First Investment- Am I on the right track?

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First Investment- Am I on the right track?

Jeff Scully
Member since 2020 · 12 posts · 7 votes

Hi all,

New to the forum and getting close to making my first rental investment and I'd like to be sure I'm thinking all of this through properly, so any feedback, tips, advice would be greatly appreciated! 

A little background- Currently living in the Philly Metropolitan Area in a small SFH as my only and primary residence. Until recently, was never remotely close to being in the position to buy a rental property after some terrible financial decisions that I've thankfully reversed due to a career change which has drastically improved my finances.

I am looking to buy a simple 1/1 apartment in South Florida to get started with walking distance to the beach. I've started to do my due diligence and the property's I'm looking at are both available for short term rental using AirBNB, and long term rental with tenants, though I actually prefer long term and would use short term as secondary choice. The part that is causing me to pause, as it is with most, is the down payment. These property's are ranging anywhere from $175-$200K and most are move-in ready aside from small cosmetics. 

Since I already have a mortgage on my SFH and house-hacking is not an option for me, and neither is FHA, (at least I don't think so) it appears that a Conventional Loan is my only option. I DO have capability of putting down 20%, or somewhere in the ball park of $30-40K, but I of course would rather not. As this is my first investment property, I know there are going to be additional cost, with closing cost, first and possible 2-3 months rent with finding tenants, insurance, having additional saved for the property etc.

With all said and done, the likelihood of the initial investment with all cost included will be in the $45k ball park (plus wanting to leave an emergency fund for myself for my SFH), I'll really need to have roughly $60K saved? I can realistically have this in about 4-6 months but the thought of investing that amount of money is stressful. This seems insane to me to invest in such a small property. I see so many post of first time investments that are much larger than what I'm looking at and it's blowing my mind how they are finding the capital without borrowing it which to me, is just too risky. IMO, if I don't have the capital for the down-payment, it's a red flag to me that I shouldn't be investing, or at least in the property(s) being sought after.

I'm well aware of the 1-2% rule and while I plan on following that, the cash flow is not what is appealing to me. I plan to buy and hold and if the opportunity presents itself, use for my personal use with my wife in-between tenants as a vacation property. 

Am I on the right track as far as the numbers go, looking at $35k just for initial down-payment using Conventional? After crunching the numbers, I'm looking at a mortgage in the ballpark of $1250 with a rental income of roughly $1500. Is it possible to use Conventional without putting 20% down? I have pretty low DTI with no CC debt (spouse either), relatively low car payments and and student loans that are capped at a very low monthly rate. Wife is an accountant and is on board with investing.

Any thoughts, advice, feedback would be greatly appreciated! 

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Bradley Sriro
Licensed Realtor & Investor · Miami, FL · Member since 2015 · 164 posts · 124 votes
5y

@Jeff Scully it is very unlikely that you will be able to cashflow at all with a 1/1 condo/apartment in South Florida at that price point. The numbers won't make sense and you will likely be in the red. Also, in terms of short term rentals, a lot of HOA's prohibit them. If that is something you plan to do, just make sure that you verify that it's allowed. In terms of conventional financing, there are some intracacies involved with condo financing. Check with a lender but you may end up having to put down 25% if the association is not FHA or Fannie May approved. See below link for approved Miami-Dade Condos:

Approved Condo List - Miami-Dade County

It sounds like you may be leaning toward South Florida more for personal preference and the desire to use the unit as a vacation property as opposed to it being a solid first time investment. Just make sure that if you do purchase something, you know what you are getting into. Bigger Pockets has a great rental property calculator under the tools tab at the top of the screen (desktop version). You should be able to accurately crunch all of your numbers there. Best of luck!

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  • Josh Beller
    Rental Property Investor · Thousand Oaks, CA · Member since 2017 · 42 posts · 10 votes
    5y

    Perhaps you can have your wife apply for first time buyer loan and only need 3% down? I'm not sure if that's an option for rental property but might be worth exploring. 

    1Reply
  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    @Jeff Scully what helped you decide on a property in Florida? Most investors invest out of state when they are in exceptionally high priced markets (NYC, Cali, etc). I’d think there are lots of $150-250K options right around you which would give you more flexibility to view it, manage it (if you want), and handle bigger issues if they come up.

    Similarly, have you considered house hacking a 2-4 unit place? There are definitely more loan options for your home rather than a rental.

    Lastly, before I buy a place I always ask myself why is this person selling. If it’s a fully furnished rental in good condition, making the owner lots of money... do you think they’d be selling it? Most rentals are sold because the owner is sick of dealing with it - tenants, repairs, expenses, etc. of course there are occasionally exceptions, but they are exceptions, not the rule.

    2Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Mike McCarthy

    Hi mike, thanks for the response.

    I live in Southern NJ and given the state of NJ with property taxes, businesses fleeing the state, I’m just not confident with the market here.

    I grew up in Orlando and have worked in the South Florida area so I’m somewhat familiar and really, not for any other specific reason, it’s just appealing to me.

    But perhaps I’ll check out the Philadelphia market. Thank you for the suggestion!

    1Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Josh Beller

    Hi Josh, thank you for the response. My wife is also on our current mortgage with me. Would that make a difference ? If not I would absolutely pursue this. I’m guessing on the flip side this would also lower my cash flow if I have a lower down payment ?

    Thanks again.

    0Reply
  • Nick Brown
    Real Estate Agent · Philadelphia, PA · Member since 2015 · 76 posts · 25 votes
    5y

    @Jeff Scully

    Hey Jeff, I'm actually in a similar situation. From SJ/Philly but girlfriends family is from South Florida (ft lauderdale area). We were thinking of doing the same thing as you. Keep as a rental maybe long term or airbnb but also be able to utilize it when we visit her family. I think it's a fine idea as long as you have some sort of boots on the ground. For instance, maybe my girlfriends father would be able to semi help out if there was an issue or a repair that needed onsite supervision and I couldn't make it down there.

    One thing I'll say is $1500 rental income on a $1250 mortgage will most definitely leave you negative in the cash flow column at the end of the day when factoring in all the other expenses. Just make sure you run your numbers properly. As for the financing side, reach out to a couple different lenders and see what options they think might be a good fit for you. 

    Good luck!

    2Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Nick Brown

    Hey Nick,

    Thanks for responding. Yeah, the Philadelphia/Southern NJ market is just not appealing to me, and although South Florida isn’t perfect, it’s appealing for a lot of obvious reasons that won’t be changing any time soon.

    As far as your comment regarding cash flow, the properties I'm looking at are pretty small- <1000 SQ feet, and some have HOA's, but not all. How do you figure it will be negative in terms of cash flow ? I know repairs can be significant regardless of the size of property, but it seems as if most won't be THAT costly.

    Thanks again,

    Jeff

    1Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    5y

    Can you find a property 80-120 that makes more sense numbers wise?

    1Reply
  • Nick Brown
    Real Estate Agent · Philadelphia, PA · Member since 2015 · 76 posts · 25 votes
    5y

    If the $1250 is PITI plus repairs, vacancy, and condo fee then that's better. If not just be careful.

    1Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Nick Brown

    Ah, I see what you’re saying. Yeah, I’ll have to review everything again. Especially when it comes to pursuing a specific unit.

    0Reply
  • Josh Beller
    Rental Property Investor · Thousand Oaks, CA · Member since 2017 · 42 posts · 10 votes
    5y

    I'm not sure if you would qualify since she's on the current loan, but it can't hurt to call a few lenders and see what they say since I'm no expert in the lending department. Or they may have some other programs that work for you guys. It can't hurt to ask.

    1Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Caleb Brown

    Hi Caleb, I’m sure I could but not in that area. If I did I feel as though the property would need some significant rehab which deters me a little as it would be my first investment. But I’ll definitely look into it. Thank you!!

    2Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Josh Beller good point. Thank you josh!

    0Reply
  • Allison Bridges
    Rental Property Investor · Long Island and CT · Member since 2019 · 10 posts · 3 votes
    5y





     @Jeff Scully If keeping your cash in the deal isn't appealing maybe looking for cosmetically distressed units? Then you could #brrrr your equity back out? 

    0Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Allison Bridges hi Allison,

    I’ve considered that but with my first investment property I’m a little hesitant to do anything with rehabbing as I’m relatively new to all of this. It’s definitely something I’ll have to look into more. Thank you!

    0Reply
  • Bradley Sriro
    Licensed Realtor & Investor · Miami, FL · Member since 2015 · 164 posts · 124 votes
    5y

    @Jeff Scully it is very unlikely that you will be able to cashflow at all with a 1/1 condo/apartment in South Florida at that price point. The numbers won't make sense and you will likely be in the red. Also, in terms of short term rentals, a lot of HOA's prohibit them. If that is something you plan to do, just make sure that you verify that it's allowed. In terms of conventional financing, there are some intracacies involved with condo financing. Check with a lender but you may end up having to put down 25% if the association is not FHA or Fannie May approved. See below link for approved Miami-Dade Condos:

    Approved Condo List - Miami-Dade County

    It sounds like you may be leaning toward South Florida more for personal preference and the desire to use the unit as a vacation property as opposed to it being a solid first time investment. Just make sure that if you do purchase something, you know what you are getting into. Bigger Pockets has a great rental property calculator under the tools tab at the top of the screen (desktop version). You should be able to accurately crunch all of your numbers there. Best of luck!

    3Reply
  • Dorian Weber
    Real Estate Agent · Wellington, FL · Member since 2018 · 36 posts · 17 votes
    5y

    South Florida Realtor here (palm beach county) - Most of the apartments wont qualify for a first time home buyers / FHA situ and you will have to go conventional.

    Also the reserves might not be there for a low DP either.

    The deals unless you find an absolute gem just aren't here.

    a current property I have - 15 via de casas sur, unit 104, Boynton Beach - currently selling that after a rehab

    bought for $145k - totally in it for $190k - should sell for 210k (and would rent for 1800-1850 but has a $370HOA) the opportunities are here in South Florida but not often with a condo or townhome as the HOA's kill the return.

    0Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Dorian Weber

    I see Dorian, thanks that’s pretty helpful. Now this might sound like a really stupid question but assuming I just bit the bullet and did the 20%, id be better leveraged and their wouldn’t be as much risk with the cash flow from it ?

    0Reply
  • Dorian Weber
    Real Estate Agent · Wellington, FL · Member since 2018 · 36 posts · 17 votes
    5y

    So rental prices I dont see going anywhere any time soon In South Florida - I would have personally kept the property I gave in the above example had I of not done a group fund for the flip and needed to pay back investors 8-10% on their money (hence selling it). All in it was $188k (say $190k ) and would rent for $1800-1850- My payment including HOA with 20% was like $1400 so I would have been taking $400 out

    Putting 20% will certainly help with the monthly payment and with historic low interest rates it will defo put you in a good position

    If you get a good enough price on the property the HOA doesnt necessary need to be a bad thing as it covers roof, exterior maintenance, landscaping (all of which would require more in insurance premiums, paying a landscaper etc)

    Bradley above seems to know his stuff, if you are looking in the Miami area he might be the person to work with. If you are hading north (palm beach county) let me know and I can help out. 

    1Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y
    Originally posted by @Bradley Sriro:

    @Jeff Scully it is very unlikely that you will be able to cashflow at all with a 1/1 condo/apartment in South Florida at that price point. The numbers won't make sense and you will likely be in the red. Also, in terms of short term rentals, a lot of HOA's prohibit them. If that is something you plan to do, just make sure that you verify that it's allowed. In terms of conventional financing, there are some intracacies involved with condo financing. Check with a lender but you may end up having to put down 25% if the association is not FHA or Fannie May approved. See below link for approved Miami-Dade Condos:

    Approved Condo List - Miami-Dade County

    It sounds like you may be leaning toward South Florida more for personal preference and the desire to use the unit as a vacation property as opposed to it being a solid first time investment. Just make sure that if you do purchase something, you know what you are getting into. Bigger Pockets has a great rental property calculator under the tools tab at the top of the screen (desktop version). You should be able to accurately crunch all of your numbers there. Best of luck!

     This was very helpful. Thank you. Question though and sorry for the redundancy, by cash flow you mean the money remaining each month after tenant pays rent and all expenses/utilities are covered correct? I was always under the assumption that this was not the primary driver in rental investing. Is there something I'm missing? 

    0Reply
  • Timothy Lewis
    Investor · Miami, FL · Member since 2013 · 377 posts · 258 votes
    5y
    Originally posted by @Bradley Sriro:

    @Jeff Scully it is very unlikely that you will be able to cashflow at all with a 1/1 condo/apartment in South Florida at that price point. The numbers won't make sense and you will likely be in the red. Also, in terms of short term rentals, a lot of HOA's prohibit them. If that is something you plan to do, just make sure that you verify that it's allowed. In terms of conventional financing, there are some intracacies involved with condo financing. Check with a lender but you may end up having to put down 25% if the association is not FHA or Fannie May approved. See below link for approved Miami-Dade Condos:

    Approved Condo List - Miami-Dade County

    It sounds like you may be leaning toward South Florida more for personal preference and the desire to use the unit as a vacation property as opposed to it being a solid first time investment. Just make sure that if you do purchase something, you know what you are getting into. Bigger Pockets has a great rental property calculator under the tools tab at the top of the screen (desktop version). You should be able to accurately crunch all of your numbers there. Best of luck!

    Took the words right out of my mouth!

    Like Brad said, condos in SoFlo are tough to cash flow due to the hefty HOA fees. Double check with the association to verify the fee.

    I get that cashflow is not important to you right now, but you'll be lucky to break even on a condo investment down here. Have you thought about finding less expensive market you can invest and vacation to? 

    0Reply
  • Bradley Sriro
    Licensed Realtor & Investor · Miami, FL · Member since 2015 · 164 posts · 124 votes
    5y

    No worries @Jeff Scully Yes, cash flow is what you have remaining each month after deducting for debt service (PITI), Association Fees, Vacancy %, Maintenance/ CAPEX %, and any mgmt. fees. Taking all of these things into consideration, it will be extremely difficult to find a property at that price point that will cash flow even with a 20% down payment. One thing that many people overlook is the taxes. Once you purchase and the new taxes are assessed, they will likely jump up significantly since it will not be a homesteaded property. So even if you squeak by with a little cash flow, when the taxes jump up, the cash flow evaporates. I never recommend investing in condos unless you get a REALLY SWEET deal (off market usually), or you pay 100% cash... otherwise, its not worth it. Also keep in mind special assessments with associations. Since we are tropical storm/ hurricane prone in S. Florida, the chances of being hit with a special assessment are high. One special assessment fee can end up being thousands of dollars if we get hit with a storm that does damage. For these reasons, I would recommend avoiding condos unless you really want one for personal reasons. Oh and regarding cash flow and rental investing, that is one of if not THE most important factors with buy/hold investing. Appreciation is just icing on the cake. You should never buy hoping for or expecting appreciation... doing so is basically speculation. While you may get lucky, you also may not.

    1Reply
  • Bonnie LowPro Member
    Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    Several years ago, we were able to make a purchase that qualified as a "second home" as opposed to an investment property and, in that case, only had to put 10% down. It was only our 2nd mortgage (which yours would also be) so it qualified as a second home whereas someone who already has multiple mortgages probably wouldn't be able to do that. The down side of that is that with only 10% down, you have to carry PMI and that can eat away at your cash flow. But it's worth looking into if the cash flow still would make sense. Note: we also had family in the area we bought this property in and it had duplex potential so we could rent out one unit and keep the other for our private use. That's why the lender was able to justify it as a second home. Just something to explore...good luck!

    [email protected]
    0Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
    5y

    @Bradley Sriro @Jeff Scully

    Couldn’t have said it better myself. Cash Flow is king, especially if you are looking at long term buy and hold. Appreciation is something you look for but it is the positive CF that allows you to hold the property to allow appreciation to take place.

    If you have a negative CF then you are betting everything on appreciation and you will have to come out of the property every month.

    I would try to stay away from condos as they have HOAs and that usually will kill any +CF there is.

    Do you live in a SFR? There is the option to buy a four-plex and live in one of the units and rent the other 3 then you can rent out the current SFR. Since you said you do not like that market, don't blame you, maybe look into another area or different property. Where you can buy a bigger property or more units.

    I know you said you want to go small because it is less of an investment and it will be “safer” but if you run the numbers you realize that the bigger you go the safer the investment actually is.

    1Reply
  • Jeff Scully
    OP
    Member since 2020 · 12 posts · 7 votes
    5y

    @Nick Robinson

    Hey Nick, what if their are apartment properties that don't have HOA in the same area/price range?

    Thanks for the response !

    0Reply
  • Nick Robinson
    Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
    5y

    @Jeff Scully

    I have never seen townhomes, or condos with no HOAs. What about single family homes in that area or another one? Biggest issue is it is going to be hard to CF on a house, or any SFR with a PM. That is why a lot of people have mentioned house hacking or buying in your area so you can manage the property. I think you said your father-in-law lives down there maybe you guys can go in on a property together. 🤷🏻‍♂️

    0Reply
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