All Forum Posts by: Michael C.

10 paid off rentals is certainly better than 10 rentals with payments.

That's not really the choice, though. More like 2 paid off rentals or 10 with payments.

Like C Burris said, do the math. Lets say you can buy $75,000 houses that will rent for $1200/month. And that you have about $80,000 in cash. You could either buy one for cash or five with 20% down payments plus closing costs. Lets assume 50% of rent for expenses, vacancy, capital improvements, etc.

One house
Investment $77,000 (w/ closing costs)
Rent $1,200
Expenses $600
NOI $600/month
Payments $0
Cash flow $600/month
Cash flow $7,200/year
Cash on cash return 9.35%

Five houses with payments
Investment $85,000 (20% down plus closing costs on each one)
Rent $6000/month
Expenses $3000/month
NOI $3000/month
Payments $2500/month
Cash flow $500/month
Cash flow $6000/year
Cash on cash return 7.06%

Hmmm. Looks better to own just the one. Though, not actually very much different.

Fast forward 30 years, and lets have a second look. Assume inflation has driven up the value of the houses, the rent and expenses by 3% per year. This is a really bad assumption, and very unlikely to actually play out, but any other set of assumptions, including no changes is at least as bad. Values rounded.

Value of each house $182,000
Rent $2900
Expenses $1450
Annual cash flow from one house: $17,400

Since all the houses are paid off at this point, the holder of one house has equity of $182,000 and annual cash flow of $17,400. The holder of five houses has equity of $910,000 and annual cash flow of $87,000.

A related question, which I just don't have the time to answer right now is the cumulative cash flow for the two scenarios.

And, there are other considerations here. After 27.5 years, there is no depreciation deduction. That makes the tax situation less favorable after 27.5 years. So, realistically, you may do things like 1031 exchanges to move from these specific houses to others as time goes by.

Originally posted by Mike Seluk:

I'm with ya. ^^^ The hype around here lately is all about how sales are starting to pick up.

I mean, I know things took a dump, but stuff is still pretty expensive. The median price for a SFH here is still 200k. Getting something to cashflow...no way. A lot of people are losing jobs, we're out of season, gas and food are getting more expensive everyday...I don't know if your average household around here can swing something like that right now.

Bottom? Maybe. Recovery? I have a hard time believing that, though it IS a good time to buy if you're stable.

Another thing I wonder about is who is buying the houses here. We're still a vacation/retirement destination, so there are eyes from all over the US and globe on this market. I suspect that SOMEWHERE, someone has money to spend, and while it still might be pricey for locals, others see a big sign that says, "30% OFF!!"

Mike
Go to www.leeclerk.org check the last 2 days of deeds. Open the deed and look at the address of the person taking title. Our market has levels in it. At a cetain price point they are local, above that they are north and west of PA .

Sale volume drives prices down until the inventory declines( on this side of the cycle). Go to the www.swflreia.com homepage, I have some market studys there, that will shed some more light.

Do not buy Neg. Cash flow right now. Starting to see Positive cash flow at my offering numbers.

What is bottom? I do not have a clue. I think bottom is when the prices stop decling, most link that to appreciation.

Locally, for ever 2 deeds we transfer at the courthouse steps, they sell one out of the MLS. Pending sales numbers while are up over last year, are trending down.............
This is the time for the ditch within the valley.
If you have some money take a shot in Sept