Rental Property vs. Physical PMs

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#1 Sat, Sep 10, 2011 - 9:28am
MaryP
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Fort Worth, TX
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Rental Property vs. Physical PMs

We have a rental property that has depreciated in fiat value. 

Should we:

A) Sell the rental property at a loss and then take the equity we have and use it it to invest more deeply into physical PMs?

or

B) Should we hold the rental property, wait for inflation and then pay it off with the gains we receive in PMs that we already own?

Short version of the problem: What's more likely to be profitable: "Gains from low interest rates and eventual inflation" (rental house situation) or "Gains from PMs" (sell rental at loss and buy more PMs)?

I look forward to reading your advice.

Edited by: MaryP on Nov 8, 2014 - 5:06am
Sat, Sep 10, 2011 - 9:29am
MaryP
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PS: The equity from selling

PS: The equity from selling the rental house would be about $15,000. We'd probably put it into physical silver.

Sat, Sep 10, 2011 - 1:42pm
SilverFocker
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Tough call

on that, IMO I would wait until the Fed meeting before you do anything. Right now if the property is cash flow positive it would not be worth selling since you are not upside down and have equity.

Big Ben may open up the floodgates to interest so low that re fi would be the play, and that will only increase your cash flow and decrease the pay off time.......or at the same take the equity on re fi if possible and you get the best of both worlds. Either way you will know in the next month.

Sat, Sep 10, 2011 - 7:37pm
Brotha Bob
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Refi

As stated above, a refi, depending on your current rate might be the better move. Or future refi when operation twist lowers rates further. Take the money from the refi and move that into PMs. If the property is cash-flow positive and you are not underwater, I would think holding makes sense. Again if you are cash-flow positive, with a steady tenant, take the monthly net and put that into to PMs. Nothing like free fiat to trade for hard money.

May God Help Us All But, what do I know?
Sat, Sep 10, 2011 - 11:28pm
Gil
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Remember that along with

Remember that along with currency debasement comes a potential opportunity to retire debt acquired when the currency was stronger using currency obtained when it has less value. It's hard to say how long that window of opportunity will be available. So far we have not seen wage inflation in a broad sense, but you would think that it will show up sooner or later which will make it possible to raise the rent or otherwise accelerate repayment of the debt. The important thing about debt during times like these is being able to service it. If you would not miss the income from the rental property, meaning that it's kind of a break-even proposition, maybe you would sleep better with tubes of ASEs hidden away at your house.

Mon, Sep 12, 2011 - 6:29am
ohiometalman
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I would concur, you wait

I would concur, you wait until the Fed meeting, I think there is a huge possibility that this will the the QE3 for this time around. Ultra low government backed mortgages for everyone to put large amounts of disposable income back into the pockets of american consumers. We could be talking less than 1% 30 year mortgages.

Wed, Sep 14, 2011 - 1:46am
Gold Smart
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Keep both

I would keep both. I own properties as well as physical PMs. PMs are a great hedge against inflation and much better to hold onto to it than fiat currency. On the other hand, it provides no income. Rental properties, if well administrated, gives you freedom once you can use the monthly income money to pay for your expenses, re-invest and be free.

Thu, Sep 15, 2011 - 8:19am
Katie Rose
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so many factors here...

I've been in real estate since 1978 and there are many, many factors you are dealing with.

Is your $15 K equity before or after closing costs?

Is your rental in a stable neighborhood, or a neighborhood that is in transition?

Does your rental require a lot of maintenance?

Do you have good renters?

Do you have to "feed your rental" due to payments, property taxes, or maintenance? ie Are you getting a good return on your investment?

In the past most of my clients were investors. What they taught me was that single family rentals usually don't pay off that well over time due to renter abuse and regular home maintenance. Instead, they always bought duplexes, triplexes, four-plexes, or larger units, that had small interior spaces. That way they got single adults, no children, no boyfriend's fists through the walls, and the most rent per square foot. Rents are reasonable and the renters stay without damaging the property.

I personally intend to sell my PM's in the future and invest in studio apartments or very small one bedroom units. I need the income for retirement, but do not need the nightmare of dealing with renters who lose their jobs and trash my house as a going away present. Small, clean spaces (less than 500 sq. feet) and fair rents usually protect a landlord from those kind of issues. Also registering your property as "Senior's Only" housing can protect your investment.

I would suggest you take a very objective look at your property, answer the questions I (and others) have poised, and decide from there. Single family rentals just scare me. I've owned a few and can say, "Never again!" due to all the legislation protecting tenant's rights. One bad renter and every penny of equity is lost...

Katie Rose

Thu, Sep 15, 2011 - 3:38pm (Reply to #8)
MaryP
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@ Katie Rose

@ Katie Rose

This is a single family home. It was great the first 5 years and it has turned into a nightmare. Last tenant trashed it and left without paying.

$6,000 of repair and paint later, we're wondering whether we should just get the heck out of it.

Having fixed it all back up again, the idea of a single studio without a yard sounds just wonderful. 

If I did need to unload it, would it better to do it this year or next year?

I'm in Texas.

Fri, Sep 16, 2011 - 8:46pm (Reply to #9)
lazytrader
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Good renters

It's also a good idea to look after good tenants. Don't increase rents if they don't bother you or you may even get good ones who will actually do small maintenance jobs. They will find it hard to leave your place if the rent is so low.

You will save time, money and stress.

Thu, Sep 22, 2011 - 3:28am (Reply to #10)
Katie Rose
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Seems like a great time to sell!

I'm so sorry about your last tenants. I have had similar experiences. Bad tenants trashing my property and leaving me with the bill. That's why I am going to studio apts only.

I'm not sure what Obama is up to with his re-fi help for homeowners. That may be a real game changer. You will want to know as much as you can before proceeding with listing your property.

I don't know the Texas market, but usually mid-Nov. and Dec. are slow real estate months up north. I always took December off. With your hot climate, they may be great months for selling, I simply don't know. What I do know is that interest rates are still very low. When they start up again ( and they will!) home prices will plummet and your equity will disappear overnight.

FHA and VA are gov't backed loans and make it possible for folks (think young couples) to purchase their home without a 20% down. I believe it is the way to go in this market. Seller's costs are higher, but you can often offset that by asking a higher selling price initially. I'm seeing three types of buyers: young couples, sharky investors who are bottom feeding on desperate sellers, and folks looking for rural, survivalist properties. Having VA/FHA terms available in the advertising really opens up the market to potential buyers for you.

I'd be listing sooner rather than later. Before picking an agent go to www.realtor.com. Type in your zip code and view the properties listed. Realtor.com is the website with the highest traffic nationwide. Notice your competition. Notice the prices. Notice which agents have the best presentation, the most professional pictures, etc. With the advent of the internet, I hired a photographer to take photos for my brochures and webpages. It really makes a difference for a seller if the photos are excellent and the property description appealing. You are paying a real estate agent a lot of money and they need to excel in their marketing.

I also would ask for a brochure box on your "for sale" sign. If the agent says, "We don't do them here." tell them to be the first one to do so. Brochure boxes are really important in helping to market your home. And it goes without saying that it needs to be kept full of good looking color brochures with your home's price on it. An empty brochure box is worse than no box at all.

One last thing, when you find an agent who does a really good job at marketing, ask around about their ethics. Since moving to the east side of the state, I have been blown away by the ethics of the agents here. Lies, lies, and more lies. I can't believe how many lies I have been told by the "professionals" here! You want an ethical, experienced agent, as their omissions or false statements can end up with you being sued.

One last thing. If you get a California purchaser, have an attorney look over the contract, your disclosure statement, etc. Seriously!!!!!!!!! Nothing against California people. I've just heard too many horror stories about their use of attorneys after homes have closed. A few hundred dollars can save you potentially thousands after closing. Also, have a neutral party close your transaction. Attorneys or their escrow companies are not neutral.

Case in point, when we purchased our little farm, the seller insisted that the property close at his attorney's escrow company. Surprise, surprise - the attorney slapped a 15 ft by 1220 ft easement on our property in favor of the seller five minutes before recording.

It's called a five minute filing. It is illegal. It was fun and games having it removed.

Good luck, I hope I haven't been too depressing! I just know that with the real estate market the way it is, it is really important to go into all contracts with your eyes wide open. An experienced, ethical agent can really be a help.

Katie Rose

Wed, Nov 30, 2011 - 9:15am
plata larga
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Never put all your eggs in

Never put all your eggs in one basket. You should probably hold on to the rental property if it has a decent positive cash flow. You could invest that cash flow in PMs...

I have over 25 years of SF home leasing experience as a landlord with minor issues. All I can tell you is do your homework up front with every tenant. Credit report, google search, contact references, etc. Get first, last plus a security/damage deposit. 

Most renters will come with credit problems or financial baggage and that's okay. If you check them out thoroughly and stay firm in your requirements, you should be able to weed out problem tenants. 

Be a good landlord, nice, professional and firm. Maintain the property and answer tenant concerns promptly. Do what it takes to keep a good tenant, don't raise the rent, and let them know they have a good deal. Take action at the first hint of a late payment and communicate. Know the law and and be prepared to start the eviction process at the first legal opportunity. (I have not had to do this.)

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