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How can this math work on a rental?

3,118 Views | 25 Replies | Last: 4 yr ago by Year of the Germaphobe
evan_aggie
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8:28a, 9/29/21
AG
There is a duplex near me that is renting for $4400 month both sides.

They are selling it for $1.1M.

Yearly rent would be $52,800. Prop Taxes about $12,800.

Return on $1.1 at 40K is 3.6%, and that's assuming no management fees. Who buys this?
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CS78
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8:48a, 9/29/21
At that price, I assume it's in a premier location. The people buying that type of property are wanting to park cash in a hard asset.
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mwp02ag
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12:58p, 9/29/21
AG
At today's rates and true inflation the debt is the asset. They don't care about the purchase price today as much as the hedge the debt provides.
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barnag
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In reply to evan_aggie • 2:05p, 9/29/21
evan_aggie said:
There is a duplex near me that is renting for $4400 month both sides.

They are selling it for $1.1M.

Yearly rent would be $52,800. Prop Taxes about $12,800.

Return on $1.1 at 40K is 3.6%, and that's assuming no management fees. Who buys this?

There's no way that would have a positive cash flow and in turn a return. How did you calculate 3.6%?
You're also not calculating insurance, vacancy, cap ex, repairs etc
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PlanoAg98
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In reply to evan_aggie • 2:20p, 9/29/21
AG
Quote:
There is a duplex near me that is renting for $4400 month both sides.
Where the heck do you rent 1 side of duplex for $4400? That's 50% more than my 4 bedroom house mortgage.
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MAS444
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In reply to PlanoAg98 • 2:23p, 9/29/21
AG
Pretty sure he meant both sides total rent for that. $52,800 total/year.
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Keeper of The Spirits
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In reply to PlanoAg98 • 2:37p, 9/29/21
AG
Central Austin
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dc509
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2:53p, 9/29/21
AG
I'm seeing a lot of these deals. People are banking on the market saving them. Just tell them that you hope they put a lot of debt on it so when the bank is sick of holding it in a few years you can pick it up cheap.
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evan_aggie
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In reply to MAS444 • 2:56p, 9/29/21
AG
Right. $4400 total.
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evan_aggie
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In reply to barnag • 2:57p, 9/29/21
AG
Oh absolutely. Sorry. That's my point. Best case was not including any of that.


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Medaggie
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6:07p, 9/29/21
People are flush with money right now and rates are cheap so good place to park money they do not need playing the appreciation game.

There are alot of duplexes in Austin going for 750K+
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BoDog
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6:53a, 10/1/21
AG
Sort of what I have done with my two rentals. After taxes, HOA, etc I am just barely in the black. Both have appreciated north of 100k since I bought them and it lets me hedge against the inflation boogie man because I am pretty sure he is coming. Really no point in setting on a pile of cash at this point.
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TxAG#2011
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7:08a, 10/1/21
[Start your own thread instead of derailing this one. -Staff]
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Mas89
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In reply to evan_aggie • 6:28p, 10/2/21
AG
evan_aggie said:
There is a duplex near me that is renting for $4400 month both sides.

They are selling it for $1.1M.

Yearly rent would be $52,800. Prop Taxes about $12,800.

Return on $1.1 at 40K is 3.6%, and that's assuming no management fees. Who buys this?
If it sold for 1.1M, with a 2.5 percent property tax rate, the annual property taxes would be 27,500. Not the 12,800 you estimated. Perhaps the 12,800 is the current tax which would change after a sale for 1.1M.

And I have no idea what the Austin area rate is. Could be more than 2.5. But I bet it keeps going up.
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SteveBott
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6:35p, 10/2/21
AG
Austin is not 2.5. Anywhere from 2.0-2.2 but value varies widely. So effective rate can be as low as 1.6-7
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Mas89
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In reply to SteveBott • 6:41p, 10/2/21
AG
Hey that's cheap compared to Houston/ Harris County. City, county, school, hospital district, port, and several other sap suckers I'm forgetting.
ETA I just looked mine up. 2.657883
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MAS444
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7:28p, 10/2/21
AG
I'm in Houston and nowhere near that.
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Sea Speed
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7:53p, 10/2/21
AG
By my count, you're 355 away.
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Mas89
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In reply to MAS444 • 8:05p, 10/2/21
AG
Kingwood. Houston city limits.
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MAS444
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8:34p, 10/2/21
AG
I'm talking effective tax rate. Mine is closer to 2 - last time I checked anyway.
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Mas89
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In reply to MAS444 • 9:25p, 10/2/21
AG
Not many exemptions on my commercials.
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SteveBott
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In reply to Mas89 • 10:14p, 10/2/21
AG
It looks like your tax value is 349k. Is that market value?
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Mas89
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In reply to SteveBott • 9:32a, 10/3/21
AG
Went up to 369 in 21. Added pool since then so who knows what's next.
Back to op, to my point investment properties don't get homestead exemptions. Hard to believe Travis county is a cheaper tax rate than Harris county.
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evan_aggie
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In reply to Mas89 • 9:53a, 10/3/21
AG
It probably is because the median house is 600K+ in the area. Even the liberal city council and politicians know there is a breaking point. If our houses became $1M on average it they wouldn't stick to 2.2%.

In cedar Park I'm 2008-2010 my rate was 2.75%.

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SteveBott
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In reply to Mas89 • 1:55p, 10/3/21
AG
Mass let me rephrase my question. What could you sell the house for right now?
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MAS444
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In reply to Mas89 • 2:34p, 10/3/21
AG
I went back and looked at 2020 and our rate is 2.4% before exemptions. After exemptions it was just under 2% in 2019 (we moved into a new house and our homestead exemption won't go into effect until this year).
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Year of the Germaphobe
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In reply to PlanoAg98 • 6:36p, 10/3/21
AG
PlanoAg98 said:
Quote:
There is a duplex near me that is renting for $4400 month both sides.
Where the heck do you rent 1 side of duplex for $4400? That's 50% more than my 4 bedroom house mortgage.


HUD has fair market rent data for most anywhere that can tell you.

https://www.huduser.gov/portal/datasets/fmr.html
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