zero102]

Sounds good to me, we have tenants in our house in vernon:
$940/month incoming rent
$1140/month outgoing mortgage
$50/month water bill
$50/month taxes

Every month we lose $300, but since the principal amount of the mortgage is being paid down $450 we are still getting $150/month. It is like being forced to invest some money every month, when you sell the house you will get lots of free money even if the property doesn't go up a cent.

[D. Dub]

To the OP

Raise the rent.

[D. Dub]

Originally posted by alloroc
If you are not making at least $300 a month you are taking a risk (maintenance and damage).

If you are renting make damned sure you get good renters (over 25 NO pets, married, and both make over 45k/yr. Do a very thorough house inspection prior. - with pictures - and get the Tenants to sign it. Without it you don't have a leg to stand on if they trash the place.

On the good side, you can write off many of the losses on your taxes.

Good answer -- maintenance should always be in the revenue property budget -- roofs don't buy themselves.

[TomcoPDR]

Welcome to property "investment"

You're always feeding the property during 1-5 years (not talking about grouping all your investments, only individual property)... Like someone mention, this is something one must consider before entering into the situation.

In property rental, you don't see money in your pocket till you sell, which in realistic cases 10+ year mark... an entire life changing era.. (think from 20yo to 30 yo... from 40yo to 50yo; humans don't have that many "10 year blocks")

The worst (IMO) in property rentals is that your tenants always thinks you're pimpin' with the money they're giving you.

While in reality, you're taking market risks (and currently, it's proven to be risky for those who entered 2006-2007), and you're tieing up your hard earned money (none of anyone's business where you got it, could be parents, sell drugs, job, etc..)... all you're doing is servicing the tenants and the return (their rent) goes right back (usually with average joe's) to pay the mortgage, so that the property that they're staying in, will survive another day/month... most tenants don't care to even reason or understand, they're using 0.03%/month (point 3 of a percent) to use 100% equity. (take $400,000 home you're responsible for, rent $1,500/month)

They choose to be more flexible in life (non of our business what their financial situations are, some might not be able to afford mortgage, but I know there are RICH people who rents, cuz they believe in better returns somewhere else)

Anyways OP, I say keep phucking away at it for only $60/month... Do it till you don't think you can afford it anymore... with real estate (PASSIVE investment) you have to put your mind away from the negatives. (maintence, repairs, putting new shit in for tenants while you're using junk yourself, putting shit in that they don't give a fuckin' shit, etc...)

good luck

[Xtrema]

Originally posted by Zero102
Sounds good to me, we have tenants in our house in vernon:
$940/month incoming rent
$1140/month outgoing mortgage
$50/month water bill
$50/month taxes

Every month we lose $300, but since the principal amount of the mortgage is being paid down $450 we are still getting $150/month. It is like being forced to invest some money every month, when you sell the house you will get lots of free money even if the property doesn't go up a cent.

This.

I have a property that's negative cash flow but still making $ just like Zero102.


Originally posted by D. Dub
To the OP

Raise the rent.

I don't know what kind of place OP got but with the vacancy rate, it may not be competitive. $1400 can get you a 3 to 4 bedroom house in the NW.

[slcchyd]

My house is 1450 square feet , 3 bedrooms , double garage in SW.

city assessment is $345000 and I have 20% downpayment.







Originally posted by slcchyd
Hello All;

I just switch my residential house to rent property; here is my situation for a month:

Rent income $1400 &lt; $1460 all cost (including mortgage payment $1250 + tax $ 160+ insurance $50)
It means I lose money every month.

Thanks for the low mortgage rate, it almost makes even without considering maintenance cost.

But I don¡¯t see this is very good investment.

Could you give me some advice? Should I keep the house or just sell it right away.
Thank you in advance

[whodiman]

Originally posted by slcchyd
My house is 1450 square feet , 3 bedrooms , double garage in SW.

city assessment is $345000 and I have 20% downpayment.








Seems pretty reasonable. I have some friends that just rented their place out in Bridlewood. Much smaller two bedroom no garage and getting $1200 and tenants pay their own bills.

[nonlinear]

wow, i'm a bit surprised OP has invested in said rental property but seems to not understand the first thing about real estate investment.

the point is not to break even, but instead to build equity. from this perspective, you would still be making money even if the tenants were only paying you $200 a month. :dunno:

[D. Dub]

^^

I disagree -- the point is to make money & build equity.

Which is why "small" residential rental investment is usually a bad one.

[nonlinear]

building equity = making money (assuming that some of the equity is being paid by tenants)

[D. Dub]

Originally posted by nonlinear
building equity = making money (assuming that some of the equity is being paid by tenants)

Equity isn't money until it's turned into cash. Ask any current property owners (the one's who are left) in Florida or California about what equity is worth.

[nonlinear]

Originally posted by D. Dub


Equity isn't money until it's turned into cash. Ask any current property owners (the one's who are left) in Florida or California about what equity is worth.

nevermind. :facepalm:

continue believing that OP is losing money by paying $30 (or whatever) in mortgage and taxes.

[D. Dub]

^^^
:rolleyes:

1. The OP has no slush/maintenance fund in his crappy budget -- so he could easily be hundreds or even thousands of dollars into negative cash flow monthly if he has a major repair or uninsured property damage.

2. He will also be really into negative cash flow if the next time he renews the mortgage the interest rate is significantly higher.

The point I'm really making is that small investors with a single property or two shouldn't count on the equity being there when they need it.

Prudent, worthwhile, property investment is about multiple, diverse properties -- and most importantly about monthly positive cash flow -- not equity.

Equity is like a bonus at the end.

[autosm]

I would bet that everyone stating that this is a good investment has never had a rental property?

The only way I would say it was good in this situation is if today its worth more than the purchase price by 50k and or the amotization is 25 years or less with a locked in rate for 3-5 years.

The op has 70k+ tied up in a down payment costing him money every month.

[variable_x]

Originally posted by D. Dub
^^^
:rolleyes:

1. The OP has no slush/maintenance fund in his crappy budget -- so he could easily be hundreds or even thousands of dollars into negative cash flow monthly if he has a major repair or uninsured property damage.

2. He will also be really into negative cash flow if the next time he renews the mortgage the interest rate is significantly higher.

The point I'm really making is that small investors with a single property or two shouldn't count on the equity being there when they need it.

Prudent, worthwhile, property investment is about multiple, diverse properties -- and most importantly about monthly positive cash flow -- not equity.

Equity is like a bonus at the end.

Well said. It's all about cash flow. If I invest in something that provides no cashflow for the next 50 years, but its value goes up 100x, it's meaningless to me because I may be dead in 50 years. I would have not enjoyed any of it. True I can pass onto my children or donate it to a charity, but I doubt that's what most people are investing for. The bottom line is you have to be able to enjoy the payoff from your investments and the key is cashflow.

I don't want to live like a begger for 30 years so that I can enjoy the last 10 years of my life. Of course, it's not to say your house rental is not a sound investment. You may want to look at alternative investments and judge for yourself what's the most suitable investment for you.

[Mar]

How is this bad? You're buying a house for $60 a month. Do you know of cheaper ways to buy houses?

[Cos]

Originally posted by Mar
How is this bad? You're buying a house for $60 a month. Do you know of cheaper ways to buy houses?


Originally posted by autosm

The op has 70k+ tied up in a down payment costing him money every month.

Besides the many of reasons already mentioned, this is the biggest one for me.

[max_boost]

When did you buy this house? Can you sell it for MORE than what you paid less realtor fees and still get your 20% back?

If so, do that. Dump the money into a 2% GIC. Not a lot but guaranteed interest and ZERO headaches.

More aggressive, dump it into the stock market and ride the TSX index, and collect 2% dividend and hope the index goes up and doesn't crash haha

There's really not a lot you can do with $70K :dunno: Buying a house is an option but if you aren't cash flow positive and don't want to deal with it, then it's not worth it. Not a lot of money in residential real estate, if anything prices are just kind of holding steady.

[nonlinear]

my father is a developer and at any given time has about 10 or 15 rental houses (these are "side" investements). he can build them for cost, get small mortgages on them, and the rent covers the mortgage costs. (i obviously don't know the specifics on positive cash flow, or whatever). he considers these long term investments to build equity. so you guys can make all the claims you want about needing positive cash flow, worrying about the market, etc. etc. etc. but at the end of the day i've seen it work firsthand.

so again, continue beleiving that OP is losing money by paying a $60 mortgage/year. :facepalm:

[bubbley]

Originally posted by nonlinear
my father is a developer and at any given time has about 10 or 15 rental houses (these are &quot;side&quot; investements). he can build them for cost, get small mortgages on them, and the rent covers the mortgage costs. (i obviously don't know the specifics on positive cash flow, or whatever). he considers these long term investments to build equity. so you guys can make all the claims you want about needing positive cash flow, worrying about the market, etc. etc. etc. but at the end of the day i've seen it work firsthand.

so again, continue beleiving that OP is losing money by paying a $60 mortgage/year. :facepalm:

"the rent covers the mortgage costs" = positve cash flow

"so you guys can make all the claims you want about needing positive cash flow, worrying about the market, etc. etc. etc. but at the end of the day i've seen it work firsthand." = abviously working because of positive cash flow

[nonlinear]

^^well that's what i've been arguing all along. IMO, paying $60 towards a mortgage each month essentially meant that the tenants are paying for it. you're still making money in said investment.

[max_boost]

Originally posted by nonlinear
^^well that's what i've been arguing all along. IMO, paying $60 towards a mortgage each month essentially meant that the tenants are paying for it. you're still making money in said investment.

Oh I agree with you. But OP makes it seem like paying the extra $60 is NOT worth it haha

[TomcoPDR]

Originally posted by variable_x


Well said. It's all about cash flow. If I invest in something that provides no cashflow for the next 50 years, but its value goes up 100x, it's meaningless to me because I may be dead in 50 years. I would have not enjoyed any of it. True I can pass onto my children or donate it to a charity, but I doubt that's what most people are investing for. The bottom line is you have to be able to enjoy the payoff from your investments and the key is cashflow.

I don't want to live like a begger for 30 years so that I can enjoy the last 10 years of my life. Of course, it's not to say your house rental is not a sound investment. You may want to look at alternative investments and judge for yourself what's the most suitable investment for you.

:werd: QFT

Well, real estate rental "investments" are definitely not for everyone. Honestly (as said in above quote)

That's exactly it, they say "it's a young man's game" cuz you're waiting endlessly till you see solid results.

[nonlinear]

Originally posted by TomcoPDR


:werd: QFT

Well, real estate rental &quot;investments&quot; are definitely not for everyone. Honestly (as said in above quote)

That's exactly it, they say &quot;it's a young man's game&quot; cuz you're waiting endlessly till you see solid results.

hrm, absolutely not true. you can sell at any time to liquidate the equity.

also , not sure what variable_x meant by "live like a beggar for 30 years." that makes 0% sense when you're not paying mortgages on said rental properties. unless, of course, you are lazy, don't have a real career, and trying to live off of your rental properties. :dunno: e.g. my dad has a 1200 acre hobby ranch.

[lint]

Originally posted by nonlinear


hrm, absolutely not true. you can sell at any time to liquidate the equity.

also , not sure what variable_x meant by &quot;live like a beggar for 30 years.&quot; that makes 0% sense when you're not paying mortgages on said rental properties. unless, of course, you are lazy, don't have a real career, and trying to live off of your rental properties. :dunno: e.g. my dad has a 1200 acre hobby ranch.

I'm with you. I don't know why investment is synonymous with cash flow, that's only one aspect. Positive cash flow = short term, building equity = long term. Increased cash flow = increased income = increased taxes, I pay enough taxes as it is. Personally, I'd rather balance cash flow, equity, taxes by having a loss on a rental to offset income, reducing my current taxes while building equity.

[D. Dub]

Originally posted by nonlinear
^^well that's what i've been arguing all along. IMO, paying $60 towards a mortgage each month essentially meant that the tenants are paying for it. you're still making money in said investment.


But he isn't only short the $60 a month -- he has no maintenance/slush fund at all -- which is an ABSOLUTE necessity on a revenue property.

Positive cash flow is the amount after all budget items are covered.

Your fathers situation is completely different than the OP's because he has MULTIPLE properties -- he is diversifying and lowering his overall risk against some properties being vacant or damaged -- by having lots of different properties.


Originally posted by nonlinear


hrm, absolutely not true. you can sell at any time to liquidate the equity.

.

But there's the rub -- you can't sell at any time to liquidate if your marketing, mortgage and closing costs are more than the worth of the property in a slumping market.

[bmeier]

you guys may agree or disagree but this is what i use to determine ROI for a rental property.
NOTE: assuming the value of your property remains constant, which we all know isnt guaranteed.

Gross income (rent per month)

minus

expenses (tax, repairs, mortgage payments, insurance, etc)

= cash flow (even with a negative number, you can still have a good ROI assuming house prices dont drop)

+ total Principal payments

= total return (assuming your house value stays constant)


ROI =
Total return * 12

/

equity



So depending on how much Equity you have in the house, it may or may not be a good investment. Thats for you to decide.

[Cos]

Originally posted by D. Dub



But he isn't only short the $60 a month -- he has no maintenance/slush fund at all -- which is an ABSOLUTE necessity on a revenue property.

Positive cash flow is the amount after all budget items are covered.

Your fathers situation is completely different than the OP's because he has MULTIPLE properties -- he is diversifying and lowering his overall risk against some properties being vacant or damaged -- by having lots of different properties.



But there's the rub -- you can't sell at any time to liquidate if your marketing, mortgage and closing costs are more than the worth of the property in a slumping market.

Dont worry your thinking is spot on, however nonlinear is not seeing that because his dad owns MANY property he is mitigating his risk.

Also they are his dad's, not his.

[autosm]

100$ per month just for wear and tear on a rental unit for most renters ,some will cost you way more.

600.00$+ for a hot water tank sunday night at 8 pm.

Or in my case 7500$ for a new water well. :banghead: :facepalm:

What happens if the renter moves out and you loose a months rent between new renters ?

[nonlinear]

even if you are paying part of the mortgage, each check a renter gives you is profit. how is that difficult to understand? as i said before, it's one thing to not have a 'real' job (i.e. career) and try to live off of rentals, but it's another thing entirely to invest money into a property that is making rental income. even IF you are having to pay some of the mortgage each month. and, you can still sell and liquidate the equity whenever you want. :dunno:

[bmeier]

Originally posted by bmeier
you guys may agree or disagree but this is what i use to determine ROI for a rental property.
NOTE: assuming the value of your property remains constant, which we all know isnt guaranteed.

Gross income (rent per month)

minus

expenses (tax, repairs, mortgage payments, insurance, etc)

= cash flow (even with a negative number, you can still have a good ROI assuming house prices dont drop)

+ total Principal payments

= total return (assuming your house value stays constant)


ROI =
Total return * 12

/

equity



So depending on how much Equity you have in the house, it may or may not be a good investment. Thats for you to decide.


Just use the formula i posted. plug in your numbers and you will see your return on investment. I would budget minimum 150 per month for damages to create a fund in case something breaks or needs fixing.

Its all about equity and your current mortgage rates.

Without knowing the OPs specifics nobody can say whether its a good or bad investment. So until then can everyone STFU

[lint]

nobody's heard of land banking I take it.

[Cos]

Has anyone taken into account the fact that because the house is NOT your primary residence, when you sell the property you will have to pay capital gains? So now your 400,000 house (with 70,000 down) gains 100,000 and are taxed on it. Plus whatever expenses you incur selling it and fixing it up.

IMO this is where the argument starts to seem you need to take in more money.

[masoncgy]

Holding the revenue property with a slight loss/balanced/slight gain in rental income definitely is a risky venture, for the reasons stated, you are paying out of pocket for any maintenance/repairs...

..but... it's still worthwhile to hold at a $60 loss per month... things are turning around, rents are still higher than most places, you might be able to boost the rent a bit and get yourself into a positive cash flow in a years time...

Just make absolutely sure you get the right renters in there, to mitigate the risk... bad tenants will completely ruin it all, which is unfortunate but reality.

[bmeier]

Originally posted by Cos
Has anyone taken into account the fact that because the house is NOT your primary residence, when you sell the property you will have to pay capital gains? So now your 400,000 house (with 70,000 down) gains 100,000 and are taxed on it. Plus whatever expenses you incur selling it and fixing it up.

IMO this is where the argument starts to seem you need to take in more money.

i am not sure you understand how this works...

[D. Dub]

^^^^

Really? It looks to me like Cos fully understands the elements of risk here.

BTW your straight out of the textbook formula is great for an investor with investment capital to risk over the long term -- not for a small potatoes single family rental where a high risk aversion is much more prudent.

[bmeier]

Originally posted by D. Dub
^^^^

Really? It looks to me like Cos fully understands the elements of risk here.

BTW your straight out of the textbook formula is great for an investor with investment capital to risk over the long term -- not for a small potatoes single family rental where a high risk aversion is much more prudent.

no one is denying the fact that there is risk. There is risk in everything investment especially ones which are leveraged with loans..

I wouldn't necessarily recommend people to go out and buy property for rental, there are lots of headaches and risk attached with it but at the same time it can be made to work.

it all depends on your equity vs mortgage payments. If you have the proper ratio you can make money, there is no denying that. A simple way to get an overall view of how good the investment is to use the formula i posted plug in your numbers and see what comes out. At point you can determine if it is better to sell and put your money in a higher yielding investment or go the rental game for awhile.

He only has 2 choices, sell the house or rent it out. if he can sell the house and put his money into something that yields a higher return then obviously that is the better option.

[D. Dub]

^^^

I disagree the formula you posted is ONE small useful part of analyzing/ discerning investment risk -- not a good overall view.

[bmeier]

Originally posted by D. Dub
^^^

I disagree the formula you posted is ONE small useful part of analyzing/ discerning investment risk -- not a good overall view.

the formula can take everything you want into account, its just a basic guideline. You could put as many Expenses in as you want to forecast possible loss etc.

the simple fact is, he only has 2 options sell or rent. If he can sell and put his money into something that yields a better return i would do that. I am not saying its a good investment or bad one, it totally depends on the circumstances of the OP

[D. Dub]

^^ The formula does not take into account Calgary's manic real estate market fluctuation, rental rates or most importantly the OP"s overall financial picture.

I think we agree though that the OP has two options and a tough decision.

[bmeier]

Originally posted by D. Dub
^^ The formula does not take into account Calgary's manic real estate market fluctuation, rental rates or most importantly the OP&quot;s overall financial picture.

I think we agree though that the OP has two options and a tough decision.

this formula is not made of concrete, it is easily made to include more information and calculations. I know you understand this...



the formula can take everything you want into account, its just a basic guideline.

Since we don't have any particulars on hand, we cant make the judgement of what is better for the OP.

[Cos]

Originally posted by bmeier


i am not sure you understand how this works...

Fair enough, I dont have income properties yet. I am willing to learn the error with my argument.

[lint]

Originally posted by Cos


Fair enough, I dont have income properties yet. I am willing to learn the error with my argument.

Rental income becomes personal income. Selling a rental property is a cap gain. Cap gains are preferred over income because you'll pay less tax, UNLESS you actually NEED the cash flow.

Revenue neutral - cash flow equals expenses:
- no impact on personal income, no paying more tax
- equity continues to build as mortgage is paid down

Revenue positive - cash flow exceeds expenses:
- personal incomes goes up, yay! So does personal income tax, boo!
- equity continues to build at same pace as above, unless you're using the extra cash flow to accelerate paying down the rental mortgage

Revenue negative - expenses exceed cash flow:
- personal income goes down, boo! But net loss on the property can be used to offset income, therefore personal income tax goes down, yay!
- equity continues to build same as the other two scenarios, the mortgage is still being paid.

Cash flow requirements, what tax bracket you're in, what other investments that you have either creating positive of negative cash flow, what other investment vehicles you have to help you reduce taxes, etc etc etc, ALL come into play. It's not as simple as "a revenue property MUST be cashflow positive on a month to month basis". That's as stupid as saying "it's ALWAYS better to buy than to rent".

Here's a simple way to make a revenue property cash flow positive: put more money into the down payment. Does the upfront payment creating month to month cash flow mean it's a BETTER investment than using a smaller down payment and using the difference to service the cash flow difference between the two scenarios? Not necessarily.

[max_boost]

Originally posted by Cos
Has anyone taken into account the fact that because the house is NOT your primary residence, when you sell the property you will have to pay capital gains? So now your 400,000 house (with 70,000 down) gains 100,000 and are taxed on it. Plus whatever expenses you incur selling it and fixing it up.

IMO this is where the argument starts to seem you need to take in more money.

Uhhh, short of taking your money and putting it on black or red, you are going to be taxed when you make money. Don't worry about paying taxes if you are making money. LOL

All this doesn't matter, just ask yourself, if you believe real estate prices can only go up over time, at a great pace than inflation, keep the house. Otherwise, stick to reading Garth Turner's blog. www.greaterfool.ca

A crash is imminent. :D

[D. Dub]

Wow all the young Trumps are coming out :poosie:

[D. Dub]

Originally posted by lint


It's not as simple as &quot;a revenue property MUST be cashflow positive on a month to month basis



No but itsa hell of a good place to start from when ya only got one.

[lint]

Originally posted by D. Dub
No but itsa hell of a good place to start from when ya only got one.

How many assumptions did you make based on the OP's two posts?


Originally posted by slcchyd
Hello All;

I just switch my residential house to rent property; here is my situation for a month:

Rent income $1400 &lt; $1460 all cost (including mortgage payment $1250 + tax $ 160+ insurance $50)
It means I lose money every month.

Thanks for the low mortgage rate, it almost makes even without considering maintenance cost.

But I don¡¯t see this is very good investment.

Could you give me some advice? Should I keep the house or just sell it right away.
Thank you in advance



Originally posted by slcchyd
My house is 1450 square feet , 3 bedrooms , double garage in SW.

city assessment is $345000 and I have 20% downpayment.

[D. Dub]

The OP has only one rental

God help him if he has more than one.

[variable_x]

Originally posted by nonlinear


hrm, absolutely not true. you can sell at any time to liquidate the equity.

also , not sure what variable_x meant by &quot;live like a beggar for 30 years.&quot; that makes 0% sense when you're not paying mortgages on said rental properties. unless, of course, you are lazy, don't have a real career, and trying to live off of your rental properties. :dunno: e.g. my dad has a 1200 acre hobby ranch.

Let me clarify by what I mean by living like a beggar. Just because your rent covers the mortgage doesn't necessarily mean it's a good investment. For example, if I put 80% down payment on a house and if the rent just covers my mortgage, I would consider it as a bad investment. Real estate investments can be good, but at the end of the day it's about cash flow. For example:

If I invest $1 M to buy a 4M house for 30 years and the rent barely covers my mortgage, I will have no cash flow for 30 years and 10x equity at the end. When I die I will have:

40 Million real states
But for the 30 years I lived: I will live on my salary of 50k a year.

Alternatively if I invested this $1 M into a stock with 50% leverage, 5% dividend and 5% growth rate, in 30 years I will get:

~7.5 Million equity
But for the 30 years I lived: I will have my salary + dividend of 100k a year.

In this scenario, my kids would have benefited if I went through the real estate, but I didn't live as good of a life as I wanted. My quality of life would be significantly better if I created cash flow through the stock market for the 30 years.

Of course this scenario is extreme and simplified. At some point before 30 years, you would want to sell the house and create cash flow. That's when you truely enjoy your investment. Either by selling the house or getting rent on a paid off house. Having the rent just covering the mortgage will not increase the quality of your life at the moment, but you hope in the next 20 years, you will get more in return.

This is what I mean by cash flow. You stated yourself "you can sell at any time to liquidate the equity". This is exactly what I mean. At the end of the day, equity is used to create cashflow and cashflow is what you want. You can hold a lot of gold, oil etc, but at the end of the day if you can't liquidate your equity to cashflow, it's no good.

Also it's important to compare with alternative investments. Just because your rent covers your mortgage doesn't mean it's the best investment. Alternatively you can invest the same money in stocks and leverage it, but few people do it. Or you could play with options, contracts and futures, if you know what you are doing.

[Wrinkly]

I'd be quite happy to be your kid, even in the second scenario (with ONLY 7.5 million) :bigpimp:

Adopt me? Pleeeeeease?? :D

[D. Dub]

Originally posted by variable_x


Let me clarify by what I mean by living like a beggar. Just because your rent covers the mortgage doesn't necessarily mean it's a good investment. For example, if I put 80% down payment on a house and if the rent just covers my mortgage, I would consider it as a bad investment. Real estate investments can be good, but at the end of the day it's about cash flow. For example:

If I invest $1 M to buy a 4M house for 30 years and the rent barely covers my mortgage, I will have no cash flow for 30 years and 10x equity at the end. When I die I will have:

40 Million real states
But for the 30 years I lived: I will live on my salary of 50k a year.

Alternatively if I invested this $1 M into a stock with 50% leverage, 5% dividend and 5% growth rate, in 30 years I will get:

~7.5 Million equity
But for the 30 years I lived: I will have my salary + dividend of 100k a year.

In this scenario, my kids would have benefited if I went through the real estate, but I didn't live as good of a life as I wanted. My quality of life would be significantly better if I created cash flow through the stock market for the 30 years.

Of course this scenario is extreme and simplified. At some point before 30 years, you would want to sell the house and create cash flow. That's when you truely enjoy your investment. Either by selling the house or getting rent on a paid off house. Having the rent just covering the mortgage will not increase the quality of your life at the moment, but you hope in the next 20 years, you will get more in return.

This is what I mean by cash flow. You stated yourself &quot;you can sell at any time to liquidate the equity&quot;. This is exactly what I mean. At the end of the day, equity is used to create cashflow and cashflow is what you want. You can hold a lot of gold, oil etc, but at the end of the day if you can't liquidate your equity to cashflow, it's no good.

Also it's important to compare with alternative investments. Just because your rent covers your mortgage doesn't mean it's the best investment. Alternatively you can invest the same money in stocks and leverage it, but few people do it. Or you could play with options, contracts and futures, if you know what you are doing.


Brilliant explanation of your point :thumbsup: Really, I think this argument comes down to two disparate philosophies about how to live life.

[Cos]

^^ I concur, exactly what I meant to explain both times.

[bmeier]

Originally posted by variable_x


Let me clarify by what I mean by living like a beggar. Just because your rent covers the mortgage doesn't necessarily mean it's a good investment. For example, if I put 80% down payment on a house and if the rent just covers my mortgage, I would consider it as a bad investment. Real estate investments can be good, but at the end of the day it's about cash flow. For example:

If I invest $1 M to buy a 4M house for 30 years and the rent barely covers my mortgage, I will have no cash flow for 30 years and 10x equity at the end. When I die I will have:

40 Million real states
But for the 30 years I lived: I will live on my salary of 50k a year.

Alternatively if I invested this $1 M into a stock with 50% leverage, 5% dividend and 5% growth rate, in 30 years I will get:

~7.5 Million equity
But for the 30 years I lived: I will have my salary + dividend of 100k a year.

In this scenario, my kids would have benefited if I went through the real estate, but I didn't live as good of a life as I wanted. My quality of life would be significantly better if I created cash flow through the stock market for the 30 years.

Of course this scenario is extreme and simplified. At some point before 30 years, you would want to sell the house and create cash flow. That's when you truely enjoy your investment. Either by selling the house or getting rent on a paid off house. Having the rent just covering the mortgage will not increase the quality of your life at the moment, but you hope in the next 20 years, you will get more in return.

This is what I mean by cash flow. You stated yourself &quot;you can sell at any time to liquidate the equity&quot;. This is exactly what I mean. At the end of the day, equity is used to create cashflow and cashflow is what you want. You can hold a lot of gold, oil etc, but at the end of the day if you can't liquidate your equity to cashflow, it's no good.

Also it's important to compare with alternative investments. Just because your rent covers your mortgage doesn't mean it's the best investment. Alternatively you can invest the same money in stocks and leverage it, but few people do it. Or you could play with options, contracts and futures, if you know what you are doing.


thats a good point, the problem is for the OP he bought the house as a primary residence, then turned it into a rental. now has the choice of:
A: selling it
B: renting it

Depending on what kind of equity he would get out of selling the house, he might be better off renting in terms of ROI.

If the value of the house has gone down enough where his equity is low, renting could be beneficial using the leverage of loaned money.

Without knowing any of the details though its impossible to make an informed decision for him.

[Cos]

Okay so with the new mortgage rules this morning; I think this has turned into an even worse investment. The announcement was that you now require 20% down for income properties plus you MUST qualify for the 5 year fixed interest rate even if you are planning on going with any other rate. Another thing they are considering is changing it from 35yr/5% down to 30yr/10%down.

Now this will have a huge downward effect on condos and townhouses less so on houses. Follow my math; this is ignoring all taxable benefits.

You purchase a 350,000 condo with 70,000 down. You are losing $600.00 a year. Now you are banking on the long term growth of the value of this property to pay off your mortgage and give you a reasonable rate of return. After your 5 years you need to renew, now you’re at 6% interest and are now losing $1000.00 a year. Let’s say in 5 years you are forced to sell the property as you can’t find a renter, need to move, whatever.

Now with the economic collapse and change in mortgage rates you are forced to have a lower price. Let’s say the average person can’t get $35,000 for a down payment, maybe most people can only get $28,000 or so. Plus the chances of another investor purchase the property have dropped because the minimum they would have to invest is the $70,000 originally. The renters trashed the place so you need to put 5 or 10 grand into the house as well.

Now the listing price is $280,000. Let’s say you get it. Your mortgage after 5 years may be paid down to $240,000 then minus the $10,000 in repairs. On $70,000 tied up for 6 or 7 years you have just lost $40,000 minus your $5000/$6000, you have put into the mortgage monthly. Remember this isn’t including realtor fees either.

So on $70,000 you get $20,000 of your original investment back. Even if you sell the property for the same price you bought it for, $350,000. You make 0% return on $70,000 over 7 years.

Doesn’t seem like a good investment to me :dunno: