Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
My apologies to anyone who lives in a gateway city for what I am sharing.
I was looking in the MLS and saw this:
saint Johns county (Jacksonville)
custom home
6 bedroom / 4 bath
3848 sq ft
new - paint, roof, 2 hvac, stainless appliances,
screened heated in ground pool
glass lanai
community boat ramp
access to Julington creek amenities - large planned community with pools tennis, etc
Saint John's county - top school system in Florida
$510k
There was a post last week for a condo in SF that was 600k and 800 sq ft.
Here is the interesting part -
Mortgage = 2500 ($500 per 100k at 4.75)
Tax = 600 a month
insurance = 200 a month
HOA = 100 a month
total = 3400 per month
estimated Rent = 2600
As an investment is terrible. However, this is a great deal for the renter, it is $800 a month cheaper than owning and no maintenance. The owner is taking an 18% loss per month.
Are other people seeing this in other cities? Is anyone renting high end real estate as opposed to purchasing it to live in?
Most high end investors are not interested in making cash flow they are simply parking excess cash as a tax write off. The filthy rich live in a different financial world than the real people.
Most high end investors are not interested in making cash flow they are simply parking excess cash as a tax write off. The filthy rich live in a different financial world than the real people.
Lesley Resnick Check the same house value on both properties your 510k and 600k in 2009/2010 and compare them now, then, run all your figures and compute the true net value of the properties, including appreciation/depreciation. Let us know what you come up. Our condo might be 300k in 2010 and 600k now, so we are raking on 300k/7 years. Can you get 300k cash flow in 7 years? We don't need anyone's pity, we need more properties to buy. We don't need monthly income, we cash out big during exit.
@Lesley Resnick, If you can find a 800 sf condo in San Francisco for $2600 a month your have magical powers. Even the suburbs 20 miles away are renting for $2.50 per sft.
However, this is a great deal for the renter, it is $800 a month cheaper than owning and no maintenance. The owner is taking an 18% loss per month.
You're assuming rent holds constant. That place that's $800/mo cheaper today, will not be $800/mo cheaper in five years. My personal PITI was less than the rent of homes similar to mine in about three years.
On top of that, two of the cities you listed are in California. We have Prop 13, which fixes your property tax basis at your purchase price. This fixed property tax basis can also be passed down generationally, making California a unique place to build a full-blown real estate dynasty. Less than a week ago I encountered someone paying <$2k/yr in property taxes for a triplex in Oakland worth a million or so.
Third, you get to write off mortgage interest and property taxes, but not rent. This is more relevant the higher your income tax bracket. People in SF, NYC, and LA, tend to be in higher tax brackets.
My underlying question is not living in a higher cost town or not. But is buying an expensive owner occupied homes worth it or should you rent in the same area you want to live. This would allow you to deploy your money to another investment. If it were cheaper to rent than own, it would be a no brainer. There is a gap in the market as you go higher in cost. On the lower end it is more expensive to rent than buy, which is why there is an investment community.
There is a 6 million dollar home in down town SF ( a good problem to have) that is renting for 25k a month at 1% a month you would be paying 60k a month. However, the actual return on that house is .41% a month. Should you take the savings as a renter and purchase other more profitable properties instead of tying up the money in that house? In theory, you could buy a 6m investment property that would yield you more than .41% and you would have depreciation, which is not available on the primary residence. I understand home ownership is an emotional issue, but just the number do not prove it out as a better investment.
@Lesley Resnick reality is different then the calculators on BP. @Chris Mason brings up a key point in California real estate investment. Also strong appreciation is part of the reality of investing prime areas. Yes, many many many people say appreciation is just the frosting etc, etc, etc. However, once a person experiences the power of appreciation in these markets they throw the frosting analogy out the window.
To directly address your question, it depends on what you do with the primary residence. It should be part of an overall strategy. Unfortunately for many it is just a place to live. They park their money there and they are happy just having a home they "call their own".
The Robert Kiyosaki line of thinking is that we should not accumulate liabilities and focus on assets. I believe that point he was making was specific to how we spend money, not specifically the type of building. More clearly, I believe that a person can own a home and it can be a liability or they can be smart about it and their home can be a asset.
I have personally done many "house hacks" over the past 30 years. Appreciation helped me pocket very large amounts of cash upon selling. I did not buy fancying things. Instead I stepped up in class for my primary home upon each sale. I reached what I consider my final home over 10 years ago. The appreciation during that holding period has tripled the value of the home.
I don't just sit on that appreciation. If I did and just paid the mortgage my money would just be stagnating. Instead, I have steadily pulled cash out of the house through cash out refinancing.
More recently, I have switched over to a GIANT HELOC. The HELOC has allowed me to add 6 Bay Area units to my portfolio and also to pay off a seller financed loan that had a 4% rate (my HELOC is prime minus 1%). The rents from all of the units have I acquired with the HELOC more then pay off my PITI for all of the rentals AND my primary. Now my tenants are paying for the rentals and my home. All of this is because of primary home that I purchased 14 years ago.
The point to my long post is that sometimes you need to look at the LONG VIEW to make serious money.
It is always cases in where people prefer to buy as compared to rent. so purchase price keep going up rents go up as well but not with the same speed. Places where people love to live and population and job growth is there you will always see this trand
@Lesley Resnick What we are saying is, investors in CA do not have similar mindset as other states, if someone is earning a combined income of 300k which is easily achievable in CA, they are not interested in a 300/mo cash flow, they would get get the 100k-200k appreciation in 3 years. Say you have 3x200k units that cash flow 300, thats 900/mo cash flow, now compared to a 1x600k with an appreciation of 100k/yr, thats around 2,750/mo if you compute bottom lines. Like what @Chris Mason said, we can get a major tax rebate and property tax to add to those bottom lines.