All Forum Posts by: Pesi S.

Thank you all for the feedback. The consensus it seems is that folks are holding on and not in a hurry to sell even in a strong sellers market. That brings a question as to when does a real estate investor actually decide to sell and lock in his gains like you do in other investments ?

Also how much cash flow (Rent-Mortgage-All other expenses) should one aim for which makes the investment worthwhile to continue with ?. Is there a minimum/optimal cash flow % range ? 

Wanted to get some feedback from landlords if they are seeing the same effects in this weird market since Covid started and what are they doing.

On one hand the home prices have increased quite a bit. On the other hand the property taxes, insurance and especially the repair & maintenance costs due to tenants at home all day, shortages etc. due to Covid have also increased significantly and townships have also seized on this opportunity for raising property taxes. Rents have not kept pace with the proportion of the increase in expenses and prices. It's a dilemma as raising rents beyond a reasonable point (3%) for existing good and long time tenants creates risk of good tenants leaving and then you lose rent for a average of 1-2 months plus expenses in getting house ready, finding tenant, paying referral fees etc. which negates the increase in rent unless you are in the top A class properties.

Also when home prices come down which they most likely will at some point, these  expenses of property taxes, insurance and the maintenance costs will not come down. On one hand it seems like the best time to sell the property if you have made good gains. However selling involves close to 8-10% of price (commission, update house , closing, township transfer tax) and after that big taxes of capital gains and the depreciation recapture & other taxes which take a huge chunk out of the profit (at least 30-40%). 1031 exchange is also difficult in this type of market where you sell high and buy high if you can find something comparable.

Also after selling what does one do for investment. If you purchased something for $100K and sold for $150K and then later when market drops in future you purchase again for say $120K would it be really  worth it after going through all the expenses and effort of  buying and selling.

Seems like a tough dilemma for landlords unless you forget about ups and downs and hold forever. Also with the Govt having the stepped up basis where you could pass the property to your children without the tax burden in their sights for elimination of the tax benefit does this strategy also hold good ?

Thank you.

Wayne, if the owner has to insure the exterior structure which in case of townhouse is joint with the neighbors in the building, then how do things work in case of god forbid any damage. What if some owners don't insure their unit or underinsure it ?

Thanks Greg and PJ. I can understand the homeowner insuring the inside of the house and items. However from the above it seems they are only insuring the common areas like clubhouse, pool and for the townhomes they are only insuring the roof shingles, gutters, downsprouts. What about the structure, framework, the outside sidings etc ?

Hello Greg

Thank you for the feedback. Below is a snapshot of their document.

 I am wondering if this is legal.

Hello,

I own a townhouse unit which I am renting in NC. The HOA has informed the owners that the HOA master insurance policy will only cover the club house/swimming pool and the common public areas. It will no longer cover anything at all inside or anything on the building exterior like building framework, roof, gutters, etc. They want the owners to insure the inside and outside of the property for minimum $100K but they are not going to go and enforce that every owner does insures their property sufficiently. I wanted to know if

A. Is this legal for the HOA to do ?

B. What happens if I insure my property for 100K but my neighbors do only $25K or only the interiors of the unit. What would be the recourse if   god forbid there is damage to the building exterior ? 

C. If the price of the each townhome unit is in the range of $150K what is the right amount of coverage one should have ?

D. Is this type of arrangement a common one in condo/townhome societies or is this somewhat a exception against the normal. They charge around $125 per month for HOA fees.

Appreciate if anyone who has knowledge or experience with this type of situation can help me with this.

Thanks a lot.

Hello James,

Thank you for the explanation. Please bear with me as I am new to this. Keeping the caveats aside, from what you mentioned  ATR is your total return equating to X% per year. So from this example can I infer that if one sells the property at the end of 5th year the total return is 4.5 * 5 years = 22.5%  or am I wrong over here and it is just 4.5% at the end of 5th year. I am a bit confused as to how this number of 4.5% was arrived as in year 1 it shows -25 and Year2 (-7) % and Year3 and 4 one cannot see here.

How does one see for every year instead of just a couple of years which this calculator shows ? Is there a better calculator which shows the full year by year breakup ? 

What is the benchmark for cash flow which i believe is all income - expenses including the payment towards your principal in the mortgage ? In the example here, it seems to be very low due to all the various hidden expenses and buffers you have to allocate especially if it is out of state (home warranty, property manager monthly and finder fees, capex, repairs, HOA etc). Unless the property appreciates significantly beyond the average 2-3% which is a gamble something like this does not seem to be a great value.

Thanks

Pesi

Hello,

Appreciate if someone can please advise and explain the "Annualized Total Return" calculation on Bigger Pockets Rental Property Calculator. In the below example, if i were to sell the property at the end of 5th year, does it mean that the total net return is  4.5% over the 5 years since buying the property (i.e. less than 1% a year) ?

Also if one decides to sell during the 8th year, how does one see the Annualized Total Return for that as this calculator only gives for certain years and not every year.

Thanks Cedric.

Hello,

I am looking for a experienced real estate focused CPA in central Jersey who also actively invests in real estate and knows the state laws of both NJ and NC well. Appreciate if anyone can provide a good reference.

Thanks.