CNBC: Real estate agents canceling open houses due to lack of buyer interest

joedlrt wrote:

Quick analysis. Here is a modestly priced condo in Bellevue:

Link:www.zillow.com/homedetails/511-100th-A...

It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:

Principal and Interest: $2,389 a month

Taxes: $442 a month

HOA fee: $271 a month

Insurance: $184 a month

Total monthly payment: $3,386

So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.

So, currently he would be paying $19,800 a year in rent for this unit.

If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.

In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.

In my opinion, he is better off renting for now.

joedlrt wrote:

Quick analysis. Here is a modestly priced condo in Bellevue:

Link:www.zillow.com/homedetails/511-100th-A...

It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:

Principal and Interest: $2,389 a month

Taxes: $442 a month

HOA fee: $271 a month

Insurance: $184 a month

Total monthly payment: $3,386

So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.

So, currently he would be paying $19,800 a year in rent for this unit.

If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.

In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.

In my opinion, he is better off renting for now.

joedlrt wrote:

Quick analysis. Here is a modestly priced condo in Bellevue:

Link:www.zillow.com/homedetails/511-100th-A...

It was on the market as a rental a short time ago at $1,650 a month. Here is a breakdown of what it would cost to buy with traditional financing:

Principal and Interest: $2,389 a month

Taxes: $442 a month

HOA fee: $271 a month

Insurance: $184 a month

Total monthly payment: $3,386

So, he would have to pay $1,736 a month more to own than to rent (basically more than double his rent). Now, he would be able to write off the taxes and about 80% of the P and I early on, but only that which is over and above what he would get from the standard deduction from his taxable income. So, $5,304 in taxes and $22,934 minus $12,550 (or $10,384) he might have a couple more write offs if he donated to charity. So his income tax will be reduced by $15,688 times his marginal federal tax rate (WA does not levy a state income tax, I'll assume he's in the 25% tax bracket), so he would avoid having to pay $3,922 in income taxes each year.

So, currently he would be paying $19,800 a year in rent for this unit.

If he were to buy it and finance it at today's rates on a traditional thirty-year fixed with 20% down, he would pay $40,632 a year, he would pay $3,922 less in income tax and he would retain about $5,700 a year in principal during the first five years or so of his loan. So, real cost would be closer to $31,000 a year.

In order for this to be a profitable investment for jamin, the property would need to appreciate in price by at least $11,300 per year (a big question mark given the rise in interest rates and likely decline of the market) and he would have to hold it long enough to overcome the transaction costs associated with buying and selling a property (typically about 6%) and whatever maintenance he would have to perform to the interior of the property (paint, light bulbs, etc.). He might be able to do better with a property with multiple bedrooms and rent out one of the other rooms.

In my opinion, he is better off renting for now.

jamin wrote:

Landlords can't just raise rent willy-nilly. If that were the case, why can't landlords band together and create some price-fixing pact where they triple rents?

In cities where renting is much cheaper than buying, such as Seattle or San Francisco, landlords who are renting out individual houses or condos aren't trying to maximize their rental income, because they expect to make money off the appreciation of the unit.

I've showed here extreme examples such as houses in Medina or Yarrow Point neighborhood renting for $3.8k per month. Owners don't give a **** that they're cash-flowing negative $10k per month, because their house is gaining $50k per month in value.

It's a little different with apartment complexes. The goal of apartment complex ownership is not to sell the apartment complex, but to generate rental income from it. Apartment complexes are more scientific about maximizing rents they charge. For example, they fill vacancies by hiding the least profitable units from apartment seekers until they've sold all the most profitable units, and they will always try to upsell and so forth.