Investment Property Case Study 2

Date: Friday February 6, 2009
Posted in: REO, rentals, Morgan Hill, bank-owned, investment property

As we saw in my previous investment property case study , south Santa Clara County real estate can now be purchased for investment purposes and have a positive cash flow from the income received from rent.  Not only will there be a positive cash flow, but there is great potential for gains in equity appreciation.

Last month I looked at an example case study on a property in Gilroy and this month I will look at Morgan Hill.  The property chosen for this case study is 17230 Torrey Way located near the Morgan Hill City Hall.  There is a pool and spa in the backyard of this 4 bedroom, 2 bathroom, 1340 sq.ft. home sitting on a 7370 sq.ft. lot.  The current list price of this home is $359,900 and it is a bank-owned property.  This property has been on the market for 37 days.  Most likely the list price is a little high for this 52 year old home in an old part of Morgan Hill.  Therefore I will make the assumption that the bank will accept $325,000 for the purchase of this home.

torrey-ct-17230-morgan-hill.jpg

Here are the assumptions that I made:

Using the above assumptions, the property can be analyzed as an investment, taking into account tax depreciation, cash flow before and after taxes.  We will also look at the eventual sale of the property, looking at the total gain on the sale.

Looking at my assumption of selling the property in seven years with a conservative guess of 3% appreciation in value per year:

Looking at the same 7 year holding period but with a 4% average annual appreciation:

The increase in annual appreciation from 3% to 4% increased the gain by $45,762. 

Please consult your tax advisor for more information regarding the tax implications of buying, leasing and selling investment real estate.


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Investment Property Case Study

Date: Saturday January 3, 2009
Posted in: real estate, rentals, Santa Clara County, Gilroy, wealth, tax benefits, investment property

It has been quite a few years since a Bay Area residence could be purchased for investment purposes and have a positive cash flow from the income received from rent.  But with the large drop in real estate sale prices, it appears that not only will there be great potential for gains in equity appreciation, but that the property will have a positive cash flow.

Let’s look at an example case study on a real property currently for sale in Gilroy.  I chose this property because the Multiple Listing Service states that it is currently rented for $1900/month.  This property is located at 9110 Church Street, has 3 bedrooms and 2 bathrooms, is 1132 sq.ft. and is on a 5227 sq.ft. lot.  The list price is $279,000 (originally $369,000), and this property is a short sale.

9110 Church St., Gilroy

Although we are given the current rent amount, there are other assumptions that must be made in order to analyze this potential investment.  Here are the assumptions that I made:

Using the above assumptions, the property can be analyzed as an investment, taking into account tax depreciation, cash flow before and after taxes.  We will also look at the eventual sale of the property, looking at taxes due upon the sale and the after-tax rate of return.

Looking at my assumption of selling the property in seven years with a conservative guess of 3% appreciation in value per year:

This example shows a viable real estate investment in south Santa Clara County with a before-tax rate of return of 8.55% on the investor’s initial $67,500 investment.  Please consult your tax advisor for more information regarding the tax implications of buying, leasing and selling investment real estate.


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