All Forum Posts by: Neil Quinn

I'm not sure about that.  They've already scheduled 7 or 8 conferences after their upcoming meetings.  If you assume a 0.25% bump each time that's 2% right there, which is a massive difference in total interest cost over 30 years.

I'm torn as one.  One thing that bothers me is... if RE takes a dip in 2-3 years, what will interest rates be at that time?  Can easily be 2-3% higher given the expected fed hikes.

Hi all,

I'm looking at buying a primary residence with a goal of renting it out when I leave the area.  This is a high COL area though (DC/NoVA), so trying to get a rough sense of how much negative cashflow I'd have when I leave.

Vacancies, prop management, insurance, etc are all pretty easy to estimate, but I have no idea how to properly estimate capex.

For example, let's take a theoretical older property:

PITI:  $400k condo @ 5.75% interest rate, 20% down. $150 HOA fee.

Assuming 1% property tax, $800/year insurance, no PMI = $2417 per month

Income: Expected rent of $2200 ($26.4k per year)

Expenses:

- 8% vacancy (-$2112)

- 8% prop management (-$2112)

- How much for capex/maintenance? A $3500 hvac unit over 20 years is only $175 per year. Roof would be covered by HOA. Dishwasher/refrigerator/washer/dryer is maybe another $175 per year. Misc small repairs of $500 per year? That puts capex+maintenance at $850, which is a lot smaller than the 50% rule which in this case would be $1200. (-$500)

- Maybe $1k per year in marketing/legal fees (-$1000)

Total delta would be $26400 - $2417*12(PITI) - $2112 - $2112 - $500 - $1000 ~ -$8k per year, not accounting for any depreciation benefits.

Does this look in the ballpark of what I'd expect?  Go higher or lower on capex/maintenance?

You've quoted this a few times, and it may apply to 1 bedrooms, but from my quick look at 20 or so properties in NoVA, the rent and mortgage payment works out to be very, very similar.  Not 30% lower on the rent side.  If you're aware of places in NoVA that truly do rent at 30% higher I'd love to look at them.  I'm basically seeing 0.5% rule of thumb properties everywhere.

@John M. : Thanks for the counter opinion.  I also recently heard Grant's take on this and think it's not a horrible idea either.  While looking at investments though, you do have to take into account the rent as a loss vs. building equity when doing so.  That's the gross downside.

@Sam Shueh  I'm looking in the Northern Virginia area, in the $400-$450k range or so (maybe some upward wiggle room if I can house-hack).

For those that own a primary residence yet, but live in a high CoL area, is this an exception you make to your investing?

I hate renting, but in my area rents are about 0.6% of home value.  Debating if it makes sense to buy primary residence first, or focus on investing first.

Hi all,

I'm debating which order I should approach things.  I currently rent in a high CoL area, which means purchasing homes that will cash flow as an investment isn't really possible.   House-hacking would probably only be possible via a roommate, as multi-families in this area are far and few between, and VERY expensive. (Northern virginia area).  Most rents here are something like 0.6% vs. the ideal 1-2% rule.

I plan to live in this area for 1-3 years, and then attempt to move to the west coast, with the goal to hold and rent the property long term.  The problem with this plan currently is that a primary residence would be a negative cashflow type situation until rent growth catches up, which might take 10 years.

I have no debt, and enough for a down payment, but I'm debating what most people would do in my situation?

1.  Don't buy a primary residence, continue to rent for my primary residence and just look for remote investment properties.

2.  Buy the primary residence, and accept negative cashflow for some time, but get 1-3 years of living out of it in a decent area with hopes of rent growth and appreciation.  (obviously some speculation here).  Would then rent it out for 15-30 years as a long-term play and hope it does well.

Thoughts on what makes sense here?  Interest rates are rising and I'm feeling the pressure to do something.

With expenses + capex + property management, a mortgage equal to rent will simply never cashflow in the short term.  I've looked at numbers like this and in reality you will probably lose around $1000+ per month.  Just using the "50%" rule, you can expect to continue to pay around $1250 per month on average over the life of the property in those types of expenses.  The refrigerator is FAR from an outlier.  When will the roof be replaced? When will the $3500 HVAC unit be replaced?

The main reasons to hold would be:

1.  Expectation of rent growth with people still flooding to the NoVA area (1 million+ new people expected to move to fairfax over the next few years)

2.  Speculation on appreciation

I'm currently looking at properties like this because I need a primary residence, but they certainly aren't investments.  Kind of a balance of just primary residence with hope of growth in the future.  Definitely negative cashflow for the near term, though.

As you can see properties like this are mostly just speculation plays with moderate negative cash flow.  The other thing that will kill your returns is that falls church has a 1.25% property tax, one of the highest in the area.  Other counties here in NoVA are in the 0.9-1% range.

It's possible with rent growth you may be breakeven or positive in 10 years, but I doubt sooner than that.

Right.  I need to find a good comprehensive list of both expense/repair and capex items to help me come up with some better estimates outside of the 50% rule