Help me invest $230k

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Help me invest $230k

Bill Pappalardo
Matthews, NC · Member since 2017 · 2 posts · 0 votes

Ok members - be gentle...am new at this and I am learning everything I can WAY before I consider a purchase.  I am reading articles, listing to podcasts, compiling a recommended reading list (reading "The One Thing" currently).  Basics: two income household, no kids, late 40s - eventually want to have a few properties generating income at full steam when I retire in 20yrs.  I currently have $230k available cash...considering purchasing rental property in Orlando (am assuming an excellent rentals market there)...compiling staggering list of costs and getting familiar with calculators (still not understanding some elements of how they calculate and why important)...checking HomeAway/VRBO/AirBNB to look at rental calendars to approximate vacancy percentages...rudimentary learning has pointed me to Windsor Hills Resort/Windsor at Westside...am I on the right track? ugh - please take a look at lingering questions that have overwhelmed me into inaction - 

  1. Have gleaned from reading that 5-6bdrm pool homes in ORL (buy generally $320-$400k and up, rent at $250-$350/nt) may be in more demand/lower vacancy rate than 3bdrm townhouses (market ~$200k, rent at $100-$150/nt)for Disney-bound renters - is there a definitive way to determine this?  Is there a central occupancy report source? Or do I need to have a RE agent pull rental history for each property that I am interested in?  How do I know that information isn't "enhanced"?
  2. How do I determine the most prudent amount to finance?  In each scenario in bullet 1 I can afford more than 20% down. Do I buy two $350k homes?...just dump $100k on each?  I feel like that's the wrong answer...but I also feel like buying a 3bdrm townhouse for cash isn't prudent either (aside from making me a target for a lawsuit - lawyers love an unencumbered asset).
  3. Should I form a corporation/LLC or other legal entity? I know there are certain protections each structure provides...thoughts?

Thanks all...I appreciate you taking the time to read this.  Any help you can provide is greatly appreciated.

Bill

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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y

Regarding "...considering purchasing rental property in Orlando (am assuming an excellent rentals market there)..." that is what I call a RED FLAG. You are speculating. You don't know for fact anything about your target market. My point is, you are adding risk. But, hey, it's your money.

Not sure why you don't consider Charlotte. Not a bad choice from a demographic standpoint. Or, if you have to invest out of state, consider Greenville SC. At least you can get there in short order.

If you want income, stay local. No brainer in my opinion.  And that's worth... 2 cents.

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  • Justin Stamper
    Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
    9y

    Have you considered purchasing something cash and then refinancing after 6months into a traditional mortgage?  That is the route I would personally go if I was going to spend 230k on rentals in Orlando.

    Either way I would highly suggest working with an investor friendly brokerage or realtor. I just so happen to know a few ;-0

    Check out our website to browse some listings and let me know if you want to continue this conversation. 

    1Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    9y

    1.  If the property is professionally managed, you can ask for copies of the owner's statement.  The owners would have to give permission, but most allow you reviewing the statements.  Some owners want an offer first to show your serious and then you would just put the offer "contingent on reviewing financials".

    2.  If you have the ability to pay cash.  I would to advise you to purchase one and then do a cash out refinance.  There is a ton of inventory for short term rentals.  You narrow down a few and then start making low cash offers.  

    3. I let my accountant do everything for me.  So I do not know the answer to that question.  I would have to ask him.  Other members should start commenting with answers. 

    If you are looking for a property that will cover your expenses and then will be paid off in 20 years, then short term rentals are the way to go.  If you are looking for major cash flow, I would advise to look into other options.  

    Hope this helps!

    @Justin Stamper Hi!  

    1Reply
  • Justin Stamper
    Investor · Orlando, FL · Member since 2012 · 822 posts · 303 votes
    9y

    @Erin Legler Hey Erin! 

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    9y

    Regarding "...considering purchasing rental property in Orlando (am assuming an excellent rentals market there)..." that is what I call a RED FLAG. You are speculating. You don't know for fact anything about your target market. My point is, you are adding risk. But, hey, it's your money.

    Not sure why you don't consider Charlotte. Not a bad choice from a demographic standpoint. Or, if you have to invest out of state, consider Greenville SC. At least you can get there in short order.

    If you want income, stay local. No brainer in my opinion.  And that's worth... 2 cents.

    2Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Erin Legler:

    1.  If the property is professionally managed, you can ask for copies of the owner's statement.  The owners would have to give permission, but most allow you reviewing the statements.  Some owners want an offer first to show your serious and then you would just put the offer "contingent on reviewing financials".

    2.  If you have the ability to pay cash.  I would to advise you to purchase one and then do a cash out refinance.  There is a ton of inventory for short term rentals.  You narrow down a few and then start making low cash offers.  

    3. I let my accountant do everything for me.  So I do not know the answer to that question.  I would have to ask him.  Other members should start commenting with answers. 

    If you are looking for a property that will cover your expenses and then will be paid off in 20 years, then short term rentals are the way to go.  If you are looking for major cash flow, I would advise to look into other options.  

    Hope this helps!

    @Justin Stamper Hi!  

    Hey Erin what is the benefit to #2 in this scenario? Basically what is the advantage to paying cash versus getting lending on the purchase? Either way you can still cash out refinance. Is it strictly because you can use the "cash buyer" aspect on the front end for better leverage on a deal?

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  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    Just to clarify my last post I'm aware you would also save on the interest and points from a loan as a cash buyer on the front end which would ultimately lower your overhead and holding costs but does it make sense to have a large sum of money tied up into one property when you can have that same amount of cash split into 25% down payments on multiple properties? 

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  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    9y

    @Brian Garrett It's a negotiating tool when submitting an offer.  Cash talks and if you find that motivated seller and offer them a cash deal.  They are much more willing to take that lower offer over a financed one.  

    Don't get me wrong.  You can still get a good deal with a financed offer, but a better deal with cash.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Erin Legler:

    @Brian Garrett It's a negotiating tool when submitting an offer.  Cash talks and if you find that motivated seller and offer them a cash deal.  They are much more willing to take that lower offer over a financed one.  

    Don't get me wrong.  You can still get a good deal with a financed offer, but a better deal with cash.

    Understand and that's what I figured you were referring to. Just wanted to make sure there wasn't any other benefit and or clear advantage that I was overlooking especially in terms of refinance.

    0Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    9y

    @Brian Garrett Correct there really is no other benefit.  Your closing fees on a cash offer would be much lower, but eventually when you cash out refinance you would be paying those fees anyways.   I would recommend to check with your loan officer as well to see what your interest rate would be on a cash out refinance.  Sometimes it higher and won't out way the initial savings of a cash offer.

    The title company I use does not charge buyers their closing fees. Title companies usually charge $250-$500. Not a huge benefit, but thought I would share.

    0Reply
  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y

    @Bill Pappalardo,

    I have a unique perspective on your #3, so I'll address that.

    Rather than a single entity you actually want an entity structure. The purpose is to insulate your personal possessions and assets against any potential liabilities arising from your income properties.

    You may see mention of Mark Kohler here on BP. He's a JD Tax Attorney and a CPA Tax Accountant. Here is an entity structure he suggests:

    1. A Revocable Trust

    You are the beneficiary, but NOT the trustee. The trust replaces you as an owner of the entities in your entity structure.

    2. S-Corp

    Operating company and short-term holds (rehabs for sale, fix-and-flips). Owned by your trust and at least one LLC.

    3. LLCs

    These own your long-term holds. Limit the dollar value or number of properties in each LLC, whatever suits your strategy best. That way, should an LLC be lost in litigation, only the properties it owns are lost. Owned by your trust and your S-Corp.

    Each entity needs to be fully insured, of course.

    Those are the basics. For specifics, look up Mark Kohler or I can connect you with him and his team another way.

    1Reply
  • Bill Pappalardo
    OP
    Matthews, NC · Member since 2017 · 2 posts · 0 votes
    9y

    Wow - these are all vey granular and helpful details - Thank you for all of it!

    0Reply
  • Account Closed
    Investor · Bushnell, FL · Member since 2016 · 456 posts · 224 votes
    9y

    Welcome @Bill Pappalardo to BP's , I hope you find it as useful as seful and exciting as I do. Congratulations on taking the first steps to becoming a real estate mogul .. I would like to point out that you shouldn't disclose exactly how much money you have to invest ..I would be a bit more vague . Only reason is there are terrible people out here in the world although, everyone I have met on here seems great . The fact remains though, that there are professional scam artists that frequent investment sites just to get a idea of who their next target might be .. I also realize that its hard to get good advice  without disclosing certain things ..I myself just make it a policy to never tell anyone exactly the amount I am willing to invest .. ok.. schools over ..lol.. anyway , .. I was wondering why you dont consider a multi unit instead of seperate Sfh's or a condo .. seems to me you would have enough to put down on a 4 or 6 plex or maybe even one with more units .. just makes sense to me.. but maybe you're not familer with multi units either .. anyway , both are just suggestions .. I hope only the very best for you and you're future investments .. 

    God Speed, 

    Michael Short 

    1Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Erin Legler:

    @Brian Garrett Correct there really is no other benefit.  Your closing fees on a cash offer would be much lower, but eventually when you cash out refinance you would be paying those fees anyways.   I would recommend to check with your loan officer as well to see what your interest rate would be on a cash out refinance.  Sometimes it higher and won't out way the initial savings of a cash offer.

    The title company I use does not charge buyers their closing fees. Title companies usually charge $250-$500. Not a huge benefit, but thought I would share.

     How did you get the title company to not charge the buyers closing costs?

    0Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    9y

    @Brian Garrett Because you are paying cash they do not charge the buyer, just charge the seller for their portion.  It's a smaller boutique title company.  You would still have to pay the recording fee which would vary due to how many pages are being recorded.  First page is $10 and $8.50 each additional page.  Link below is to county website showing their fees.

    http://www.occompt.com/official-records/recording-fees/

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y

    @Erin Legler That's good to know. Is it rather common for a title company to not charge any closing costs to cash buyers? Or is that more of an exception to the rule?

    0Reply
  • Erin Legler
    Real Estate Agent · Orlando, FL · Member since 2014 · 231 posts · 130 votes
    9y

    @Brian Garrett Most title companies charge.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    9y
    Originally posted by @Erin Legler:

    @Brian Garrett Most title companies charge.

     Thanks for your insight Erin. I appreciate it.

    1Reply
  • Keith Courtney
    Real Estate Brokerage/Vacation Homes/Short Term Vacation Home Rental Marketing · Orlando, FL · Member since 2013 · 159 posts · 127 votes
    9y

    @Bill Pappalardo -

    I have been involved with a good number of vacation home purchases near Disney World and am very familiar with Windsor Hills. I also handle short term rental marketing for a number of owners.

    Here are my responses to your 3 sets of questions –

    1) 2-3 years ago the thing to do would be to buy a bigger vacation home – 7 or more bedrooms. The thinking being, for just a little more money in upfront costs and a little more in operating expenses each month, you can get a good bit more money for rent. There have been a lot of the larger homes built in the last 2-3 years to the point of over saturation, and I now I think the smarter move is to buy smaller homes in communities close to Disney. The key is you will need to most likely upgrade the home to make it stand out against the other rental competition (most of which has not been upgraded). I have pro forma statements that I can send you that show actual verified expense and income numbers for a number of different vacation homes – both townhouses and SFHs. You’ll be able to see how I arrived at the income and expense numbers.

    2) To maximize the return on your cash and as long as rates are still low, I would preserve your cash and finance up to 80%. I have an excellent lender for vacation investment home loans. The projected rental income (banks will only use long term rental projections even though you will be short term renting your home) will be used in helping to qualify you. I would start with one home and, once you are comfortable with the market, then pursue others. One option you will also have with my lender is pay cash for the purchase and for the upgrades and then finance it to borrow most of the cash that you also spent on the upgrades. The interest rate may be slightly higher this way but sometimes not.

    3) I would talk to your accountant or lawyer about what would be best in your case.

    Feel free to contact me with questions or if you would like me to send some pro forma statements.

    Keith

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