The state of our market here, just for discussion:

Nice neighborhood. Nice house with 3 units all nicely done (too nice actually.) 3-bed, 2-bed, 1-bed, separate entrances. $600k. The extra units have no stove - they used to, but Town knows about the place so stoves were removed to make them legal. Not a HUGE deal, but it's a con.

There is also a Nice little cottage on property but no bathroom or kitchen yet - but POTENTIAL for fourth unit. To get cottage legal, have to remove a bedroom in the house, but doable. To get cottage ready, Let's say $15k.

So $615k / 4 units: $160k a unit. Averaged Rents about $1500 (higher for some, lower for some, so average:) about $6k a month.

Utilities run about $1500 / month all in. Taxes and Insurance about $1400 and I think they are mistaken on taxes (by half.) Now add maintenance: over time, half that as there are lots of HVAC units, hot water, laundry - and they went high dollar with multiple mini-splits. So $1500 a month at least, and more if I'm right about the taxes.

Pro: rent will be as high as marketable as the places ARE well done. Con: We are heading into an uncertain market so who knows what "marketable" is going to be going forward? And 4 units crammed into what is technically a SFH (though quite a large one with plenty of parking.)

Huge Con: utilities not separate and not separatable so expenses pretty fixed and quite high - the place happens to be in a special sewer zone where prices are 2-3 times average town price. It was required to build there at all, so it can't be helped.

AND IF we used debt, at today's rates, you end up underwater if you add a mortgage.

BUT it's the first place I've seen in ages that was even worth a quick look...

Seems like since you know the area well and the pros and cons, would you make a lower offer and purchase goal be future appreciation and tax write off ?

I think if we were young this might be a doable deal - time might be on your side for appreciation and rent increases. This would also be an excellent deal for an owner-occupant maybe.

(DnP, Flood is not an issue at this location unless the world ends.)

But with everyone already done from soup to nuts, there's no value we can add - so it's just rents, really.

Five years ago, within about an hour or two's radius of my home, I would expect to pay $20-$40k/unit for an older multi that needed some refurbishment, or $60-$100k/unit for turnkey newbuild. Prices were higher in the major metropolitan areas (ie, DFW when it was about 7.5M), rather than the smaller cities (ie, pop 100k).

The major metropolitan areas have been seriously picked over by big-time investors who are looking to stash their money, but the smaller cities still have opportunities available. Apart from one in-need-of-love outlier that's sub-$20k/unit, I'm seeing options between $40-$60k/unit for needing repair, and I'm seeing half-renovated properties that clock in around $50k/unit, and I'm seeing turnkey stuff around $100-$125k/unit.

I'm sure your tourist-heavy market is a totally different beast, though. Was your place originally renovated with AirBnB in mind, rather than a permanent tenant?

I understand that real estate is local. But following the national trends: year over year national values gained about 2.5%. From June to July, home values went down 0.2% nationally.

The market is losing steam. I think there will a slight sugar rush later this year as Treasury yields ease........but overall, if someone is buying for appreciation - things are not looking so good.

It's not really 121 Exchange, it's a 121 Exclusion. And it really messes with some investors' plans for their properties over time. Here's a good explanation for those who hadn't heard about these change (it's been since 2008, but people may not have followed the tax changes.)

Summary of Changes

Property Held For Rental or Investment First

Property held for investment purposes and then subsequently converted into a primary residence will be impacted the most under these legislative changes to Section 121.

The amount of time that the real property was held as investment property (non-qualified use) will no longer qualify for tax free exclusion under Section 121. Only the actual time that the real property was held and used as a primary residence (qualified use) will qualify for the tax free exclusion.

This will significantly affect those homeowners who had planned to move into investment property and convert its usage to their primary residence in order to take advantage of the 121 exclusion. The longer the real property was held for investment the greater the impact will be on the amount of capital gain that can be excluded from taxable income (i.e. the more capital gain that must be included in taxable income).

Property Held As Primary Residence First

The modifications made to Section 121 do not affect homeowners that move out of their primary residence and convert it to non-qualified use. The homeowner can still take the full amount of the 121 exclusion upon the sale of the property as long as they still qualify for the 121 exclusion.

In other words, a primary residence that is subsequently converted into investment property will still qualify for the tax free exclusion under Section 121 provided the property is sold no later than three (3) years after its conversion to investment property. The property will no longer qualify for the 121 exclusion once it has been held by the homeowner as investment property beyond the three (3) year window.

Effective Date of Changes