Real Estate Rental Property SH #1 Update (September 22, 2016)

by FI Fighter on September 22, 2016

in Real Estate Updates

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Well, it’s been ages since I last posted an update regarding my rental properties… Truth of the matter is, I just totally hate real estate right now and really see no point in talking about it. For the most part, I’m completely tuned out to the real estate markets, and am simply playing the role of landlord rent collector each and every month.

You know, passive income (cash flow)!

The seemingly only metric that even matters to most investors out there… Sigh…

But anyway, when we are encroaching near market tops, I don’t care one iota for Shiny Object Syndrome

Shout out to Lane for sharing the following graphic with me!

real-estate-tops

Just my own intuition speaking, but I feel like the Bay Area is in Phase 4 right now… If anyone wants to try and pick up some of that scrap cash flow, be my guest…

As for myself, I’m trying to get out of dodge (partially)… When the ducks are quacking, know when to feed them!

With that said, earlier this morning, my investment partners (4-way partnership) and I closed escrow and completed our sale of Rental Property SH #1 for $620,000! We originally closed escrow on the rental property in August 2014 for $490,000.

So, we made $130,000 in gross appreciation (capital gains) in just over 2 years time…

Not bad…

It seems like ages ago when we first won the deal… When all was said and done…

 

Purchase Price: $490,000
Sales Price: $620,000
Downpayment (20%): $98,000
My Downpayment (1/4): $24,500
My Proceeds (1/4): $46,932

 

Roughly about ~91% ROI.

 

Please note: Any cash flow and refi proceeds made throughout the 2 year time period were used to get the unit up to stuff for sale (and account for initial closing costs)… The ROI shown above isn’t an exact figure, per se, but it’s a reasonable approximation…

 

Rental Property SH #1 History

 

Oh, the good old days of buying real estate…

For anyone who is new to this blog, once upon a time, I was really big on rental properties… But then prices went ballistic in my local market, and in 2015, I lost all interest…

Most recently, this past summer, my investment partners and I had discussions about exiting out of one of our partnership deals… The markets still seemed frothy and it just felt like the right time to sell.

A few short months later, and here we are today, completing the transaction on September 22. With the deal now officially in the books (and money deposited into my account), we can close out this chapter.

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As I previously shared with readers earlier this month, I had every intention of raising some more capital as we head into the fall/election season. With this wire hitting my account, I should have within striking distance of $200k in cash and cash equivalents to fire away (whenever the next “buying opportunity of a lifetime” presents itself)…

I’m a patient guy…

I’ll wait things out until I get an absolutely brutal bear market to operate in…

  • General equities (e.g. S&P 500, FAANG, biotech, etc.) in 2009
  • High quality real estate (e.g. Bay Area, Seattle, Austin, Boston, etc.) in 2012
  • Precious Metals mining stocks in 2015

Each of those scenarios above have produced triple digit returns for investors…

And I don’t care what asset class the next opportunity happens to be found in… I don’t discriminate… When I sense the Depths of Despair taking hold of a sector, I start to tune in most attentively.

Right now, the only sector that I feel is truly hated by almost everyone is uranium… Perhaps it’s too premature to jump into the fray just this moment, but I am monitoring that sector very closely.

That’s just how I operate… Forget “dollar cost averaging” into mediocre investments… I’m going to bide my time until I can “time the market” and extract more juice out of it then I’ll know what to do with… And I know many of you readers take that same approach towards investing as well!

But for old times’ sake, let’s reminisce one time!

Initial Assumptions From September 2014

Bay_Area_SH

The interest rate was actually lower on Day 1 than the initial assumption made above, as we got a decent 4.75% rate over 30 years fixed… Recently, we were able to refinance into 4.125%… Further, we actually never rented the unit out for $2,700/month… From Day 1, it was $2,850/month and our last lease expired at $3,000/month. We’ve been cash flow positive for awhile now… Market rents are now $3,200/month today…

But yeah, if the new buyers are planning on making this unit a rental, good freekin’ luck to you trying to get it to cash flow with a conventional downpayment at that sales price!

But that’s no longer my problem…

In the end, I booked my gains and couldn’t be any more pleased with how this partnership deal worked out.

For anyone keeping tabs, this investment group still owns another property together, Rental Property SH #2, which has up to now delivered more or less the same type of returns… Although in truth, Rental Property SH#2 is the better, more desirable unit that fetches both a higher resale value and market rent (and it has 2 full baths as opposed to 1.5). For now, we are holding it, but never say never, and who knows, maybe we’ll hit the sell button in the near future?

 

To the next round of deal(s)!

 

Fight On!

{ 20 comments… read them below or add one }

1 Tawcan September 22, 2016 at 9:12 pm

Pretty good return. SF real estate market is pretty heated, makes sense to sell on top.

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2 FI Fighter September 23, 2016 at 2:49 pm

Tawcan,

Can’t complain, although I guess those returns are marginal for anyone investing in SF Bay Area and places like Vancouver… But you’ll never hear me complaining about near 100% returns.

Yup, real estate in hot markets are overheated… I was plenty happy to sell.

Cheers!

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3 Dividend Hustler September 22, 2016 at 9:52 pm

Awesome job Jay. Keep up the hustle bro. You’re killing it.
Here’s a cheer to this wonderful journey we are on. Everyday is a blessing.
Take care and dont’ stop!!

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4 FI Fighter September 23, 2016 at 2:50 pm

Tyler,

Thanks for the support buddy! Doing my best to keep at it.

All the best!

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5 Roadmap2Retire September 23, 2016 at 6:15 am

Thats an amazing ROI — 91% in 2 years!! Also love that chart shown above…very interesting to see where each city is.

Congrats on the closing! 🙂

R2R

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6 FI Fighter September 23, 2016 at 2:52 pm

Sabeel,

Thanks! It felt good to FINALLY close… It was getting late into the fall season, I was worried a bit 😉

Yup, can’t complain about 91% or so returns… Might be marginal gains for some other investors, but I’ll gladly take it!

Cheers!

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7 joeybee September 23, 2016 at 7:26 am

you don’t include commission on the sale?

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8 FI Fighter September 23, 2016 at 2:53 pm

joeybee,

It’s all included in there… The check from escrow at closing accounts for all commissions, fees, taxes, etc… It’s the net after all expenses.

Take care!

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9 Joe September 27, 2016 at 1:28 am

Have you subtracted out tax expenses yet?
I am planning on never selling anything again. Just end up losing a big portion of the gains to taxes. I’ll just let it all step up in basis when I die…

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10 Midwestern Landlord September 23, 2016 at 8:28 am

I agree Bay Area real estate is at crazy valuation levels. Good time to sell.

I guess we all have our own strategy that works for us and geographic location certainly plays a large role. In my area, real estate is still a great deal. The only thing that holds investors back is having the capital necessary to play the game. There will not be much appreciation, but there will be substantial cash flow returns with properties that are in very good locations. I like that formula as a long term hold investor / landlord.

It still seems a little bit odd to me that the stock market is so inefficient. You have shown that with your trades in the precious metal sector. Granted this sector was beaten down heavily before you started investing so a lot of investors lost money in the sector. One person loses and one person wins depending on the cycle. I just don’t really understand how values can fluctuate so dramatically when it defies logic in many cases. That is my real rub with the markets. I like investments to make sense. For astute investors like yourself, there is opportunity galore. I prefer investments that I can hold for the long term knowing that fundamentally they will be extremely sound financially.

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11 FI Fighter September 23, 2016 at 2:56 pm

Midwestern Landlord,

Yeah, definitely, valuations in certain parts of the country are insane right now… Although I have noticed prices start to come off a bit in places like the SF Bay Area… I was perfectly content to book some profits at this time.

In regards to stocks, it works in many ways like hot markets in real estate… Prices do get out of hand, in both directions. With real estate, markets like the Midwest are more stable in terms of price, but I remember when houses in the SF Bay Area corrected by 50%+ after the subprime crisis… In many ways, it greatly overshot to the downside, similar to precious metals mining stocks in 2015…

As investors looking for opportunity, those are the times when you buy hand over fist. I’m hoping for another entry point like that with real estate in the near future… Just gotta be patient and wait it out…

Most investors, unfortunately, have no patience and hate to wait for anything… So they keep chasing mediocre investments that offer low returns.

Cheers!

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12 Income Surfer September 23, 2016 at 1:41 pm

Congrats buddy. You’ve been wanting to unload a couple of those properties for a few months. Looking forward to your next travel post!
-Bryan

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13 FI Fighter September 23, 2016 at 3:09 pm

Bryan,

Thanks buddy! Haha, yeah I’ve been very anxious to offload some overpriced properties to the next sucker 😉

But with this one off the books, I can relax a bit more now… Wouldn’t mind at all to sell off another one, but we’ve got excellent tenants in place and the cash flow is ok, so no immediate rush there…

Wouldn’t mind another $60k or so of firing ammo though, that’s for sure!

Take care!

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14 SFtrader September 23, 2016 at 2:54 pm

They say cash is king for a reason. Amazing to me how many people focus on eking out gains in the S&P 500 during an over inflated equity market, rather than focusing on the preservation of capital. When the market finally does roll over, we may see a re-pricing of the uranium miners from “ridiculously cheap” to “fat pitch”.

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15 FI Fighter September 23, 2016 at 3:12 pm

SFtrader,

Absolutely, cash is king right now! Haha, yeah, I have to scratch my head when I see anyone rushing to buy into general equities right now, like the S&P 500, or Nasdaq at all-time highs…

Right now, I would take uranium over the S&P 500 every single day of the week… I’m guessing 99/100 would choose the S&P 500 though, because very few investors really like to “buy low”.

Yup, can’t wait for the next fat pitch! Uranium sure is getting there… Maybe in another 1-2 years it will be ripe for the picking… It might already be 1/2 ripe or more… When Japan gets to 20+ reactors back online, I’ll be tempted to load up if prices are still depressed…

Cheers!

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16 Srini September 23, 2016 at 9:28 pm

Hi Jay,

Congrats on closing the deal and taking profits back to your bank account.

I sold my apt unit last Nov and moved a third of the proceed to PM stocks ( in Hindsight worked out pretty well ) and hold remaining in cash.

My dad sold his house in which he lived for 35 yrs this May . A 10% portion of the proceed is waiting for the next crash to get in for 10 fold returns.
Cash is king. enjoy the smell of paper 🙂

cheers

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17 FI Fighter September 23, 2016 at 9:42 pm

Srini,

Thanks! It feels good to have some more cash in the bank.

Congrats on getting out of a high-priced asset and using those proceeds wisely to make even more money, switching over to a low-priced asset. Not always easy to do, but I know you definitely had conviction with PMs over the last year or so.

Indeed, I will enjoy the “smell of paper”… Notice how I said cash AND cash equivalents… I’m certain you know exactly what I mean when I say “cash equivalents”… 🙂

I’ll give anyone who isn’t sure a good hint — a store of value that carries with it no counterparty risk and cannot be devalued and debased because you can’t create it out of thin air on a whim…

Cheers!

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18 REDDY September 25, 2016 at 12:03 pm

Fifighter

what do you think about cash out refi instead of selling the property.
still gets cash out..
is it a good idea to do it if it still cash flows or one doesn’t mind having negative flow.

am in a scenario where i bought condo for $100k now its $200k, no loan
question is whether to sell, pay taxes, commission etc or refi and cash out 125k to 150k and hold on to the asset.

just wanted to see your expert opinion.
thx
Reddy

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19 FI Fighter September 25, 2016 at 1:36 pm

Reddy,

In general, I’m a big fan of cash out refis and have completed two of them before in the past. It really depends on your own situation and what you want to do with the property, though. If you think the asset is suited for Buy and Hold Forever, a cash out refi typically makes sense, presuming the property will still cash flow afterward.

In my own particular situation, this was a partnership deal and although the rental probably would work well for cash flow over the long-term, the mentality was kind of always along the lines that we would sell for appreciation someday… I don’t think we ever planned to hold this over the long haul and since we approached near 100% returns in 2 years, it made sense to sell.

I don’t think there’s ever a hard and fast rule…. I’m not particularly fond of going cash flow negative, personally, but in certain situations it can make sense… Especially if it’s only short-term and temporary. I guess it also depends on what your plans are for that cash… Usually, going cash flow negative only makes sense if you have a really good plan/idea in mind of how to invest that cash to help generate significant returns to offset any kind of losses you might incur with the cash flow on the rental.

I’m no expert, but those are just my thoughts… 🙂

Cheers!

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20 Lilith September 29, 2016 at 9:46 pm

How are your turnkey rentals out of state? Do you think they are good investments?

Reply

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