All Forum Posts by: Adam Treboutat

@Robert C. Good point about keeping a sought-after property in the Bay Area! 

I think an issue I have with this property is the rental income. I am only receiving $3,725 per month for a 5 bedroom. According to Rentometer the median rents for a 5 bedroom is $5,300. The Zestimate is $4,000. So I'd figure market rate should be somewhere between these two numbers. If I increased rents to $4,500 that would net me close to $1,000 per month in before-tax cash flow. 

However, I am worried about the current tenants. They have been solid tenants. Not the best, but everything has been smooth. If I increase the rent that much and they leave, then I would have to find new tenants and deal with vacancy risk and the risk of finding unsavory tenants.

Thanks for the insightful responses! Definitely some good insights to think through.

Something I did start considering is to pay down the mortgage and if there is another correction to take out a second line of credit at a lower interest rate, which can then fund other investment opportunities in a depressed market. I'll definitely have to research strategies around this more.

Also, if I were to keep this property then it would help diversify my portfolio while I focus on multi-family / commercial cash-flow investments in other areas of the country.

Finally, what is the best way to find comparables rents in my area? I would like to see if I am correctly pricing the rental.

I inherited a house from my father in 2011. This house is located in Marin County, California (not in an extremely expensive area of Marin). I've been renting out the property ever since and using the rent to pay down the mortgage. I've been paying about $1,000 in taxes out of pocket every year.

Now that I'm 27 and have learned more about investing, I'm starting to analyze this deal from an investor framework. I believe that selling this property and reinvesting in commercial real estate syndications and Vanguard index funds would provide a better IRR.

I'm hoping that I could get some help on my calculations before I jump to any conclusions.

Here is the current information:

• Appraised value (2011) = $600,000
• Annual gross rent = $44,700
• Insurance = $900
• Maintenance (average) = $4,000
• Property tax = $6,200
• NOI = $33,600
• Cap Rate = 5.6%

Mortgage

• Mortgage Amount Remaining = $285,000
• Mortgage Rate = 2.75%
• Mortgage Term= 10

Cash Flow

• Before-Tax = $1,000 (year 1) ==> $12,100 (year 10)
• After-Tax = $-800 (year 1) ==> $7,100 (year 10)

Sale

• Current Zestimate = $900,000
• 10 Year Appreciation (3% per year) = $1,209,000
• Cap Rate at sale (assuming 3% rent increase per year) = 4.0%

Calculations

• Before-Tax IRR = 7.3%

Conclusion

Based on these calculations, a 7.3% IRR is about average. However, am I overvaluing the property appreciation? Because the CAP rate is certainly low at sale.

If this property were to sell for $1,000,000 in 10 years, that would lower the IRR to 5.4%. And if a recession drops the price back down to $600,000, then the IRR becomes 0.5%.

I hope this makes sense. Thanks for helping me through this!

I can link to the spreadsheet I am using if anyone would like to see that.

Hey everyone! I joined BiggerPockets over a year ago but focused on refining my savings/spending strategy before embarking on my real estate journey. I have a plan to reach Financial Independence at the age of 35 (I am almost 27), and my goal is to use Real Estate Investing to speed up my trajectory and reach FI earlier.

I grew up in Marin County, California and am now working in the tech industry in San Francisco. I have been interested in real estate investing for a few years now. My mom owns a couple houses but has a very different style than me. I am analytical and process focused whereas she is persistent and controlling. This strategy works for her but I want to branch out and invest with my own real estate partner (also a mid-20s tech professional).

My partner and I went through a process of examining our strengths and weaknesses and our "investor profile". We do not necessarily need to stay local, we are also open to out-of-state investing. We were hoping to receive advice on the niches we could look into that match our strengths and investor profile. 

Strengths

• Capital/down payment
• Connections to people who have dealt with residential properties
• Analytical
• People/business management
• Processes and efficiency
• Ability to delegate
• Problem solvers
• Entrepreneurial
• Tech savvy - Readily available & quickly able to find deals once we set up our criteria

Weaknesses

• Time and effort (have full time jobs BUT are not tied to our work day and night)
• Minimal real estate experience and knowledge
• Lack of trusted partners/network
• Not handy/no labor
• No legal help
• Minimal tax knowledge

Investor Profile

• Long term time frame
• Passive income as opposed to capital gains
• Fewer, larger assets
• Non-cyclical, consistent investment
• Contrarian
• Simple operations
• Active investment (so we can learn)

Thank you so much for the help!