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.