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Old 05-15-2018, 02:59 PM
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Default Sell Rental Home & Invest In Index Funds

Hello everyone! Here I am asking for y'all's advice again.

I have a paid off home in worth 570K in California.

My capital gains is 24%. I will be renewing the lease for $2,700/month.

Any thoughts? I live in another state from the rental so I pay a management fee to maintain it.
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Old 05-15-2018, 05:06 PM
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Originally Posted by firehawkocean View Post
Hello everyone! Here I am asking for y'all's advice again.

I have a paid off home in worth 570K in California.

My capital gains is 24%. I will be renewing the lease for $2,700/month.

Any thoughts? I live in another state from the rental so I pay a management fee to maintain it.
That is an incredibly cheap rent for a house that worth that much. A nice house should be renting for approximately .75% to 1% of its value each month. I think your property management company might be incompetent.
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Old 05-15-2018, 08:47 PM
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Originally Posted by TexasHusker View Post
That is an incredibly cheap rent for a house that worth that much. A nice house should be renting for approximately .75% to 1% of its value each month. I think your property management company might be incompetent.
Maybe itís different in California? I live in Southern California and the rent stated by the OP seems in line with the prices out here. I would never pay the minimum suggested $4,275 on a home only worth $570k.

I just did a quick calculation for our rent and itís about .5% of the home value. $3,200/mo on a $650k home.

I donít think his property management company is incompentent.
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Old 05-15-2018, 09:29 PM
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Originally Posted by jenn_jenn View Post
Maybe it’s different in California? I live in Southern California and the rent stated by the OP seems in line with the prices out here. I would never pay the minimum suggested $4,275 on a home only worth $570k.

I just did a quick calculation for our rent and it’s about .5% of the home value. $3,200/mo on a $650k home.

I don’t think his property management company is incompentent.
Maybe that’s why I’m not buying RE in CA. That state is some sort of screwed up.

If rent is that cheap, who is buying those houses, and why?
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Old 05-16-2018, 07:10 AM
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Originally Posted by TexasHusker View Post
Maybe thatís why Iím not buying RE in CA. That state is some sort of screwed up.

If rent is that cheap, who is buying those houses, and why?
Areas where real estate is inherently more expensive all suffer from this. In Alaska, my house is worth $425k-$450k, but a market rent would only be $2200-$2400 (just over .5% of value). It makes owning rentals less advantageous, but if this is where you live & want to get into real estate, this is the environment that you're forced to operate within.
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Old 05-16-2018, 08:02 AM
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Areas where real estate is inherently more expensive all suffer from this. In Alaska, my house is worth $425k-$450k, but a market rent would only be $2200-$2400 (just over .5% of value). It makes owning rentals less advantageous, but if this is where you live & want to get into real estate, this is the environment that you're forced to operate within.
If I could rent a house for less than a half percent per month of the home's value, I'd never buy.

Think about it: If you had a $500K house, yet you could rent that house for $2500 per month, you could sell the $500K house, invest in something yielding 6%, and use the earnings to pay your rent. You'd never have to touch the underlying $500K.

That's pretty incredible.
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Old 05-16-2018, 08:36 AM
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If rent is that cheap, who is buying those houses, and why?
Ack, that would be me. We're house hunting right now and I'm so nervous that it's not a good decision.
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Old 05-16-2018, 10:15 AM
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Quote:
Originally Posted by TexasHusker View Post
If I could rent a house for less than a half percent per month of the home's value, I'd never buy.

Think about it: If you had a $500K house, yet you could rent that house for $2500 per month, you could sell the $500K house, invest in something yielding 6%, and use the earnings to pay your rent. You'd never have to touch the underlying $500K.

That's pretty incredible.
The CA real estate market is insane. Most people can't afford to own. The average home price is far out of reach for the average wage earner. There's no way to stay within the 3x income guideline for most folks. Just a quick search showed data from a couple of years ago: median home price $393,000; median income $78,000. So you'd need to spend just over 5x income which is nuts.
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Old 05-16-2018, 04:32 PM
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The CA real estate market is insane. Most people can't afford to own. The average home price is far out of reach for the average wage earner. There's no way to stay within the 3x income guideline for most folks. Just a quick search showed data from a couple of years ago: median home price $393,000; median income $78,000. So you'd need to spend just over 5x income which is nuts.
For whatever reason, the demand is there. Yet there seems to be a massive market imbalance of some sort if the rents are only .5% per month of values.

Almost reminds me of an inverted treasury yield curve, whereby the shorter term rates are higher than the longer term. Of course, that situation is often caused by artificial tampering/manipulating by the Fed outside the bounds of pure supply and demand. A truly dangerous game that almost always ends badly. But I digress.

I am completely unfamiliar with CA, but with that sort of market imbalance, I have to wonder if the state government and taxing authorities there are tampering in some way to create the anomaly. It is certainly unhealthy.
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Old 05-17-2018, 10:27 AM
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Originally Posted by firehawkocean View Post
Hello everyone! Here I am asking for y'all's advice again.

I have a paid off home in worth 570K in California.

My capital gains is 24%. I will be renewing the lease for $2,700/month.

Any thoughts? I live in another state from the rental so I pay a management fee to maintain it.
If you had $570k in the bank and the opportunity to buy this house as a rental, would you do it?
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Old 05-17-2018, 11:26 AM
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In HCOLA people don't buy rentals for cash flow. They usually are negative cash flow but buy for appreciation. Thus it's not a good deal for anyone unable to carry properties easily. And super easy to lose your shirt in those markets.
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Old 05-18-2018, 04:42 AM
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Thanks for the responses, everyone!

I have a Deputy in there and they accepted a $200/month rent raise for 2 years, so I will hang onto it for another 2+ years at least.

While it doesn't provide me tons of income, I really like the opportunity for appreciation & diversity in my portfolio. However, y'all's points are well taken.

Thanks again!
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