All Forum Posts by: Kamal F.

I agree, its highway robbery. Its not really the tax rate, but the home cost. The tax rate is about the same wherever you go.

I would leave in a heartbeat, find a nice small town, beautiful home for 200K, and be the only Psychologist in town...but I have a commitment to family, and that trumps everything. Luckily they are ready to help whenever I need it, otherwise, life here would not be sustainable for me.

Ok, I did some number crunching, and curious to get any feedback on any glaring mistakes I made. For the sake of this argument, I am equating deduction to 1/3 profit. My tax bracket is about 33% or so. The current home would sell for about 575K, with a mortgage of 295K. Capital gain not taxable. Property Tax assessment is currently 450K, of which is 410K land, and 50K improvement.

Currently, the cost to live (loss) at my current home in El Cerrito is about $1000/mo. It breaks down like this:

PITI = 1975 (1350 mortgage, 550 property tax, 75 insurance)

Deductions = 1500 (870 mort interest, 550 Prop Tax, 75 Insurance)

= 500 calculated as profit 1500x.33

Mortgage Principle Paydown = 480

Total Cost = 500 + 480 (profit) = 980 -1975 (Cost) = ~1000/mo cost to live

Rent current house scenario:

Moving to the Palo Alto area will, of course, cost more money. Worst case scenario of renting out my current home to pay for the $2200 rental property I will move into:

Current home rents for $2200 (worst case) = 1475 income after taxes

Current Home deductions (as profit above) = 500 (1500 x .33)

Current Home Depreciation (@50K value) = 50 (150 x .33)

Mortgage Principle Paydown = 480

Total Profit = 2505

Total Cost (current PITI + new rental) = 4175

Net cost of living (Worst case) = 1675/mo

If deduction was valued at 200K, then deduction would be 600 x .33 = 200, bringing net living cost to 1525.

If rent was increased to 2500, then net cost of living would be 1475.

If both rent and depreciation were increased (best case scenario) the net cost of living would be $1325/mo, and I would have the responsibility of being a landlord to a property 1 hour away, but the investment would be safe and robust, with little possibility of losing equity, and some possibility of gaining equity.

I know there are other deductions, such as repairs and travel to conduct business. As well other expenses, such as broken appliances, other impending damages, and vacancy. I would manage the property myself. If I can flip a home using my own hands and tools, and can evaluate people professionally for court and other high stakes matters, I can be a decent landlord.

Sell House scenario:

House sells for 550K (worst case), 30K to realtors, pay off 295K mortgage = 225K cash in hand.

At a 5% return, 225k generates 628 after 33% taxation.

$2200 rent - 628 = 1571/mo cost of living

At a 4% return (worst case?), 225K generates 500/mo after 33% taxation

$2200 rent - 500 = $1700/mo cost of living (ultra worst case)

At a 7% return after sale for 575K sale (best case scenario), the 245K generates $957/mo after taxes. $2200 rent - 957 = 1243/mo cost of living.

So, in the end, it seems like the rent vs sale aren't much different, and the monthly difference between the worst case and best case scenarios are about a day's wages in my profession. One risk is the responsibility of being a landlord, and the other risk is if the market crashes and my investment principle tanks. Any thoughts?

Hi Tim,

Thanks for the reply. So, my realtor is pretty sure that after the last bust, and the 25% market gain we have had in the last couple years, that we are near the top of the market for our area. I'm not in SF, but a city next to Berkeley. I agree, if this was SF or Palo Alto, there is still upside to be had, but I am in a middle class neighborhood where these houses will likely not go up much.

I have not taken the exemption, so the sale would be cash in my pocket. I would invest in another home, but we looked at that. I want to live next to family, and that means next to palo alto. Right now, for $500K, I can get a run down 2/1 in a latino neighborhood of redwood City. Which again, is after an upswing over the last year or so. Not really where I want to settle. As well, I'm a single guy, and the ideal home for me in the area would be in the 800K range, and I just cant afford that right now, not do I want to until I have a family to raise. And, this is a permanent relocation to settle down near family...not planning to move back to where I am currently living, or else I would just stay right here.

Debt paydown is nice, but each month is $300 paydown on the principle, so we are talking about $7500 paydown of principle over the next couple of years. Which isn't really that much.

I guess I need to really sit down with the numbers, but in the end, I'm guessing that turning this residence into a rental may save me a few hundred a month after taking into account both tax on the rental income, and the deductions that will come along with the investment property. And, I am not an experienced landlord. This is my first home, I'm 38, early in my career, and will eventually need to sell the home to buy in my target area.

Its probably looking like selling the home and investing the cash until I need to buy down the road will be the best bet. But, if anyone else wants to help me crunch these numbers, I'm all ears!

Hello all,

Thanks for any help in advance.

I am currently making a permanent relocation in another part of the SF Bay area, and it looks like, for the next 2-3 years, will have to rent. I'm trying to figure out if I should sell my primary residence, or turn it into a rental property for the next couple years, and sell before I lose my tax deduction exemption. I've lived in it for the past 3 years. Here are some details:

New rental home cost = $2200/mo.

Current home worth ~$550K. Property tax assessment = $410K land, $40K improvements (building) = minimal depreciation deduction.

Current home will rent for at least $2200, up to $2500.

Mortgage on current home = $295K, $1350/mo.

Property tax on current home = $550/mo

Homeowners Ins on current home = $75/mo

Current home will likely not go up in value very much over the next 3 years.

So, is it a better financial plan to rent the current home, and be able to take tax deductions, and assume negligible effort as a landlord, or sell the home, and invest the ~$250K cash that will come out of the sale?

One other question - is there something I can do about the disparity between the land value and the improvement value in order to have a better depreciation deduction, assuming I rent the home out? This is a 1948 home in good shape, some updates, including a detached 450 sqft garage built in 1985.

Many thanks!

Ok, yes, I totally get that. Luckily I'm a handyman and I will be living close to whatever property that I buy. Although I would likely not rebuild the roof myself, any other repair can be done by myself for extremely cheap, so I am looking forward to the opportunity for sweat equity.

Thanks for the reply. What does your last sentence mean?

Thank you all for the replies. I came up with a sample calculation for a year of no vacancy, just to start understanding. I know it can get much more complex than this. Curious to know if I totally screwed anything up in this basic calculation.

Purchase plus rehab = 125K

Rent 15600 (1300/mo)

Tax 1350
Insurance 800
Mortgage 5400 (450/mo for most of purchase price)
Repairs 600 (I'm a handyman and will be servicing the property)
Utils 480

Gross Profit 6970/125K = 5.5%

Taxes paid

Rent Income 15600

Deductibles

Tax 1350
Insurance 800
Mortgage Interest 3636 (1764 principle)
Repairs 600
Utils 480

Taxable Rent 8734

.25% tax rate 2184 tax
Gross profit 6970

Net profit 4786 (399/mo) = 3.8%

I am also wondering if the principle portion of the 450 mortgage payment is considered profit, which would change the net profit calc to this:

Plus Principle (1764) 6550 (546/mo) = 5.2%

Thank you in advance. In terms of the question about appreciation, then its pretty much a sure bet that after huge corrections some years ago, property is on an upswing in the San Francisco area.

Hi all,

I am new to investing, and am about to buy my first real estate investment. I am trying to figure out how to calculate my return (cash on cash?/after tax), and have had a couple different people tell me different things, and have had trouble finding clear, concise information on the web for a financial layman like me. I'll simply tell you my financial and real estate details, and perhaps someone can show me a sample calculation so I can adjust it depending on the actual property I buy, etc. Here goes:

I am looking to buy a property in the 100-130K range, and I live in the SF Bay Area. Looking at a SFR in the not so nice parts of town. For the sake of calcs, lets say that a 100K home is going to rent for $1100.

My 100k came from a cash out when I recently refinanced my home. The refi loan is 300K, 3.5% @ 30 years. So plausibly, this 100K is costing me $450 of my $1350 monthly mortgage payment. I have another 30K saved to add to the investment cost or rehab.

For that 100K home that will bring in 1100/mo in rent, how do I go about figuring the return, and whether my 130K will be better invested elsewhere. I'm SURE that any 100K house around here will appreciate to 200K within this decade. These homes were selling for 400K in 2006.

Perhaps more plausible is that the SFR will cost all of my 130K, and will bring in 1200/mo.

HELP!! Thanks in advance for any assistance here.