My family owns a house worth about $400,000. The house will need a little work to fix up but then could be rented out for $1500-$2000 dollars a month. It’s a 3 bedroom house close to Harvard University, so I don’t think it would be a problem selling or renting the house out to students or grad students.
Here are my thoughts:
$18,000-$24,000 a year from renters.
A $400,000 home in a good market will appreciate at 3-4% – $12,000-$16,000
I was unable to find the property tax rate but I am guessing it’s about $3,000 a year.
This brings my estimate total to $27,000-$37,000 per year.
$350,000 invested at 8-10% a year gain would be $28,000 – $35,000.
$400,000 invested at 8-10% a year gain would be $32,000 – $40,000.
Given the current market situation, the real estate market, and how both markets can fluctuate, what do you think is a better long term investment? Any opinions are appreciated. Thanks.
July 7th, 2008 at 9:37 am
My personal opinion is that you failed to do the math correctly. Housing prices have been going down for the last 3 years so your home is anywhere from 20% to 30% undervalued currently. If you sell it now in the down market then you will be giving up over 200K in profit. I’m not sure you will be able to generate the 8 to 10 percent in profit from the stock market anytime soon. Also don’t forget you will have to pay gains tax on the sale of your property as well as gains tax on your investments. I think you should redo the math and wait before you make any drastic moves.
July 7th, 2008 at 10:03 am
My original idea was to fix up the place a little and rent it now because the housing market is down, and selling would be a missed opportunity. Rent out the property until the housing market turns around, and then sell the place.
I was only second guessing that idea because it would cost money to fix up the place, and it would require maintenance for how ever long it takes for the housing market to turn around again.
My family is leaning towards just selling the house as is. I think there is no rush to sell the house in a down market and to rent it out for a while. My stance on this is to just wait, either way.