Running the Numbers on Investment Properties

Jonathan Clements of the Wall Street Journal writes about trouble for landlords:

Got caught up in the real-estate fever? Let’s start with the painfully obvious: If you have no choice but to sell, then you ought to sell — and you should probably sell quickly.
To find out if you’re in the “no choice” camp, simply run the numbers. Take the rental income on your investment property and subtract your costs, including the mortgage, property taxes, insurance and maintenance. If the house or condominium is a sizable cash drain and there’s no way you can keep covering the shortfall, you’ve clearly got a problem.
“I’m not selling anything,” says John Schaub, author of “Building Wealth One House at a Time” and a real-estate investor in Sarasota, Fla. “But you have to be able to afford to hold your properties. Most of these people ought to sell, because they don’t have the aptitude to be a landlord and they don’t have the cash flow.”

Kudos to The Real Estate Journal for another excellent and HONEST piece of journalism. Not only do they acknowledge the elephant in the middle of the room: the “softening” market, but what an excellent job of objectivity and choices available to investors in a cooling market.
If you’re an “investor,” this is an excellent story for you to read.
If you are part of the greater population of homeowners who actually live in their home, there is little cause for concern if you have no intention to move. The market is cyclical and many of us can choose to “ride out” any minimal (expected to be) adjustment to prices.
If you have an adjustable rate mortgage that is soon going to “adjust” or you have to move in the next couple of years, you may want to weigh your options much like that of the investor. Some of those options are to sell and rent another home, downsize, refinance your current mortgage, or ride out the squall (I don’t believe it’s a storm).
Many of us will be faced with these decisions in the near future. For the record, this real estate broker isn’t selling his primary residence anytime soon.

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