All Forum Posts by: Account Closed

I was being very conservative in my estimate but you're right.

Thanks John. You're saying the appreciation should be 6% instead of 2%.

Thanks Brian. I'm pretty sure of my cash flow numbers, but don't know what rate of appreciation to expect. I'm not up for buying out of state real estate so my basis for comparision is stock market return -- it seems that renting is an equivalent return.

Thanks Phillip and John.

I've been taking the depreciation since my dad lived there (he paid a nominal rent) so I realize I left that out of my analysis. Depreciation has been $7,000/yr, so tax savings of a couple thousand per year.

Mortgaging the property leaves me with the problem of what to do with the money. Real estate investors like to leverage up to increase profitability but I'm not looking to create a real estate portfolio now -- sort of want to see how I feel about managing one property for now.

John, It's in Brentwood, on a 5,000 sq foot lot. 25 year old house in a 55+ community (don't know if that impacts price). I can't follow your math -- I don't see where the $54,000 comes from. Are these numbers and rates of return typical for Contra Costa?

In 2011, I bought a house for my father to live in. He died last month and I’m trying to decide if I should sell the house or rent it. I have no real estate investment experience.

2 BR, 2 BA, single story, 1500 sq ft in the San Francisco East Bay (Eastern Contra Costa) in a nice, safe neighborhood.

There’s no mortgage. It needs $20,000 in cosmetic repairs.

If I sell …

Paid = $250,000 in 2011

Current value = $485,000 (this is once repairs are done – paint, flooring, windows, etc.)

Net proceeds to me = $ 385,000. ($485,000 – 5% commission - closing costs – repairs - taxes on capital gain = $485,000 - $24,250 - $3,000 - $20,000 – $52,750)

If I rent it out…

For cost, I’m presuming I hypothetically just sold the house and now, looking at the house as a new purchase, it costs me my proceeds of $385,000 plus the $20,000 I need to make in repairs.

Cost = $405,000

Anticipated rent = $2,500/month = $30,000 per year.

Annual expenses are 52% gross rent (including property manager):

Net Income = $30,000 - $15,600 = $14,400

Cap Rate = 3.56%

2% expected appreciation = $405,000 x 2% = $8,100

Total return = ($14,400 + $8,100) / $405,000 = 5.56%

How does this compare to other Northern California real estate deals? If I take the sale and put the $385k in a stock mutual fund, the return seems like it would be equivalent. Diversification would be a pro for renting it; more work and liability the con.

I’m kind of on the fence.

Am I missing anything? Is there anything else I should be thinking about?  

Any opinions?  Thank you so much for your advice!