Use 25k From Brokerage Account For Investment Property?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Sun Apr 15, 2018 1:47 pm

I'm debating whether it's a good idea to use 25k from a brokerage (taxable) account to purchase an investment property in, say, Houston or Florida.

Let’s use this home as an example:

https://www.zillow.com/homedetails/1182 ... 06406_zpid

Sales Price: 159,500
Down Payment: 31,900
Interest: 4%
Mortgage: $711 per month (P&I, Insurance, Taxes)
Rental Management Fee: $300 (Is this accurate?)
Rental Income: $2,000 per month (is this realistic for a 3 bed 2 bath?)

Net: $2,000 (rental income) - $711 (mortgage) - $300 (rental management) = $989 net.


I realize that above calculations might be optimistic, but maybe with repairs/maint., a higher maint. fee, and generally less optimistic numbers we’d be looking at netting at least $500 per month?

What do you think of this analysis?

Any help is appreciated!

PS. Here's my accounts:

Main accounts:
  • Cash - $7,000
  • 401k\IRA - VTSAX (Vanguard Total Stock Market) - $48,000
  • Roth IRA - VTIAX (Vanguard Total International Stock Market) -$20,000
  • Taxable -VTSAX (Vanguard Total Stock Market Index Fund ) - $23,000
  • Crypto (Ethereum) - $3,000
Total: $102,458

2018 investment plan (per month):
  • Checking - +$250
  • Savings - +$262
  • Roth IRA (VTIAX) - +$459
  • 401k (VTSAX) - +$1,916
  • Taxable (VTSAX) - +$1,500
Misc Info:
  • Minimal CC debt (<1k)
  • 15 year mortgage payment + HOA ($2,697 per month, $274,842.69 left on loan balance, 3.99% interest rate)
  • Rental income ($970 per month)
  • Int. and domestic stock accounts for ~90% of assets, cash ~10% (not including home in this mix)
  • 28 years old
Last edited by oinkyboinky on Sun Apr 15, 2018 2:02 pm, edited 1 time in total.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by Pajamas » Sun Apr 15, 2018 1:49 pm

Sounds like an excellent rate of return on a $25k investment, so maybe you should buy two or three. :D

mega317
Posts: 2557
Joined: Tue Apr 19, 2016 10:55 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by mega317 » Sun Apr 15, 2018 2:00 pm

I don't know if anyone can analyze your numbers in a market defined as "Houston or Florida".

Also we don't know anything else about you. Is 25k your entire taxable account? Or do you have 250k?

oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Sun Apr 15, 2018 2:02 pm

Pajamas wrote:
Sun Apr 15, 2018 1:49 pm
Sounds like an excellent rate of return on a $25k investment, so maybe you should buy two or three. :D
Well, that's what I'm thinking, but just want to ensure the numbers are right and see what other people think :)

oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Sun Apr 15, 2018 2:03 pm

mega317 wrote:
Sun Apr 15, 2018 2:00 pm
I don't know if anyone can analyze your numbers in a market defined as "Houston or Florida".

Also we don't know anything else about you. Is 25k your entire taxable account? Or do you have 250k?
Great question!

25k is indeed my entire taxable account.

However, I do have 401k, Roth IRA, and IRA with decent savings (~50k).

I posted my accounts for reference.

I did post a specific house for reference as well.

tmcc
Posts: 162
Joined: Tue Feb 06, 2018 6:38 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by tmcc » Sun Apr 15, 2018 2:04 pm

is that management fee per month or per lease?

Shallowpockets
Posts: 766
Joined: Fri Nov 20, 2015 10:26 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by Shallowpockets » Sun Apr 15, 2018 2:09 pm

NO. Most BHs would advise against rental property. You are not doing a rental of a second home you already had. You are stepping right into a speculative investment based on, yes, optimistic numbers. With your optimistic numbers you are going to reap $550 a month. Is your financial life really going to change on $500?
It sounds good with your leveraged 25k upfront, but will it really work out like that? I cannot believe you are going to just sit back and collect $500 month without some hidden, maybe repetitive glitches in there. Plus you are pulling 25k from taxable, so you better add in those taxes to the overall finance scenario.
Things that sound too good to be true...
There are too many unknown headaches, which at some time will not be worth $500 a month.

mega317
Posts: 2557
Joined: Tue Apr 19, 2016 10:55 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by mega317 » Sun Apr 15, 2018 2:27 pm

oinkyboinky wrote:
Sun Apr 15, 2018 2:03 pm
25k is indeed my entire taxable account.
What are you going to do about an emergency fund? Where will you get money to fix the major problem that happens in the first few months of owning this?

SmallSaver
Posts: 100
Joined: Mon Mar 26, 2012 11:34 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by SmallSaver » Sun Apr 15, 2018 2:36 pm

That model seems pretty optimistic to me: (1) No vacancy/credit allowance; (2) PITI seems low, you sure about the property tax? Where's umbrella insurance? (3) $2,000/mo rent for a $160k house?; (4) no maintenance allowance. I'd sharpen that pencil a bit, figure out what the numbers really are--not hard to estimate your way into a forgone conclusion & everything is market dependent.

aristotelian
Posts: 4909
Joined: Wed Jan 11, 2017 8:05 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by aristotelian » Sun Apr 15, 2018 3:12 pm

Who would ever rent a house for $2k/mo when they could buy one for $700/mo?

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by Pajamas » Sun Apr 15, 2018 3:48 pm

aristotelian wrote:
Sun Apr 15, 2018 3:12 pm
Who would ever rent a house for $2k/mo when they could buy one for $700/mo?
Somebody who didn't have the down payment or who didn't want to buy a house.

Looks like $2k is pretty high rent for a 3/2 in that ZIP code.

oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Sun Apr 15, 2018 7:49 pm

Pajamas wrote:
Sun Apr 15, 2018 3:48 pm
aristotelian wrote:
Sun Apr 15, 2018 3:12 pm
Who would ever rent a house for $2k/mo when they could buy one for $700/mo?
Somebody who didn't have the down payment or who didn't want to buy a house.

Looks like $2k is pretty high rent for a 3/2 in that ZIP code.
Agreed. I found this site which is pretty interesting:

http://www.noradarealestate.com/Real-Es ... s/Houston/

The first listing shows about $1,100 for rental income:

Image

Nate79
Posts: 3733
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Use 25k From Brokerage Account For Investment Property?

Post by Nate79 » Sun Apr 15, 2018 7:59 pm

4% interest rate on a rental mortgage?

oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Sun Apr 15, 2018 8:00 pm

SmallSaver wrote:
Sun Apr 15, 2018 2:36 pm
That model seems pretty optimistic to me: (1) No vacancy/credit allowance; (2) PITI seems low, you sure about the property tax? Where's umbrella insurance? (3) $2,000/mo rent for a $160k house?; (4) no maintenance allowance. I'd sharpen that pencil a bit, figure out what the numbers really are--not hard to estimate your way into a forgone conclusion & everything is market dependent.
Very optimistic. Found a site that has probably done way better research than myself. Let's use the house below as an example instead:

Image

With that, would it be a good idea to put down the 25k for a rental property?

gr7070
Posts: 200
Joined: Fri Oct 28, 2011 10:39 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by gr7070 » Sun Apr 15, 2018 9:45 pm

oinkyboinky wrote:
Sun Apr 15, 2018 1:47 pm
I'm debating whether it's a good idea to use 25k from a brokerage (taxable) account to purchase an investment property
oinkyboinky wrote:
Sun Apr 15, 2018 2:03 pm
mega317 wrote:
Sun Apr 15, 2018 2:00 pm
Also we don't know anything else about you. Is 25k your entire taxable account?
Great question!

25k is indeed my entire taxable account.
Easy answer; no.

gr7070
Posts: 200
Joined: Fri Oct 28, 2011 10:39 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by gr7070 » Sun Apr 15, 2018 9:51 pm

aristotelian wrote:
Sun Apr 15, 2018 3:12 pm
Who would ever rent a house for $2k/mo when they could buy one for $700/mo?
No one. Considering they could likely rent the $160,000 house next door for half what OP is wanting.

denovo
Posts: 4384
Joined: Sun Oct 13, 2013 1:04 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by denovo » Mon Apr 16, 2018 3:58 am

oinkyboinky wrote:
Sun Apr 15, 2018 1:47 pm
I'm debating whether it's a good idea to use 25k from a brokerage (taxable) account to purchase an investment property in, say, Houston or Florida.

Let’s use this home as an example:

https://www.zillow.com/homedetails/1182 ... 06406_zpid

Sales Price: 159,500
Down Payment: 31,900
Interest: 4%
Mortgage: $711 per month (P&I, Insurance, Taxes)
Rental Management Fee: $300 (Is this accurate?)
Rental Income: $2,000 per month (is this realistic for a 3 bed 2 bath?)

Net: $2,000 (rental income) - $711 (mortgage) - $300 (rental management) = $989 net.


I realize that above calculations might be optimistic, but maybe with repairs/maint., a higher maint. fee, and generally less optimistic numbers we’d be looking at netting at least $500 per month?

What do you think of this analysis?

Any help is appreciated!

PS. Here's my accounts:

Main accounts:
  • Cash - $7,000
  • 401k\IRA - VTSAX (Vanguard Total Stock Market) - $48,000
  • Roth IRA - VTIAX (Vanguard Total International Stock Market) -$20,000
  • Taxable -VTSAX (Vanguard Total Stock Market Index Fund ) - $23,000
  • Crypto (Ethereum) - $3,000
Total: $102,458

2018 investment plan (per month):
  • Checking - +$250
  • Savings - +$262
  • Roth IRA (VTIAX) - +$459
  • 401k (VTSAX) - +$1,916
  • Taxable (VTSAX) - +$1,500
Misc Info:
  • Minimal CC debt (<1k)
  • 15 year mortgage payment + HOA ($2,697 per month, $274,842.69 left on loan balance, 3.99% interest rate)
  • Rental income ($970 per month)
  • Int. and domestic stock accounts for ~90% of assets, cash ~10% (not including home in this mix)
  • 28 years old
Read this thread and tell us if you should buy one. viewtopic.php?t=226980
"Don't trust everything you read on the Internet"- Abraham Lincoln

User avatar
jfn111
Posts: 956
Joined: Fri Nov 08, 2013 10:42 pm
Location: Minnesota

Re: Use 25k From Brokerage Account For Investment Property?

Post by jfn111 » Mon Apr 16, 2018 6:08 am

Hello oinkyboinky
Real estate investing can be a great way to set yourself up for a secondary income stream. It can also be a miserable experience. Trying to be an absentee landlord can be a very costly way to get started. Your looking to buy in an unknown area, neighborhoods can change in a matter of blocks, and you will be paying a property manager to handle all maintenance. :moneybag
One of the easiest ways to get started is house hacking. You buy a house where you live in it and rent out a couple of bedrooms. You get the benefits of buying as an owner occupant and use the roommates rents to pay the loan. You can learn the land lording business while also putting a roof over your own head. :sharebeer

User avatar
goingup
Posts: 3307
Joined: Tue Jan 26, 2010 1:02 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by goingup » Mon Apr 16, 2018 8:37 am

We were accidental landlords with a Florida home after moving to CA, where I think the OP resides now. What a nightmare. We had tenant issues and property management problems. I wouldn't recommend this unless you have a deep knowledge of the area and people you trust to help oversee your property.

clutchied
Posts: 583
Joined: Mon Jan 05, 2015 12:11 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by clutchied » Mon Apr 16, 2018 9:07 am

that's the smallest lot size I've ever seen outside of a grave site...

oinkyboinky
Posts: 112
Joined: Thu Apr 16, 2015 2:14 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by oinkyboinky » Mon Apr 16, 2018 9:07 pm

gr7070 wrote:
Sun Apr 15, 2018 9:51 pm
aristotelian wrote:
Sun Apr 15, 2018 3:12 pm
Who would ever rent a house for $2k/mo when they could buy one for $700/mo?
No one. Considering they could likely rent the $160,000 house next door for half what OP is wanting.
As noted, I'm not necessarily "asking" for that much, but rather using it as an example and trying to figure out if it's realistic.

alex_686
Posts: 4056
Joined: Mon Feb 09, 2015 2:39 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by alex_686 » Mon Apr 16, 2018 9:18 pm

Going into investment property is a job. It requires time, skill, and luck. I would start in my backyard where I could put my local knowledge to good use.

I would also suggest that you pass right now. This would be the majority of your taxable investments. Something will go wrong. The roof will need to be repaired, you have bad tenets that take months to kick out, etc. You are going to need some buffer that is more robust for emergencies.

JStephens
Posts: 58
Joined: Sat Dec 01, 2012 3:48 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by JStephens » Mon Apr 16, 2018 10:02 pm

You're not getting $2,000 a month for that place. Based on your numbers You'll probably be breaking even at best. Also for rental properties a lot of the time they want 25% down payment, and I doubt you'll get a 4% unless you're doing a 15 year.

SmallSaver
Posts: 100
Joined: Mon Mar 26, 2012 11:34 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by SmallSaver » Tue Apr 17, 2018 1:54 pm

OP, I have kicked around the idea of a rental and found the book "What Every Real Estate Investor Needs to Know About Cash Flow" by Frank Gallinelli to be good introduction to the math and metrics for rental properties.

ralph124cf
Posts: 2059
Joined: Tue Apr 01, 2014 11:41 am

Re: Use 25k From Brokerage Account For Investment Property?

Post by ralph124cf » Tue Apr 17, 2018 6:13 pm

Most property management firms ask 10% of actual rental income. The firm you are asking about wants 15%. Why?

Ralph

hale2
Posts: 180
Joined: Sat Feb 15, 2014 5:54 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by hale2 » Wed Apr 18, 2018 1:41 pm

ralph124cf wrote:
Tue Apr 17, 2018 6:13 pm
Most property management firms ask 10% of actual rental income. The firm you are asking about wants 15%. Why?

Ralph
Probably because it's an area with low rents so the property manager wants a minimum fee each month. I have properties in a higher cost area and I pay 8%, which comes out to about the same fee.

dtee
Posts: 5
Joined: Fri Nov 11, 2016 4:48 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by dtee » Thu Apr 19, 2018 6:39 am

OP..I think you will not get the best response and answer that you’re looking for in this forum.

I think this question is best suited at BiggerPockets.com

People at that forum are much more experienced and more knowledgeable in the realm of real estate than this forum.

Best of luck to you!

ThrowinDarts
Posts: 34
Joined: Mon Feb 10, 2014 5:28 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by ThrowinDarts » Thu Apr 19, 2018 11:10 am

You need to sharpen your pencil a bit.

Using the Houston example, the property tax rate is 2.5% of the assessment. If you paid $160,000 for that house you'd get hit with a property tax bill of of $333/month the year after purchase. Expect this to increase significantly each year.

The monthly nut on $127,600 @ 4% for 30 years is $609/month. FYI you're most likely not going to get a 4% fixed 30 year rate on an investment property so this estimate is likely low by another $100/month.

Insurance in Houston is going to cost you a pretty penny after Hurricane Harvey. Much more than you projected. I'd budget at least $100/month.

So you're already up to $1,342/month carry including the management fee and that's not including any reserves whatsoever or the mandatory HOA maintenance fee.

All these figures above don't matter though. After your down payment you wouldn't have enough liquidity left to even think about doing this deal. One month of vacancy or one deductible for an insurance claim on a hail storm, etc. and you'd be sunk.

togb
Posts: 142
Joined: Mon Oct 23, 2017 8:36 pm

Re: Use 25k From Brokerage Account For Investment Property?

Post by togb » Fri Apr 20, 2018 7:57 pm

I think you need to work on your assumptions. I recommend you study up at biggerpockets.com but here's some basics.

1. valididate that you are buying the house at a price that allows you to get monthly rent at 1% of purchase price-- or at least close. example, if you pay 159K you should validate that you can rent it for 1500-1600. The easiest way to validate is to search real estate websites as if you were looking to rent a 3/2 and see how they are priced. I think you'd need a very nice 3/2 to bring 2000 monthly rent.
2. you pay about 1% more for an investment mortgage than for your residence. So 4% is pretty ambitious.
3. Property mangers usually charge 10% of the rent.
4. You need cash reserves for maintenance and repairs. Those may or may not happen before you can set them aside from your cash flow, so start out with some money in the account. I basically kept my first year's cashflow til I accumulated about 7-8K, then I take the difference between rent and PITI as cash flow, since I'm "covered".

I don't live in Houston, and Florida covers a lot of territory, from very low cost to very high cost. But I don't think you can rent the house you referenced for $2000/month, or finance it for 4%. If you CAN, more power to you. I know in North Texas, to bring $1600-1700 in monthly rent a 3/2 would have to be very new, with stainless appliances, granite countertops, nice finishes. And rents are high here relative to the rest of the state.

Bogle_Bro
Posts: 82
Joined: Sat Mar 31, 2018 11:43 am
Location: Frisco Texas, Mortgage Banker & Attorney

Re: Use 25k From Brokerage Account For Investment Property?

Post by Bogle_Bro » Sat Apr 21, 2018 4:19 pm

Nate79 wrote:
Sun Apr 15, 2018 7:59 pm
4% interest rate on a rental mortgage?
This. Should calculate as closer to 5% with current climbing rates

Post Reply