Replacement Properties

We now have accepted offers on two properties for our 1031 Exchange of NE Ivy. Cash flow has become the biggest issue. Simply said, neither property does.

Rentals are tough (or at least the no-brainer they used to be). Used to be that 20% down was good enough to create positive cash flow. That’s no longer the case. We’re figuring both houses to come out about $400 a month short. The rent will cover the mortgage but not taxes and insurance. We’ll hold them as rentals and then remodel them before selling. Appreciation has been holding over 10% so we can suck it up now for the long term gain. I think as we see interest rates rise, appreciation may decrease but property isn’t going to get cheaper anytime in the foreseeable future in my opinion.

If I lose $4800 for a year of owning a $300,000 property and sell it two years later at 10% appreciation ($363,000). I think I can live with the loss (and the tax advantage gain for owning the property).

Craigslist or www.oregonlive.com is usually the best place for rental comparisons. I’d rather under-rent a little and keep it occupied than to hold the place vacant for any amount of time.

One Comment on “Replacement Properties

  1. Aren’t you a little worried about the P/E ratio on rentals? If the rents are increasing at 10% plus per year, why should properly values continue rising as well? We’re currently renting a house for well under what it would cost to own, so we’re in no hurry to buy while we watch what’s going on with the market.

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