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quocble (43.79)

Rental Break-Even Analysis

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October 02, 2009 – Comments (8)

I own rental properties.  My success with my first property prompts to rethink that the housing market is the the surest bet for your ROE.   If you put down $20K on a house, and  your mortage + tax + insurance is $450, and your rental income is $950,   You profit $500 x 12 = $6000. That's $6000  on  your initial $20 K investment, that's 30% ROE!! Where else can you get that.  Then of course your property appreciate over time too.

This is a quick look at what the property price would it be attractive enough to make a rental income assuming price goes up and rental income is constant.   So I can be in this market for at least another year while price is under $150K or so.   In Arizona, Prices are $70K right now...

 

Rental Break-Even Analysis


Rental Break-Even Analysis                       
Mortgage    Mortgage    Down Payment    Ins&Tax    Total Cost    Rent    Profit
$60,000.00    ($287.78)    $12,000.00    -180    ($467.78)    $950.00    $482.22
$70,000.00    ($335.75)    $14,000.00    -180    ($515.75)    $950.00    $434.25
$80,000.00    ($383.71)    $16,000.00    -180    ($563.71)    $950.00    $386.29
$90,000.00    ($431.68)    $18,000.00    -180    ($611.68)    $950.00    $338.32
$100,000.00    ($479.64)    $20,000.00    -180    ($659.64)    $950.00    $290.36
$110,000.00    ($527.60)    $22,000.00    -180    ($707.60)    $950.00    $242.40
$120,000.00    ($575.57)    $24,000.00    -180    ($755.57)    $950.00    $194.43
$130,000.00    ($623.53)    $26,000.00    -180    ($803.53)    $951.00    $147.47
$140,000.00    ($671.50)    $28,000.00    -180    ($851.50)    $952.00    $100.50
$150,000.00    ($719.46)    $30,000.00    -180    ($899.46)    $953.00    $53.54
$160,000.00    ($767.42)    $32,000.00    -180    ($947.42)    $954.00    $6.58
$170,000.00    ($815.39)    $34,000.00    -180    ($995.39)    $955.00    ($40.39)
$180,000.00    ($863.35)    $36,000.00    -180    ($1,043.35)    $956.00    ($87.35)
$190,000.00    ($911.32)    $38,000.00    -180    ($1,091.32)    $957.00    ($134.32)
$200,000.00    ($959.28)    $40,000.00    -180    ($1,139.28)    $958.00    ($181.28)

 

8 Comments – Post Your Own

#1) On October 02, 2009 at 8:20 PM, dwot (42.85) wrote:

In some places it may indeed be the time to buy...

I bought where I am, gives me a place to live and I am currently putting suite in so I will have rental income.  

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#2) On October 02, 2009 at 8:27 PM, Mark910 (< 20) wrote:

"Then of course your property appreciate over time too."

haha Do you ever even read a paper..let alone do any financial study.  Perhaps you have been in a vacuum for 2 years.  Best wishes

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#3) On October 02, 2009 at 8:28 PM, ChrisGraley (29.69) wrote:

Maintenance, vacansies, being stiffed on the rent bill?

Not for me at least.

Now if I can do the same thing and get a property management company to worry the other stuff and still come out with a profit I would think about it.

The thing that would worry me though is the house depreciating in a time frame that I might need that money elsewhere,

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#4) On October 02, 2009 at 9:03 PM, russiangambit (29.16) wrote:

Yes, in ideal situation. But what do you do if the renter guts the property and simply takes off? You have to account for this risk.

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#5) On October 02, 2009 at 9:49 PM, outoffocus (22.84) wrote:

The rental break even analysis differs depending on factors such as location (first and foremost), the size of the house, the features of the house, and the market price for the rent.  In some areas of the country renting may be completely unprofitable whereas in others rent may be a cash cow.  Because most properties in the higher populated areas still have a high price/rent ratio I can imagine that buying a property to rent out may not be as profitable as expected. The fact that rents have come down along with housing prices hasn't help the situation any.  Either way people should definitely perform this analysis before deciding to buy rental property so +1 rec.

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#6) On October 02, 2009 at 9:49 PM, outoffocus (22.84) wrote:

The rental break even analysis differs depending on factors such as location (first and foremost), the size of the house, the features of the house, and the market price for the rent.  In some areas of the country renting may be completely unprofitable whereas in others rent may be a cash cow.  Because most properties in the higher populated areas still have a high price/rent ratio I can imagine that buying a property to rent out may not be as profitable as expected. The fact that rents have come down along with housing prices hasn't help the situation any.  Either way people should definitely perform this analysis before deciding to buy rental property so +1 rec.

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#7) On October 02, 2009 at 11:18 PM, APJ4RealHoldings (33.20) wrote:

Be careful of assumptions.

Taxes are not constant & always subject to change. 

But the bigger catalyst is economic activity within an area.  It can dry up in a relative short period of time driving quality people out of the city & plummeting real estate values. 

I mean, why not buy property in Michigan? 

You can buy single family homes for like $5,000, & if you get going market rental rate, you can get more than that...

....but I'm sure getting a rental tenant who has funds & will pay you is like winning a lottery ticket in that city. 

Just using Detroit as an example of an extreme, but remember, they were a major metropolitan area of the United States. 

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#8) On October 02, 2009 at 11:39 PM, APJ4RealHoldings (33.20) wrote:

Hmm. I'm highly tempted now taht I look at Zillow.  Why don't I buy a SFR maybe 2mi walking distance from downtown for less than $10k?

I mean even after broker fees and doing some restoration, total would be something like  $25k-$30k, right?

No mortgage. And $5k/year rental income. Something like $2k/yr in property taxes at most.

Atleast $2k/year pure profit/per home.  All prior sunk costs would be recuperated within 12yrs.  

Talk me out of it quocble or Fools

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