Re: Is a high property value area a bad area? - Posted by Frank Chin
Posted by Frank Chin on August 18, 2003 at 08:47:40:
First you don’t buy SFR’s in 200K to 400K areas to rent them out. There are some exceptions, and these work in “high appreciating areas” such as NYC, San Francisco etc.
My brother in law is one exception. He’s a doctor with high income, a wife with high income, plus a free and clear multi family. Add that to high taxes in California.
So he did a 1031 for two SFR’s where he made a huge down payment, plus picked up a mortgage. Things were arranged so that there’s no income derived from the rent for tax reasons.
In effect, he created a tax shelter for himself. Prices of the SFR in the 400K range when he picked it up, and peaked at $1,000,000 a year or so ago in San Franciscon. So he doesn’t need to charge sky high rents, but just enough to carry the mortgage, show no income or a slight loss for tax purposes.
He’s making his money on appreciation.
I own a SFR that I bought 20 years ago for 70K as a preforeclosure, and I now rent in out for $1,700/month. Market rents are $2,000/month plus. FMV for the SFR is in the 300K range, give or take.
For me, the appreciation is the main thing, and cash flow is the gravey. My P&I, esrcow only comes to $1,200/month this year, up from $1,100 just a year or so ago.
Another exception I know of is a freind of mine who rents a SFR in a 400K area. The owner is only charging $2,250/month.
The owner is an executive from Taiwan, and expects to be back in a few years. He’s only charging enough to carry the expenses till he returns.
With these exceptions, it really doesn’t pay to buy SFR is 200K to 400K areas to rent out. The corrallory to this rule is there’s hardly anything for rent in these areas.
That’s the reason SFR in these areas are easy to rent if you’re a landlord, but difficult to find if you’re a renter.
But these areas are definitely not for cash flow investors.