ROI on Rental Properties - Owned free/clear - Page 3

chu · 10-17-2009, 08:15 PM

If the house is worth 250k, then that's NOT the amount of money you should be using in calculations. Once you sell that house, you incur tax; figure out how much money you'd get after tax.

Secondly, you aren't accounting in maintenance costs, property taxes, insurance and misc shit. A good rule of thumb for maintenance is 1-2% of property value every year. This will go towards short term fixups and long term rennovations (roof, windows, furnace, etc...). You can figure out property taxes and insurance.

My advice is that you're much better off just renting the property as I doubt it'd be worth it to sell and then invest.

Having said that, owning rental properties has never been a great super investment. It's always had a more or less guaranteed return rate that's safe. Bubbles fuck this up though.

Elerion · 10-20-2009, 10:21 AM

At time=0, record a cost of the probable current sale value less sales cost and taxes.
At times=1 to n, record your rental income less taxes, insurance, maintenance and other costs. Make sure to account for less than 100% occupancy.
At time=n, also record a gain of the current sale value plus average price appreciation of the property. Use the historical average price appreciation of similar properties or something per year. Make sure to once again subtract sales costs and taxes

IRR that time series. That's your expected ROI.

Tortfeasor · 10-21-2009, 11:54 AM

If I were you I would keep the house and the rental income. If you find another worthwhile investment you can calculate how much tax you would have to pay to in order to roll your home equity into it. Or you could play the Douglas Andrews game and leverage your house, invest the equity in conservative guaranteed tax-free vehicles, and still profit from any appreciation that will occur when the market recovers.

Lyrical · 10-21-2009, 11:57 AM

Quote:

Originally Posted by Tortfeasor

If I were you I would keep the house and the rental income. If you find another worthwhile investment you can calculate how much tax you would have to pay to in order to roll your home equity into it. Or you could play the Douglas Andrews game and leverage your house, invest the equity in conservative guaranteed tax-free vehicles, and still profit from any appreciation that will occur when the market recovers.

How would you find a conservative tax free vehicle that would have a higher interest rate then what your new leverage would be?

Tortfeasor · 10-21-2009, 12:06 PM

Indexed life insurance policies guarantee anywhere from2-3% but have 8-9.5% ten-year averages with annual resets. Deducting the cost of insurance from that, you average about 8% return distributed tax free via whatever zero-wash trick the company employs. But these kind of contracts are built to give away the farm on the back end so it may not be worth it unless you are trying to build a retirement fund as opposed to building a chunk of cash over a few years and then switching to something else.

If you have a free and clear house, you ought to be able to get a lower rate than 8% with a first position lien and super good LTV.

Usha Starchild · 11-09-2009, 07:58 AM

Did not read the whole thread but...

My father owned about 20 rental properties. Its full of headaches.

- Tenants taking off
- Time to find new tenants
- Grow ops damaging the place (had several of these)
- General Damage
- Time you use to find new tenants take care of repairs (This was big for us because most of the properties we had were 5 hours away from where we lived)

In the end he sold off most of the properties because it was too much of a hassle and hiring a property management company would not guarantee results and would cost money it just wasn't worth it. That and the housing prices stopped climbing and he got out with 30-50% profit on the initial purchase value

Fammaden · 11-09-2009, 08:05 PM

Has anyone suggested that you contact Sam Deathwalker yet? He is living large this way.

11-09-2009, 08:05 PM	#37 (permalink)
Fammaden Treats objects like women. Join Date: Jun 2003 Location: beset on all sides by the iniquities of the selfish and the tyranny of evil men. Posts: 3,223 +31 Internets	Has anyone suggested that you contact Sam Deathwalker yet? He is living large this way. __________________ Fammaden - Wizard - Saryrn (Retired) WoW: Shaman/Mage/Hunter

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10-17-2009, 08:15 PM	#31 (permalink)
chu Registered User Join Date: Oct 2004 Posts: 1,465 -63 Internets	If the house is worth 250k, then that's NOT the amount of money you should be using in calculations. Once you sell that house, you incur tax; figure out how much money you'd get after tax. Secondly, you aren't accounting in maintenance costs, property taxes, insurance and misc shit. A good rule of thumb for maintenance is 1-2% of property value every year. This will go towards short term fixups and long term rennovations (roof, windows, furnace, etc...). You can figure out property taxes and insurance. My advice is that you're much better off just renting the property as I doubt it'd be worth it to sell and then invest. Having said that, owning rental properties has never been a great super investment. It's always had a more or less guaranteed return rate that's safe. Bubbles fuck this up though.

10-20-2009, 10:21 AM	#32 (permalink)
Elerion My milkshake Join Date: Nov 2004 Posts: 2,094 +6 Internets	At time=0, record a cost of the probable current sale value less sales cost and taxes. At times=1 to n, record your rental income less taxes, insurance, maintenance and other costs. Make sure to account for less than 100% occupancy. At time=n, also record a gain of the current sale value plus average price appreciation of the property. Use the historical average price appreciation of similar properties or something per year. Make sure to once again subtract sales costs and taxes IRR that time series. That's your expected ROI.

10-21-2009, 11:54 AM	#33 (permalink)
Tortfeasor Registered User Join Date: Jun 2008 Location: Lexington Posts: 610 -9 Internets	If I were you I would keep the house and the rental income. If you find another worthwhile investment you can calculate how much tax you would have to pay to in order to roll your home equity into it. Or you could play the Douglas Andrews game and leverage your house, invest the equity in conservative guaranteed tax-free vehicles, and still profit from any appreciation that will occur when the market recovers.

10-21-2009, 12:06 PM	#35 (permalink)
Tortfeasor Registered User Join Date: Jun 2008 Location: Lexington Posts: 610 -9 Internets	Indexed life insurance policies guarantee anywhere from2-3% but have 8-9.5% ten-year averages with annual resets. Deducting the cost of insurance from that, you average about 8% return distributed tax free via whatever zero-wash trick the company employs. But these kind of contracts are built to give away the farm on the back end so it may not be worth it unless you are trying to build a retirement fund as opposed to building a chunk of cash over a few years and then switching to something else. If you have a free and clear house, you ought to be able to get a lower rate than 8% with a first position lien and super good LTV.

11-09-2009, 07:58 AM	#36 (permalink)
Usha Starchild Still in China Join Date: Mar 2003 Posts: 1,437	Did not read the whole thread but... My father owned about 20 rental properties. Its full of headaches. - Tenants taking off - Time to find new tenants - Grow ops damaging the place (had several of these) - General Damage - Time you use to find new tenants take care of repairs (This was big for us because most of the properties we had were 5 hours away from where we lived) In the end he sold off most of the properties because it was too much of a hassle and hiring a property management company would not guarantee results and would cost money it just wasn't worth it. That and the housing prices stopped climbing and he got out with 30-50% profit on the initial purchase value