A better investment ?

[JMPRO]

There is a house for sale in the neighborhood where my rental house is located and they want $499k for it. This is in a beach community in southern Cal. Rents are easy there and the place would rent for about $1900.00 a month. I'm thinking I could buy the place with cash, as in no loan and I would make about 3% on my money after taxes and expences. That is better than I could make on my money in almost any other case. I don't see prices going down any further in that area and its on a nice lot that I could build on for myself later on. It also has an ocean view which is a plus. If I had to borrow the 499k this would not be a good deal but since I have the money and can't make any where near this return in savings or a cd . The worst case is
I can't get a renter{so far not a problem}
Bottom drops out on property { looks like we have reached the bottom}
The area which is near the beach falls off into the ocean in the next big earth quake. Ok now everyone shoot holes in my plan.

[Steve Viegas]

If you are looking for a 3% return, there are probably safer ways to do it (tax free bonds might even pay higher at this point).

I am in commercial real estate (therefore my opinion will be biased) but if you were to purchase say a commercial property, backed by a fortune 500 company, you could probably receive 7-8% on your money and not have any headaches for 20 years if the lease is set up properly.

Just my $0.02 and may not even be worth that.

[911Freak]

Originally Posted by Steve Viegas

If you are looking for a 3% return, there are probably safer ways to do it (tax free bonds might even pay higher at this point).

I am in commercial real estate (therefore my opinion will be biased) but if you were to purchase say a commercial property, backed by a fortune 500 company, you could probably receive 7-8% on your money and not have any headaches for 20 years if the lease is set up properly.

Just my $0.02 and may not even be worth that.

Not bad advice here...

Or, you could consider what we're doing: buying duplex properties both Sacramento area at $105k to $125k and Condo in SoCal @ $120k to $175k

Long hold not flipping

Rents range from $700-$1200 per unit in Sac and $1200 to $1400 in SoCal (valley).

Price point values we use are 2002/2003, so we buy at that mark.
We've used funds from a self-directed 401k(property is held in an LLC), cash and short term conv. loans

ROI is 20% net net on rental income (incl property mngmnt and maint), not counting the annualized increase in equity...


But, your home with an ocean view in SoCal will always be desirable.. I'd just really put a lot of thought into diversifying that 499K into multiple investment properties and/or other investments, but that's just me, YMMV

I also assume the 499k isn't your entire nest egg, right?

Good luck!

Jason

[vwbobd]

Dont know if it is wise to seek investment advice from a bunch of car nuts like us, but I like the safety of the bond market,

[911Freak]

Originally Posted by vwbobd

Dont know if it is wise to seek investment advice from a bunch of car nuts like us, but I like the safety of the bond market,

LMAO, so very true!

Hey at-least we are suggesting buying vintage 911's to restore and flip!

[lukeh]

Originally Posted by JMPRO

I would make about 3% on my money after taxes and expences. That is better than I could make on my money in almost any other case. .

I'd say the exact opposite. I don't see how a person couldn't make better than a 3% rate of return. Unless of course their only investment options are named Sealy, Serta or Tempur Pedic.

[JMPRO]

I looked at the lot late Saturday. It is a corner lot with an nice ocean view but is very hilly. It would require some very expensive retaining walls to tear down the old house and build new. Probably not a good idea for me. Thanks for your suggestions.

[turbo6bar]

3% cash-on-cash on an asset that could potentially depreciate?

Pass.

[McLovin]

Originally Posted by turbo6bar

3% cash-on-cash on an asset that could potentially depreciate?

And also requires $500K cash, and also, in order to get that 3%, presumes a ZERO percent vacancy rate and ZERO in unexpected expenses.

If you want to invest in rental property, invest in real rental property, i.e., one that has real returns. For $500K down, you can buy a $1.6 million apt complex that generates $400K a year in revenue (instead of your projected meager $22.8K in revenue). (Yes, it will have to be outside of California, but it will cash flow with professional management and be a better use of the $500K).

Or, if you want 3% return, you can easily and safely get that in a tax free municipal bond fund (one that is like a mutual fund, spreading its purchases out over many different municipal bonds). You'd get more than 3%, and no headache, unexpected expenses.

[pwd72s]

Originally Posted by JMPRO

There is a house for sale in the neighborhood where my rental house is located and they want $499k for it. This is in a beach community in southern Cal. Rents are easy there and the place would rent for about $1900.00 a month. I'm thinking I could buy the place with cash, as in no loan and I would make about 3% on my money after taxes and expences. That is better than I could make on my money in almost any other case. I don't see prices going down any further in that area and its on a nice lot that I could build on for myself later on. It also has an ocean view which is a plus. If I had to borrow the 499k this would not be a good deal but since I have the money and can't make any where near this return in savings or a cd . The worst case is
I can't get a renter{so far not a problem}
Bottom drops out on property { looks like we have reached the bottom}
The area which is near the beach falls off into the ocean in the next big earth quake. Ok now everyone shoot holes in my plan.

You are aware that a tax on rent is part of the health care plan, aren't you?
Since I'm no longer a landlord, I don't know the %age that the feds will take.