dx41 wrote:Loan 1: $578,950.00
Loan 2: $19,000
Homeowner's Insurance: ~$1,500/yr
Property Taxes: ~$11,000/yr
My sibling and I are also pursuing graduate school in the future, which means it is extremely unlikely we will have the income necessary to refinance the mortgage for the next 6-8 years.
dx41 wrote:Portfolios: ~$600,000 Total Assets The estate also has a house that, once sold, will create another windfall of approximately $125,000 to each beneficiary. Please let me know if you have any advice on how to handle those assets. My assumption is they would be invested in a taxable account.
Having a rental property is a job unto itself and can be time consuming. You would need to know rental laws, building code, and many other details. Then, deal with tenants. Is this something that you want to do? Property taxes, maintenance, etc.
Loan 1: $578,950.00
- 3.0% Interest rate, 288 months remaining, Rate adjusts yearly
I still have no real rebuttal.
dx41 wrote:Thanks for the additional feedback.
Can I ask what so clearly makes this a "sell" situation? you can't afford the inevitable bump in the road nor will you have the time to manage it while in medical school
My supporters, who know I am familiar with the Bogleheads philosophy, seem to think I am simply suffering from "Boglehead Bias," which they feel is a strong preference for liquid, diverse assets. that is not a Bogleheads thing. All investors prefer diversity and liquidity to a lesser degree, but you should not tie up all of your net worth in illiquid assets. This is a NOT a Bogleheads thing, I repeat.
I brought up the REIT vs. physical real estate argument with them, and the feedback I received was, "Why would we want to invest in an REIT with holdings in Detroit when we can have physical real estate in a consistently positive location?" Due to my lack of experience in investment properties, I still have no real rebuttal. Consistently up until now. No guarantee it will last.
Based on my personal misgivings, which seems to be supported by your incredible advice, I do plan to present the option of having my family buy out my interest in the property in the event they want to try to retain it. Since I am not too sure how I should be evaluating the situation financially, I wonder if I will be regretting this situation in the future. you may regret that you were not older with the ability to take on this type of investment, but it is what it is. If you keep it and HAVE to sell later, you will regret that too
On the other hand, I would hate to think I am delivering a poor investment to my family. However, a common theme among many threads on our forums seems to be that we really cannot those who disagree with the evidence-based perspective from themselves, and that attempts to do so are often very detrimental to our relationships. This may be a similar situation.
Thanks again for all the feedback and support. I feel very fortunate to have been able to discover our community, and you do an amazing job making it a wonderful place to learn. Please have a great day.
widestance wrote:...If your friends and family think it's such a great investment, have them buy out your interest...
SnapShots wrote:Just looking at the current value of the house, I would say it would not make a good rental property. I would not want to rent almost a million dollar home.
dx41 wrote:In a quick review of our data, which I shared in the first post of this thread, it appears that in an ideal situation, we would be making about $800 per month, assuming no vacancies and no major fixes.
dx41 wrote:Since I am not too sure how I should be evaluating the situation financially, I wonder if I will be regretting this situation in the future. On the other hand, I would hate to think I am delivering a poor investment to my family.
If you are going to be in the rental business you need multiple properties and smaller homes are better because they are cheaper to maintain.
One property is more of a problem than ten, because you are not in the business. Multiple properties generate income to cover losses on other properties.
The counterpoints they make are that the appreciation rate of the property alone is worth hanging onto, ........
dx41 wrote:As my initial experience with our forum has me anxious of the illiquidity and lack of diversification of a such a large single investment, am I simply too risk averse for my own good?
My sibling is willing to go with the consensus of our friends and relatives, but their arguments are that this is simple common sense in such a great neighborhood. Thus, I am hoping that I can get a bit more of an evidence-based opinion from our community.
zebrafish wrote:3. Unless you have the cash to pay for medical school outright, I would sell your share in this house and use the money to fund medical school and exit debt free. I bet this would honor your parents' wishes and would satisfy the legacy wishes for an inheritance for most people I know.
We are planning to rent the home for $3,400/month, if we decide to go this route. As Loan 1's rate will adjust on a yearly basis, it does not appear we will be able to do anything more than a yearly rental agreement with our potential tenants. I would hate to be locked in with a renter in the event the numbers change to a point where our returns deteriorate significantly.
There is no such thing as a "cap rate" for a single family house.
Cash on cash? Based on your land and improvement value I'm guessing the 2002 purchase price was around $700,000. Now it is worth over 60% more for a total of almost half a million dollars. So in your coc figgering what will you use for amount invested? The probably $140,000 your parents put down....the equity at time of death ...or the current equity...or the NOTHING you have invested? see the problem there?
goldeneye9655 wrote:There is no such thing as a "cap rate" for a single family house.
Cap rate is a mathematical concept used in real estate investing. Single family to commercial real estate, the mathematical concept does not change.Cash on cash? Based on your land and improvement value I'm guessing the 2002 purchase price was around $700,000. Now it is worth over 60% more for a total of almost half a million dollars. So in your coc figgering what will you use for amount invested? The probably $140,000 your parents put down....the equity at time of death ...or the current equity...or the NOTHING you have invested? see the problem there?
The OP does have money invested in the property. They have inherited the property and have the option of keeping it or selling it and cashing out the equity. For investing purposes it is generally proper to use current equity in the property in your CoC computations. It is used as a metric to compare the opportunity cost of the investment vs other potential uses of the money.
For the OP to keep this property is to invest in a very narrow RE speculation. Not as speculative as, say, buying raw land, but definitely RE speculation. Lots of people have made good money in RE, but lots have lost it as well. I'm being a bit arbitrary, but I'm defining holding RE for the purposes of price appreciation as speculation, while holding it for for rental return as investment. In this case, you obviously have both components, but the prime driver is price appreciation.
How would you account for the $195,000 equity increase since the date of death? Kinda skews the result, huh?
goldeneye9655 wrote:+1. Houses fluctuate in the short term but generally appreciate in the long-term. Unless you have a ton of money to secure the investment, you need to back up that bet on appreciation with solid CoC returns or there is a very high risk of getting bit.How would you account for the $195,000 equity increase since the date of death? Kinda skews the result, huh?
Past performance /= future. Betting on appreciation in the short term in an isolated piece of the real estate market is speculative.