What is the point of a home appraisal?

[TexasHusker]

How is the rental income taxed? Is that also treated as ordinary income? If so, it's not really 72K vs 2K/month; it's 112K vs 2K/month. So you'd have to have it rented out for nearly 5 years to make that money. There are also some risks with the rentals that you don't have with the quick flip: vacancy, damage, etc. (although you may already factor that in to your expenses).

Definitely tempting to make that kind of money that quickly, but then you're left with 350K that you need to do something else with.

If I sold, I'd owe $40K in taxes, so my cash-in-hand is $72K. The cabin rents generates $36-40K per year in top line revenue. I budget 15 percent per year for all of my properties for repairs and maintenance, and this is usually pretty close. I then have utilities, HOA fees, insurance, and taxes.

It is true that $2,000 a month is also taxed at ordinary income, but I get a chunk of that back with the depreciation of the property, $200K/27.5 X 35%. That adds back in around $200 a month.

So after 35% income tax, I'm at around $1430 per month, or around $17K a year. It would take around 4.5 years to get back my $72K.

However, even if the property increases in value a modest 5 percent for the next 4.5 years, it is then worth around $400K. At that point, I could sell it with a gain of $170K, taxed at 15-20% instead of 35%, and having around $70K in net income as well.

Here is my proforma for this particular property:

[disneysteve]

If I sold, I'd owe $40K in taxes, so my cash-in-hand is $72K. The cabin rents generates $36-40K per year in top line revenue. I budget 15 percent per year for all of my properties for repairs and maintenance, and this is usually pretty close. I then have utilities, HOA fees, insurance, and taxes.

It is true that $2,000 a month is also taxed at ordinary income, but I get a chunk of that back with the depreciation of the property, $200K/27.5 X 35%. That adds back in around $200 a month.

So after 35% income tax, I'm at around $1430 per month, or around $17K a year. It would take around 4.5 years to get back my $72K.

However, even if the property increases in value a modest 5 percent for the next 4.5 years, it is then worth around $400K. At that point, I could sell it with a gain of $170K, taxed at 15-20% instead of 35%, and having around $70K in net income as well.

That all makes perfect sense. Obviously you've run the numbers and thought it through and it makes more sense to hold onto a solid income-generating asset rather than selling it for a quick profit (which wasn't your intent anyway when you bought it). So crazy that the market is such that you even had to think about it.

[TexasHusker]

That all makes perfect sense. Obviously you've run the numbers and thought it through and it makes more sense to hold onto a solid income-generating asset rather than selling it for a quick profit (which wasn't your intent anyway when you bought it). So crazy that the market is such that you even had to think about it.

It was very tempting, mainly for pride's sake. What I am going to do is just get a mortgage on the property and pull a chunk of the cash back out. That cranks up the yield hugely, as I'm only investing $50K-ish. Although I now have a mortgage pmt to make.

[TexasHusker]

The annual return on investment with a mortgage jumps to 46% percent. Here's the proforma with the mortgage.

[disneysteve]

It was very tempting, mainly for pride's sake. What I am going to do is just get a mortgage on the property and pull a chunk of the cash back out. That cranks up the yield hugely, as I'm only investing $50K-ish. Although I now have a mortgage pmt to make.

What are your plans for the cash? Another property?

[TexasHusker]

What are your plans for the cash? Another property?

I'm not really a buyer of real estate right now unless it's just some crazy, ridiculous good buy. I got lucky on a couple. But I am sure something will come along that catches my eye. I wouldn't mind buying more farm land, or perhaps invest in another business. Wait and see.

I like to sit on a fair amount of cash and just kind of wait and see what comes along. Often, the best opportunities present out of nowhere.

[TexasHusker]

This is the cabin I just closed on this week. Million dollar views!

https://cabinsneargatlinburg.com/cabins/songbird-of-the-mountain

[james.hendrickson]

This is the cabin I just closed on this week. Million dollar views!

https://cabinsneargatlinburg.com/cabins/songbird-of-the-mountain

Gorgeous view Texas.

[bjl584]

This is the cabin I just closed on this week. Million dollar views!

https://cabinsneargatlinburg.com/cabins/songbird-of-the-mountain

very nice!

[LivingAlmostLarge]

so nice. How do you find these deals?

[TexasHusker]

so nice. How do you find these deals?

I know this will sound trite, but if you keep chunks of cash ready to deploy and not go actively trying to invest today on a good deal, some very, very good deals will parade right in front of your nose.

Both of these were clients, and both called or texted me that they wanted to sell immediately. Being a cash buyer who could send them a check almost immediately, I was able to prevent the houses from hitting the open market.

The really great deals don’t come along often, but they do come along, and when you’re ready to execute, the profits can be out of this world.

A year ago, a fellow was REALLY needing to sell his Ferrari. I paid him cash for it on the spot, and will likely make a 50% profit when I’m ready to sell. Of course, a car is no investment, but driving a Ferrari for free ain’t a bad consolation prize.

[LivingAlmostLarge]

I know this will sound trite, but if you keep chunks of cash ready to deploy and not go actively trying to invest today on a good deal, some very, very good deals will parade right in front of your nose.

Both of these were clients, and both called or texted me that they wanted to sell immediately. Being a cash buyer who could send them a check almost immediately, I was able to prevent the houses from hitting the open market.

The really great deals don’t come along often, but they do come along, and when you’re ready to execute, the profits can be out of this world.

A year ago, a fellow was REALLY needing to sell his Ferrari. I paid him cash for it on the spot, and will likely make a 50% profit when I’m ready to sell. Of course, a car is no investment, but driving a Ferrari for free ain’t a bad consolation prize.

How much did you buy the ferrari for? Why'd the guy sell it?

[TexasHusker]

How much did you buy the ferrari for? Why'd the guy sell it?

Still way too much and he needed the cash!

[disneysteve]

Still way too much and he needed the cash!

It says a lot about how poorly folks manage money regardless of income that a guy driving around in a Ferrari was forced to sell it because he needed cash.

[james.hendrickson]

How much did you buy the ferrari for? Why'd the guy sell it?

Texas, level with us. Was the Ferrari fun to drive?