Bay Area Property Analysis and Question - Posted by Robert

Posted by camgere on April 17, 2007 at 14:46:43:

Since your pre-tax cash flow is $140 a year, your $1 million dollar asset ($644,000 equity) is a pretty lazy investment. I always consider tax advantages (depreciation etc) to be gravy, but that’s probably only worth a few thousand a year at best. So this house only makes sense as an appreciation play. Who knows, five years from now it could appreciate 10%+ annually again.

However if you like real estate and want a more predicatable return then cash flow is more likely to predict correctly. You could obviously 1031 into a $644,000 fourplex/apartment building and your cap rate is your cash flow (6% -10%) and your money is working much harder for you. Or you could leverage into a building and reduce your cash flow but possible increase your appreciation (part of your rent is paying the mortgage).

If you really like real estate you could find an underperforming small apartment and play turn around. Buy it cheap based on high vacancy rates and terrible property management, rehab it, fill it with good tenants, refi it based on higher rent and occupancy, pull your investment back out and just consider any cash flow as free money (I had to put on my Hawaiian late night TV shirt for that fantasy).

If it will make you feel better I’ve owned several investments similar to yours, so I know the feeling.

Bay Area Property Analysis and Question - Posted by Robert

Posted by Robert on April 17, 2007 at 10:00:16:

Here’s a property profile for my investment property in the SF Bay Area. It use to be my primary home for about 5 years. I am attached to this property since I did live in it for some time and the home is sitting on the water. So you can water ski from your deck. I now own a larger home nearby w/ LTV about 60%. (Please see below).

The property is not doing much for me in terms of an investment. I am considering selling the property in a 1031 exchange for something else (commercial)that will cash flow, perhaps in another state.

I would appreciate you folks opinion. Should I do this?
Also, I am not sure if I did the analysis correct. I am also not sure how to calc CoC return for my property.

I appreciate any comments. Thanks.

Robert


Property Profile

Property Name: Rental(SFR)_____________ Date prepared: 04/16/2007

Description: Residential 3bd rm/2.5 bath

Date Acquired: 02/27/1996
Address: Datham Dr. San Mateo, CA 94080
Parcel Size: 2300 sq ft
Zoning: Residential

Permitted Uses:
Value: Tax-assessed value: $400,000.00
Market Value (Cap rate 3.18 %) : $1,000.000.00

Debt: Balance- 1st lien:$356,000
Terms: Amortization: 30 years
Rate: 5.625%
LTV: 64%
Equity: (Market Value ? Total Debt) : $644,000.00
Book Value (Tax Basis) : $
Initial Capital Investment : $ 65,000.00
Total Investment (Initial investment + Capital improvements) : $ 85,000.00
Depreciation schedules for Improvements (componentized?)

Annual Financial Data 2006 actual
Income: $31,800.00
Gross Income: $31,800.00
Operating Expenses: $ 6,820.00
NOI: $24,980.00
Debt Service: $24,840.00
Pre-tax Cash Flow: $ 140.00

Performance Measures: 100%
Physical Occupancy: 100%
Economic Occupancy: 100%
Break-Even Occupancy:100%
Per Unit Income (annual/monthly) : $31,800/$2,650

Ratios
Cash on Cash Return: 1.005: 1.0
Debt Coverage Ratio: .001%
Return on Equity: %

Re: Bay Area Property Analysis and Question - Posted by Rich

Posted by Rich on April 17, 2007 at 19:54:23:

I’m in the East Bay. The prices are a bit soft right now. I would have a Realtor run a comps list for the house looking only at pending or sold prices. People can ask anything they want, but it takes a buyer to make a price real. I have found a huge gap between what people ask and what they get.

I sold our rentals in 2004 and 2005 (Walnut Creek), and rolled a large amount into other areas that have performed well for us.