Run the Numbers: Two Older vs One Newer

[Stephen Masek]

Your ideas on the numbers would be interesting. The comparison is between buying two older $60,000 rust belt houses which rent for $1,000 per month, vs buying one newer sun belt $120,000 house which rents for $1,000 and holding for 10 years. All bought with cash. My numbers are below. What are yours?

Rust Belt:
Purchase $60,000 x 2 = -$120,000
Rent $1,000 * 2 *12 *10 - +$240,000
Taxes, Management, Insurance $180 * 2 *12 *10 = -$43,200
Major repairs (roof, HVAC, plumbing, one @ $7,000 each house) = -$14,000
Sell, with appreciation of 40% (no way to ever get back to new construction replacement cost) +$168,000
Net $230,800

Sun Belt:
Purchase -$120,000
Rent $1,000 *12 *10 = +$120,000
Taxes, Management, Insurance, HOA $260 * 12 *10 = -$31,200
Sell at 100% appreciation (back to replacemetn cost) +$240,000
Net $208,800

[David Beard]

Stephen Masek Take a look at p. 7 of the attached. A better description on my part would have been "mean reversion of the distressed property discount".

http://myrentalportfolio.com/wp-content/uploads/2011/11/Morgan-Stanley-SF-Report-Oct-2011.pdf