紫燕飛飛 輕風陣陣
漲跌總是難舍難分你又何必在意那一點點利潤......
正文
To stay at RE level 101, I hope one shall not argue about what exactly return one can get in the future. Nobody knows for sure.
Scenario 1--- Mr. Cash bought a rental with ALL cash.
The Net Return = Annual Appreciation + Rental Income - Property Tax - Maintainance Expense - Purchase cost - Selling Cost.
Take Cupertino as an example,
houses appreciated ~7.2%/yr over the last thirty yrs.
Rental Income today would be ~3.5%.
Property Tax=1.2%.
Maintainance Expense is typical ~0.5%/yr.
If Mr. Cash holds the house for 10yr,one can amortize the 5% selling cost to 0.5% a yr.
The Net---7.2%+3.5%-1.2%-0.5%-0.5% = 8.5%.
I would not do it. PERIOD!
Scenario 2 -- Mr. SMARTY PANTS bought a same house with ZERO down.
The Net Return = Annual Appreciation + Rental Income - Property Tax -Maintainance Expense - Purchase cost - Selling Cost - Mortgage with PMI.
If we assume Mortgage with PMI=7%
Now the profit = 7.2%+3.5%-1.2%-0.5%-0.5% -7% = 1.5%, but
the NET return = 1.5% / 0 = infinite.
I love it. I would buy 10 of them, or more.
Conservative people do scenario 1. "Professional" guys do scenario 2. Ican say the value in either way. Both the return and risk are obiouswith scenario 2.
For most of us, the average Joes, the true is in between. It thendepends on our risk levels, investment strategies and asset allocationstrategies.
I hope most would argue so far.
Once you move to RE level 2, it is all about tax benefits.
1. House Depriciation -- you could create strong positive rental cashflow, yet to have loss on paper, so you COULD deduct paper loss fromyour rental income and other incomes, say, salary. That is fantastic. Isaid COULD if you qualify.
2. you could use up your cash income, it more than you can deduct, onbuilding improvement, to generate more cash, yet to claim more loss.
3. No matter how hard you play with single houses, the benefit is always moderate. You can not scale up easily.
4. To take the most advantages of it, apartment buildings and business buildings are most meaningful.
5. With equity built, you can always trade up with 1035 exchange, tax free. No matter how much gain you have in it.
5. The key point --you can do it again and again and again. Tax free forever.
6. Or you could live in your rental later and qualify for $500,000 taxfree gain, when you decide to sell, if you QUALIFY. (this is peanut,though).
7. A lot of RE investors are RE agents AND handymen or women, to saveon transition cost and maintainace cost. That is what could kill youover the long run.
8. Qualified RE professionals (this is a legal term) have a lot of other benefits as well.
9. You can pass this investment to your heirs. Estate tax free! IncomeTax free! Capital Gain Tax free! for up to ~$2M or $3M or so this yr. Iforgot the exact number because I do not care, for now. But I bet, mostof us reading the forum will care about this a lot, 40yrs later.
Above level 2,my guess is that it is all about picking up the right property or at right timing, or finding the right place.
I hope we can discuss more level 3 tips in this forum than arguing about level 1 basics.
Scenario 1--- Mr. Cash bought a rental with ALL cash.
The Net Return = Annual Appreciation + Rental Income - Property Tax - Maintainance Expense - Purchase cost - Selling Cost.
Take Cupertino as an example,
houses appreciated ~7.2%/yr over the last thirty yrs.
Rental Income today would be ~3.5%.
Property Tax=1.2%.
Maintainance Expense is typical ~0.5%/yr.
If Mr. Cash holds the house for 10yr,one can amortize the 5% selling cost to 0.5% a yr.
The Net---7.2%+3.5%-1.2%-0.5%-0.5% = 8.5%.
I would not do it. PERIOD!
Scenario 2 -- Mr. SMARTY PANTS bought a same house with ZERO down.
The Net Return = Annual Appreciation + Rental Income - Property Tax -Maintainance Expense - Purchase cost - Selling Cost - Mortgage with PMI.
If we assume Mortgage with PMI=7%
Now the profit = 7.2%+3.5%-1.2%-0.5%-0.5% -7% = 1.5%, but
the NET return = 1.5% / 0 = infinite.
I love it. I would buy 10 of them, or more.
Conservative people do scenario 1. "Professional" guys do scenario 2. Ican say the value in either way. Both the return and risk are obiouswith scenario 2.
For most of us, the average Joes, the true is in between. It thendepends on our risk levels, investment strategies and asset allocationstrategies.
I hope most would argue so far.
Once you move to RE level 2, it is all about tax benefits.
1. House Depriciation -- you could create strong positive rental cashflow, yet to have loss on paper, so you COULD deduct paper loss fromyour rental income and other incomes, say, salary. That is fantastic. Isaid COULD if you qualify.
2. you could use up your cash income, it more than you can deduct, onbuilding improvement, to generate more cash, yet to claim more loss.
3. No matter how hard you play with single houses, the benefit is always moderate. You can not scale up easily.
4. To take the most advantages of it, apartment buildings and business buildings are most meaningful.
5. With equity built, you can always trade up with 1035 exchange, tax free. No matter how much gain you have in it.
5. The key point --you can do it again and again and again. Tax free forever.
6. Or you could live in your rental later and qualify for $500,000 taxfree gain, when you decide to sell, if you QUALIFY. (this is peanut,though).
7. A lot of RE investors are RE agents AND handymen or women, to saveon transition cost and maintainace cost. That is what could kill youover the long run.
8. Qualified RE professionals (this is a legal term) have a lot of other benefits as well.
9. You can pass this investment to your heirs. Estate tax free! IncomeTax free! Capital Gain Tax free! for up to ~$2M or $3M or so this yr. Iforgot the exact number because I do not care, for now. But I bet, mostof us reading the forum will care about this a lot, 40yrs later.
Above level 2,my guess is that it is all about picking up the right property or at right timing, or finding the right place.
I hope we can discuss more level 3 tips in this forum than arguing about level 1 basics.
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