Analyze this Property

[Lisa H.]

Lets say you aquire an inherited property that's paid off. It rents for $3300 a month but with taxes, insurance, HOA, PM, maintenance and vacancy % expenses, it only cash flows $1950. Sounds great but it's worth 600k-650k. It's only paying out about 3.8%. The house is an an A/B class area. Very little chance you will have to deal with evictions with the quality of tenants. It borders LA county but is in Ventura county.

Would you continue to rent it? Sell it? Reinvest it? Obviously taxes play a part. Not sure about all the tax implications. All ideas, thoughts and opinions welcomed! 

[Steven S.]

Quote from @Lisa H.:

Lets say you aquire an inherited property that's paid off. It rents for $3300 a month but with taxes, insurance, HOA, PM, maintenance and vacancy % expenses, it only cash flows $1950. Sounds great but it's worth 600k-650k. It's only paying out about 3.8%. The house is an an A/B class area. Very little chance you will have to deal with evictions with the quality of tenants. It borders LA county but is in Ventura county.

Would you continue to rent it? Sell it? Reinvest it? Obviously taxes play a part. Not sure about all the tax implications. All ideas, thoughts and opinions welcomed! 

Ya 3.8% return if you use the current value, appreciation has been massive over the last 2-3 years. You are lucky you are on the owner-side of things since that means your property is worth that much even though it produces that low of CF. Welcome to the world of buying 2-4 unit rental properties in Los Angeles in 2024.

If the property was acquired 7+ years ago, your returns from appreciation will be massive & unmatched by renting this out. A better metric for you to evaluate rental property performance is to take the annual CF and divide it by your all-in costs (not the current value) on the project so you can see what yields you are getting from your past-spent dollars. Just add up the original purchase, add any renovations/construction/improvements, and divide $23,400 by that number to get your annual CF yield %.

If it's 10-15%+ annually, you might want to hold it since that yield on your current cash is hard to beat. If it's closer to 5%, I'd say capture the appreciation dollars by selling, and 1031 the funds to a slightly larger project