@Ben Zimmerman
Some great points here.
"Second, how in the world do you expect 20k turnover costs in the next 3 years? Even an F class property shouldn't have that high of an average expected turnover cost. If you just spent nearly 30k cleaning up the property then how would you expect to need to pay another 20k in the next 3 years? If properties averaged 20k in costs every 3 years then nobody would ever own a home, especially 20k in costs on home that is already recently remodeled. If you expect 2 turnovers in a SFR in 3 years and estimate that it will take your team an average of 2 months to place a new tenant, then its time to find a new property management company that can advise you how to get a longer term tenant in place, and one that can actually place a new tenant in a reasonable amount of time. It should never take 2 months on average to place a tenant. Did you double count your expect vacancy by only giving yourself 30 months worth of rent for income, and then also count it towards an expense as part of that 20k? Either way there is something seriously off about your math."
This is B+/A- and historically, turns has been about 10k, so 2 turnovers is 20k. These turns are w/ Meridian Property Management / Crestcore (a few thousand cheaper) generally. It's about a 2500sf property. The 6 month vacancy would be: 2 months finding a new tenant NOW (it is vacant since my original goal is to sell now) + 2 months for first turnover + 2 months for 2nd turnover. This is not double-counted. The turn costs may be reduced w/ a better management company but mostly projecting based on past experience.
"You mentioned that you don't count the mortgage as part of your math, which implies there is a mortgage, but then later you talk about putting 180k in the stock market if you sell. If there is a mortgage the 180 sale price would first need to pay off your mortgage balance so you would only be left with whatever your equity is, not the full 180k. If there is no mortgage, then real estate without at least some leverage (while safe) doesn't exactly have fantastic rates of returns."
This is a good point and I'll need to adjust my returns if I were to sell it for 180k now. With the adjustment:
(180000*.93-90000)*1.07^(3)-(180000*.93-90000) = $17418, which is much less than just keeping the property.
"How long have you owned this house, why do you want to potentially hold onto it for only the next 3 years? Holding properties for only a short duration your profits will be eaten away by closing costs. Either fix/flip properties to get some instant equity to help pay these costs, or hold properties for much longer to allow appreciation/equity paydown to help you out."
Owned for 3 years. 3 years additional is just an example scenario. This property does not age well against the stock market over say, 10Y or 20Y. Losing money is kind of assumed here since I basically incinerated 20k. My question is basically "what's the opportunity cost of holding vs. selling now?"
"Finally, if you are chasing appreciation then why would you pick a city like Memphis that is generally known for being a cashflow city? You're probably not going to see amazing long term appreciation rates from a city that is chronically in the top 5 most dangerous cities in the US. (I'm anxiously awaiting for a TK provider or agent to interject their opinion on how fantastic Memphis is)."
I agree. 4 years ago I wanted to obtain more cashflow for safety reasons. Now I have changed my mind. This property is far away from the city center of Memphis and more in the suburbs area where there are little to no crime in that particular neighborhood.
"Yes the stock market may AVERAGE a decent return, but the economy isn't exactly average right now. Maybe it recovers and you make some decent money, maybe a second wave hits and the market crashes again. You can't expect to achieve average results over a short timespan during the most volatile timeframe the market has ever experienced. If you were going to invest for the next 20,30, 50yrs etc, then I would say that you could reasonable expect the average, but not right now."
Yeah, I don't mind holding onto long-term and the above example could easily be over a 20Y period.
"Even if you are in the highest income tax bracket and live in tax hell (otherwise known as California), the most you would pay is roughly 50% tax. So in your example you spend 4k in misc items and will be able to get a 2k higher refund check. A tax deduction and a tax credit aren't the same thing and you are losing money based on your math. And that's a best case scenario if your in the highest income tax bracket."
I am actually in this exact scenario. California, highest tax bracket. So would you recommend instead of saying I rake in $1700/mo, I'd rake in $1700 minus half of my PITI / month? These are my 2019 PITI for example.
Seems like the general comments is saying I should be gearing towards holding onto the property and just getting better management to reduce turn costs which makes sense since I messed up how much capital I would have for the market if I were to liquidate.
