4 ms·

Curious to see how it relates to the mortgage of some houses.

ChuckMcM 9y ago
I did a quick check in the Sunnyvale area, a $2M mortgage on a 4 bedroom, 2.5 bath house that can sleep 6 at $2700 a week is about the same as a mortgage. (note you'd insurance, pay taxes on the house, and have more expensive maintenance) So bottom line you'd lose money on the deal.
- 80211 9y ago
  The taxes would be more than the mortgage.
- jdmichal 9y ago
  I have the understanding that no one expects residential real estate rental to be cash-flow positive with a full mortgage. It's extremely rare and basically a complete no-brainer if you can find a property that is cash-flow positive with a mortgage. Generally, one looks at equity and tries for net-worth positive. Which is simple to say, but is made more complex by older mortgages giving more equity for an equal payment. Of course, with an interest-only mortgage, yes one would need to be cash-flow positive, because there is no such thing as gaining equity. Again, my understanding is that such properties are extremely rare.
  - briandear 9y ago
    If you're investing in real estate you always want a mortgage and you always want it cash-flow positive. If it's not cash-flow positive on the first day of renting it out, then you don't buy the property. Investing for equity is about the dumbest mistake some real estate investors make. Always invest on cash-flow. Investing for capital appreciation is a recipe for disaster. With positive cash-flow, the underlying value is irrelevant. When I say you "always want a mortgage" I mean that if you have a mortgage you have your tenants paying for the house. Your cash on cash return is far higher. If your potential property doesn't support that, then find another property. Paying $200k cash for a house that nets $500 per month is far less interesting than buying 10 houses at $20k down that each net $200 per month -- and it takes exactly the same cash.
    - ftlio 9y ago
      The overhead of renting 10 houses, and the interest on 10 mortgages, is just zero or what?
    - jdmichal 9y ago
      I don't disagree with you. I was speaking solely about full mortgage -- ie, minimum down payment. Turning a positive cash flow with a large mortgage is very difficult, especially after accounting for all costs. (Mortgage, taxes, insurance, maintenance, hoa, vacancy...) Turning a positive cash flow without any mortgage is very easy, but kills your ROI. So you're going to end up shooting somewhere in the middle... EDIT: Here's a fun Reddit thread on the topic: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord... Here's an example from that thread on how quickly the math takes you to roughly cash-flow neutral -- and this is with 25% down and 1% rental price: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/crf9n7n/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord...
sundvor 9y ago
Before going straight for the mortgage repayment question, I wonder how many take up proper insurances to cover worst case scenarios (i.e. property getting fully trashed in a drug/alcohol binge party scenario) - and how much they cost.
- Sleeep 9y ago
  I agree with you, however, I just want to point out that a completely destroyed house in a drug binge orgy party isn't even close to the worse case scenario, at least then you can "only" lose 100% of the value of your physical property, maybe ~$300,000. The worse case scenario is someone getting seriously hurt or dying, that could cost millions and has virtually no upper limit - https://medium.com/matter/living-and-dying-on-airbnb-6bff8d600c04 https://medium.com/matter/living-and-dying-on-airbnb-6bff8d6...
  - sundvor 9y ago
    Ah, you're completely right - great point. What a horrible story. :(
- k3oni 9y ago
  For a property appraised at 400k a short term vacation policy would cost you ~$2100/year .
Sleeep 9y ago
The PITI on my house is $1,250 ($750 P+I) with a 20% down payment at a 30 year fixed interest loan. I use about $200/month in utilities. This site says I can rent my entire house out for $210 a day so, in theory, renting it for seven days would pay for the housing costs ignoring any increase in insurance and utilities for turning it into a short term rental and totally ignoring maintenance and labor. (which, obviously, is a significant cost) Realistically I wouldn't be cash flow positive until day nine at least. However, I think that's unrealistic, I believe the demand for my house would be extremely low at that price point. My house is very appealing for residents, I don't see it being particularly appealing for travelers and there's cheaper options for travelers. My neighborhood is zoned residential, however, so I seriously doubt turning it into a hotel would be legal. My neighbors would complain as well (and that's nothing against them)
k3oni 9y ago
Here's a google spreadsheet[1] that i used a few times. This will give you a general idea of where you would be based on mortgage etc, but you need to know the area, possible daily rent value, minimum occupancy etc [1] - https://docs.google.com/spreadsheets/d/1rCz54o_8Z_9fMkPQyTTZijdN8BgOUi0aLXWqZXbflLU/edit?usp=sharing https://docs.google.com/spreadsheets/d/1rCz54o_8Z_9fMkPQyTTZ...

I did a quick check in the Sunnyvale area, a $2M mortgage on a 4 bedroom, 2.5 bath house that can sleep 6 at $2700 a week is about the same as a mortgage. (note you'd insurance, pay taxes on the house, and have more expensive maintenance) So bottom line you'd lose money on the deal.

80211 9y ago
The taxes would be more than the mortgage.
jdmichal 9y ago
I have the understanding that no one expects residential real estate rental to be cash-flow positive with a full mortgage. It's extremely rare and basically a complete no-brainer if you can find a property that is cash-flow positive with a mortgage. Generally, one looks at equity and tries for net-worth positive. Which is simple to say, but is made more complex by older mortgages giving more equity for an equal payment. Of course, with an interest-only mortgage, yes one would need to be cash-flow positive, because there is no such thing as gaining equity. Again, my understanding is that such properties are extremely rare.
- briandear 9y ago
  If you're investing in real estate you always want a mortgage and you always want it cash-flow positive. If it's not cash-flow positive on the first day of renting it out, then you don't buy the property. Investing for equity is about the dumbest mistake some real estate investors make. Always invest on cash-flow. Investing for capital appreciation is a recipe for disaster. With positive cash-flow, the underlying value is irrelevant. When I say you "always want a mortgage" I mean that if you have a mortgage you have your tenants paying for the house. Your cash on cash return is far higher. If your potential property doesn't support that, then find another property. Paying $200k cash for a house that nets $500 per month is far less interesting than buying 10 houses at $20k down that each net $200 per month -- and it takes exactly the same cash.
  - ftlio 9y ago
    The overhead of renting 10 houses, and the interest on 10 mortgages, is just zero or what?
  - jdmichal 9y ago
    I don't disagree with you. I was speaking solely about full mortgage -- ie, minimum down payment. Turning a positive cash flow with a large mortgage is very difficult, especially after accounting for all costs. (Mortgage, taxes, insurance, maintenance, hoa, vacancy...) Turning a positive cash flow without any mortgage is very easy, but kills your ROI. So you're going to end up shooting somewhere in the middle... EDIT: Here's a fun Reddit thread on the topic: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord... Here's an example from that thread on how quickly the math takes you to roughly cash-flow neutral -- and this is with 25% down and 1% rental price: https://www.reddit.com/r/RealEstate/comments/36ikp6/landlords_how_many_of_your_rental_properties_are/crf9n7n/ https://www.reddit.com/r/RealEstate/comments/36ikp6/landlord...

sundvor 9y ago

Before going straight for the mortgage repayment question, I wonder how many take up proper insurances to cover worst case scenarios (i.e. property getting fully trashed in a drug/alcohol binge party scenario) - and how much they cost.

Sleeep 9y ago
I agree with you, however, I just want to point out that a completely destroyed house in a drug binge orgy party isn't even close to the worse case scenario, at least then you can "only" lose 100% of the value of your physical property, maybe ~$300,000. The worse case scenario is someone getting seriously hurt or dying, that could cost millions and has virtually no upper limit - https://medium.com/matter/living-and-dying-on-airbnb-6bff8d600c04 https://medium.com/matter/living-and-dying-on-airbnb-6bff8d6...
- sundvor 9y ago
  Ah, you're completely right - great point. What a horrible story. :(
k3oni 9y ago
For a property appraised at 400k a short term vacation policy would cost you ~$2100/year .

Sleeep 9y ago

The PITI on my house is $1,250 ($750 P+I) with a 20% down payment at a 30 year fixed interest loan. I use about $200/month in utilities. This site says I can rent my entire house out for $210 a day so, in theory, renting it for seven days would pay for the housing costs ignoring any increase in insurance and utilities for turning it into a short term rental and totally ignoring maintenance and labor. (which, obviously, is a significant cost) Realistically I wouldn't be cash flow positive until day nine at least. However, I think that's unrealistic, I believe the demand for my house would be extremely low at that price point. My house is very appealing for residents, I don't see it being particularly appealing for travelers and there's cheaper options for travelers. My neighborhood is zoned residential, however, so I seriously doubt turning it into a hotel would be legal. My neighbors would complain as well (and that's nothing against them)

k3oni 9y ago

Here's a google spreadsheet[1] that i used a few times. This will give you a general idea of where you would be based on mortgage etc, but you need to know the area, possible daily rent value, minimum occupancy etc [1] - https://docs.google.com/spreadsheets/d/1rCz54o_8Z_9fMkPQyTTZijdN8BgOUi0aLXWqZXbflLU/edit?usp=sharing https://docs.google.com/spreadsheets/d/1rCz54o_8Z_9fMkPQyTTZ...