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**yespkorg** · 07-25-2012, 03:49 AM

Here is a hypothetical for you Skirnir,

Buy a house for 85,000 in put 2000.00 down, property taxes and insurance are approx 1600 a year, Rent it out for 850 to 900 a month, mortgage payment of 500 a month, the bank holds the note but you receive monthly income, and in the end you would own the property. I don't think selling would be wise in any event because once the note is paid off, you'll have all of the income.

For an $85k house, maintenance would be $1,7k, likely more because tenants have no incentive to not cause wear and tear. Also, mortgages usually require 20% down, or $17k here.

I did run the mortgages for a 15 and 30 year note at 3% and 3,6% and the note is much closer to $200/mo incl. 2% taxes and insurance. Arbitraging the rental even at 800/mo would be $5,6k/yr, or about a 33% return on the down payment before taxes.

However, the above is all static accounting, and a bit myopic. It assumes a 0% vacancy rate, & that the tenant pays on time and does not brazen things out in the courts. Everything is worth what the buyer will pay for it, including rentals. As economic conditions deteriorate, net household destruction ensues as households merge and economise, which tend to depress rents paid in already-depreciating dollars.

There is also the matter of geopolitical risk. Obongo just slapped a 3,8% tax on net rental incomes, and the proceeds are taxable at one's tax bracket. Compare to gold that can (still) be liquidated for cash and whose income is not reported.

Still, that is a rather interesting business model. Why not replicate it in a more stable jurisdiction? Doing that here sounds like renting out a lawn chair on a sinking ship.

07-25-2012, 03:49 AM	#11
yespkorg Join Date Oct 2005 Posts 470 Senior Member	Here is a hypothetical for you Skirnir, Buy a house for 85,000 in put 2000.00 down, property taxes and insurance are approx 1600 a year, Rent it out for 850 to 900 a month, mortgage payment of 500 a month, the bank holds the note but you receive monthly income, and in the end you would own the property. I don't think selling would be wise in any event because once the note is paid off, you'll have all of the income. For an $85k house, maintenance would be $1,7k, likely more because tenants have no incentive to not cause wear and tear. Also, mortgages usually require 20% down, or $17k here. I did run the mortgages for a 15 and 30 year note at 3% and 3,6% and the note is much closer to $200/mo incl. 2% taxes and insurance. Arbitraging the rental even at 800/mo would be $5,6k/yr, or about a 33% return on the down payment before taxes. However, the above is all static accounting, and a bit myopic. It assumes a 0% vacancy rate, & that the tenant pays on time and does not brazen things out in the courts. Everything is worth what the buyer will pay for it, including rentals. As economic conditions deteriorate, net household destruction ensues as households merge and economise, which tend to depress rents paid in already-depreciating dollars. There is also the matter of geopolitical risk. Obongo just slapped a 3,8% tax on net rental incomes, and the proceeds are taxable at one's tax bracket. Compare to gold that can (still) be liquidated for cash and whose income is not reported. Still, that is a rather interesting business model. Why not replicate it in a more stable jurisdiction? Doing that here sounds like renting out a lawn chair on a sinking ship.
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