Betting on appreciation is speculation. I don’t have a problem with speculation, but that is a different business than the rental business.
Mike
Well I never said it was a good deal, just that things are different here. And this is for a condo that’s in Boston. He already owns a unit in the building and I think he normally lists the property with a realtor and pays 1/2 month rent, but I think in this case, he found a tenant he knew so he didn’t have to pay a fee. He also put 20% down on the property so his mortgage is somewhere around $1200-$1300 a month as I think he got a 5 year interest only mortgage.
With condo’s, the condo fee includes insurance, a separate unit policy is about $150-$250 a year. Taxes are around $2000 a year. No advertising expenses as he pays a 1/2 month fee. No office supplies as he works in the office. No maintenace expense as it’s a well run building and things outside the unit are covered by the condo fee. As he already has a unit there, he knows that there’s no special upcoming assessment. I don’t think he’s actually had to do an eviction, he just seems to get good tenants with good credit reports. Most of his units are in nicer areas so he doesn’t get too many bad ones. As for legal fees, our office uses one attorney most of the time when buyers/sellers don’t have representation so we talk to the attorney all the time and can sometimes slip in basic questions for free. Also as Realtors, the board membership gives you free access to the board’s attorney for general advice.
Anyway, I leave these deals too, just pointing out what the market is like in Boston. I think his plan again is to hold for a while. I think he bought a unit there about 5 years ago for 50k less and I think he picked up this unit was because it was selling at a discount, typically they used to go for 280-300k. The market will probably pick up again in a year or two, but I’m guess he’s going to hold for at least 5-10 years before selling if that.
Oh, and I never said he had positive cash flow, it’s definately negative. It only goes positive when he does his taxes and takes the depreciation and the interest deduction. As he’s in a high tax bracket, I guess the deductions are worth more to him.
This exactly true. Also, the underlying goals and financial condition of the investor will also dictate what investment strategy is best suited for that individual. That’s not to say that the “2% rule” proposed where will not work, but it confine your investments to a certain range and class of properties.