Irvine Housing Blog

Good post today.  A $325K 2 bedroom below rental parity.  Irvine must be in a Depression to get such a good deal.

>  Savings = Income - Expenses

Thanks IR.

Focusing on Net Income and using Roth IRA are great ideas!

The realtor needs to look up how to spell “separate”.

IR, not sure what you mean when you say un-debted real estate is akin to REIT shares. Can you explain?

IrvineRenter,
“After age 59 1/2, there is no longer income tax claims on the rental income. If an investor owns the property in California, the property taxes are limited too. “

Are there no income taxes for rental income (Sch E)?  How does one fill out the form to remove the Sch E income after on the 1040 or is it removed on Sch E itself?

Owning rental property without a mgr can be a lot of work, especially in a harsh climate or poorer area.  As for Planet Reality comment, rents do go down and they can be vacant for some time.  It’s a lot easier to ride out the loss of rental income when the property is free and clear.  Had a unit vacant for 6 months.  Had to do an eviction too and fix extensive damages.  All these expenses add up and most of the time collecting on an evicted tentant is very hard if not impossible.  One bad one >  4 years of profit on a unit.

Out of curiosity, where was the photo taken that shows the luxury high rise next to the slums?

A period (.) denotes the end of a sentence.
It’s too much to ask for sentences from RE ads.  That would cost an extra $25,000 for the personalized RE service.

There is a reason why this place is priced low. I actually went and took a look at this place and it was like touring a dungeon. You don’t get any sun light!!! It certainly does look good on paper but I know for certain that I can’t last a day in this place.

Until you actually have rented a few homes you have no expericence at how bad it can get and I have rented two in my life that I owned and now I am a renter as well.

Both homes one was a wash and the other a total mess with lawsuits with a large loss.

The folks thought they could blackmail me for money as well. A long story they went BK it cost me three years of my life and twenty K in attorney fees and even more on loss of property because of prior fire. They were found guilty in the end.

Here in CA those that have owned property years prior have the lower tax rate and can rent a lot less you have to compete with those folks as well.

For example I rent from a man who has owned this home for twenty years his tax on it is 4k. But the neighbor next to us has owned hers for thirty years and her tax base is not even 2k. Imagine if she rented that house it would push rents down even further.

I also think it was great to be a landlord when prices are going up but not when they are going down. No one buys a depreciating asset with an unlimited amount of downside risk that is unknown.

So external factors are to be considered along with location and rent. Time waiting for profits is money wasted.

Because the other alternative is cash flow and that is dividends in the form of safe haven stocks. That income is much more liquid you can sell a stock in one day. You can buy in a roth or a MLP and have the money invested without tax payments until you sell—or you can do an IRA as well.

So you have a lot of options best bet is to do all of them. So you are using every resource available to you to increase your income.

The biggest mistake is always putting everything in one basket your friend had terrible advice.

One has cash, stocks with dividends, and owns property with cash flow so when one of these has problems the other asset can keep them afloat.

And I will say not every area is desirable for renting as we can see many empty homes just sitting.

Not only are you losing owing the mortgage costs but taxes as well and maintenance.

One of our friends bought a house in Riverside 5 years ago for his son to go to college and rent it out. The loss on this home is 50% it’s price. The breakeven was the boys paying the mortgage. So what does he do now? Walk away I assume. All equity and down payment will be lost.

People involved in larger pooled groups who are buying up homes and renting them out with available tax advantages are the ones who will survive because they have much more leverge.

A single person who is doing this must have a very large amount of free cash here in CA to withstand the loss of rent and the devaluation of property.

Just my experience for what it’s worth.

I don’t see how real estate is supposed to deliver annual appreciation of 6% (if the seller gets his asking price) while stock markets deliver a zero percent or negative return over the same period with more volatility. From that perspective this property is still overpriced. And I agree with wheresthebeef that rents are falling in Irvine so the rental parity comparison may be true today but things will look quite different in a year or two after rents are down 20-30%.

re: Wealth = Assets - Liabilities
Greenspan used a formula like that in his book to say it was ok that people had huge debts relative to their incomes, because the value of their assets (ex. housing, stocks) had risen as well.
Of course, when the market value of the assets crashed, but the debts remained, we all know that didn’t work out so well…

http://www.cnbc.com//id/36667656
“The average number of days from when a borrower stops paying on his/her mortgage to when the bank sends out the first foreclosure notice is 417, Zelman notes, and the final foreclosure can take up to a year more.”

Can this be true?  Or just media smoke?

If RE is in a IRA, and you’re tax deferred until you take out the money, are you lossing the deduction on the depreciation before 59 1/2, but paying the tax on the sale even when the depreciation benifit was not taken?  Depreciation must be declared yearly, even if no benifit to you.  For example, high tax bracket and AMTed out so no deduction or taking depreciation in low tax bracket and must pay tax on the accumulated depreciation when in high tax bracket upon sale of the property.

I am terrified of being a landlord, because I have no home-improvement skills, and have had bad experiences finding good help. Plenty of people say they’ll show up, but don’t, including some whites ones bitch incessantly about immigrants taking all the construction work.

I figure I’d need to find a solid carpenter/electrician/handyman, and then pay him 25% above his usual rates, so he’s eager to show up.

Thanks for today’s post: A light bulb went on above my head. The distinction between speculative and cash-flow investment should not be taken lightly. Sometimes speculation can be a better play, but not usually.

I think a lot of today’s landlords fail to understand this, because they failed to examine the possibility of surviving on rental income alone, sans appreciation. My current and previous landlords had no idea what they had signed up for, and the current one still doesn’t. I doubt he even scribbled the pros and cons on the back of a napkin before buying this place.

The issue of encumbrance has ugly implications for those with limited capital. Mine capital grows slowly, month after month, from living within my means, but is not yet large enough to purchase an income-producing asset with little debt load. I see partnerships and REITs as encumbrances of a sort, albeit light ones: every additional party you share ownership with makes the asset less liquid and/or limits your freedom of action: yech.

It is good to be Warren Buffett.

I won’t be signing up to be a landlord, ever, but today’s post set the gears grinding in my little. head. All my gains so far in life have been in speculative investments: commodities, index funds. I can’t limit myself like this.

Landlording will come back to bite you in the ass.

If it were really such a great idea, the banks would be renting the units out instead of selling them.

Reading the copy in the listing tells me everything I need to know.

EQUITY SALE!!! blah blah blah.

Code for.

I CAN’T FIND A RENTER!

Just because some fool overpays for a similar rental doesn’t mean they’ll overpay for yours.  No different than a buyer overpaying for the house next door.

Things I’ve learned being a landlord:

*  Get a good property manager.  Difference between good, experienced manager vs. inexperienced one is that the first is pro-active and the second is re-active.  Experienced managers will take steps to minimize future problems, versus inexperienced managers hasn’t seen enough problems with tenants to raise red flags.

Why get a property manager?  You want to get a call at 10am from your tenant about a backed up toilet?  No?  Pay the $$ for a manager.

*  Real estate, like any other investment, carries risk.  But an analysis should not be based solely on numbers.  When you’re looking at a property, take a more holistic view and ask yourself “how do I feel here?”

Aristotle wrote “The whole is more than the sum of its parts”.  The parts (wood, carpet, etc) used to build the house alone does not consititute all the external factors in the environment that affects your mood and emotion.  If you go inside a house and the place makes you feel in a negative way, chances are that your tenants may feel the same, so don’t buy it.  In some cases it can be remedied with rennovation, but you’d be taking a chance.

Only invest in properties that 1) generate positive cash flow, and 2) makes you “feel good”, or at least neutral.

*  Your home (personal residence) is not an investment property.  As a matter of fact, like your car it’s a financial liability because it doesn’t generate profit.  Do not treat your “home” as an investment.

*  If anyone is interested in using their 401K or IRA account for self-directed IRA investment in RE, you must consult a professional.  Do not attempt yourself.

I enjoyed the article.

Some of my clients are still in the housing market after the bubble collapse and are doing quite well.  They are those that didn’t overextend themselves and created an income flow.

Positive cash flow is really the only way to become rich.