Thursday, November 14, 2013

929 East El Camino Real Condo Investment Property Rental Earnings

929 East El Camino Real Condo Investment Property Rental Earnings

929 East El Camino Real Condo Investment Property Rental Earnings:

The condos on 929 East El Camino Real in Sunnyvale are conveniently located on East El Camino Real just east of Wolfe Road, near where Fremont Avenue merges onto East El Camino Real, just south of Sunken Gardens Golf Course.

Unlike most multi-story condos and townhomes, these units walk DOWN to the bedroom level.  The advantage of this arrangement is when it is time for you family to go to bed, the only people who will be above you are your own family.  If someone makes noise in the kitchen, living room, or dining room, it is your own family and/or housemate, so you can walk upstairs to tell your family member or housemate to be walk more quietly.

If the bedrooms were on the upper level of your unit, then above you would be people who live in the unit above you, not people from your own household.  You would have to go outside and knock on their door to get them to walk more quietly at bedtime.

Of course, the biggest consideration if you are considering these condos for investment is the amount of rent you can expect to earn each month from these condos.

The 3 bed 2.5 bath 1,832 sqft models right now earn approximately $3,400/month in rent.
The 3 bed 2 bath 1,440 sqft models right now earn approximately $3,000/month in rent.

To calculate the yearly income, multiply these rents x 12 months.  This is also known as the gross scheduled income.

From that, take into account the vacancy rate.  This location is very convenient -- convenient to commute to work and convenient to grocery stores, restaurants, etc -- so the vacancy rate should be under 5%. 

Multiply the Gross Scheduled Income x Vacancy Rate to arrive at Dollars Lost.
Gross Scheduled Income LESS Dollas Lost gives you Annual Rental Income.

If you gain any other income from the property, then add it to arrive at Gross Operating Income.
Subtract total annual operating expenses to get Net Operating Income.
Subtract Annual Debt Service to get Before-Tax Cash Flow.

The Before-Tax Cash Flow does not take into account your tax savings.
To arrive at your After-Tax Cash Flow, take into account the following:
--The annual interest deduction on your loan
--The annual depreciation on the improvements
--Your combined federal and state tax bracket (e.g. 38%)
   (Ask your tax professional whether all your tax losses may be claimed in the current year)

If your Before-Tax Cash Flow is negative, combine that with your depreciation to get Allowable Loss.
Multiply this Allowable Loss by your combined federal + state tax bracket to calculate Taxes Saved.
If the Taxes Saved is greater than the Before-Tax Cash Flow, then your final resulting After-Tax Cash Flow will be positive!

To calculate the Rate of Return, you'll need to first calculate the Cash Investment.
You can buy the larger unit for approximately $600,000 right now.
You can buy the smaller unit for approximately $550,000 right now.

If you get an 80% loan, then your down payment will be 20% ($120,000 for the larger unit. $110,000 for the smaller unit)  Add the expected buyer's closing costs to arrive at the Total Cash Investment.

The After-Tax Cash Flow divided by the Total Cash Investment = the After-Tax Rate of Return

As rental rates increase over the years, your rate of return will increase.
Perhaps an even bigger gain is the likely large appreciation of the property. 

The condos at 929 East El Camino Real are a viable choice as investment property.  Of course, you could also buy them to live in yourselves, so  you will be the one to enjoy its convenient location.

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