multi-family investing in florida
Fort Lauderdale, FL · Member since 2016 · 40 posts · 6 votes
Hello BP.
I am looking to start out my investing career here in Broward, FL. My first investing is going to be a triplex, or fourplex. The only problem is that I always get negative cash flow on the properties I search for on zillow, loopnet, ect. Is this due to an inflation to prices here in South Florida? I Cannot find a decent property under $200,000. If anyone has some information please share!
@Daniel Roman South Florida is extremely overpriced. You will be hard pressed to find a MFR (Multifamily Residence) priced at less than $100,000 per unit unless you are will to consider Class D Neighborhoods. How are you running your your numbers? What are you basing your numbers on that is leading to a Negative Cash Flow Scenario? When you are crunching numbers to you factor 10% of the Gross Income for Capital Reserves and 10% of the Gross Income for Property Management as expenses? If you are interested in how I analyze a property, to determine feasibility for acquisition, please visit http://www.actinvestmentproperty.com/investment-strategy/ , scroll down to the photo, and click on the photo where a PDF opens.
I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking." Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.
Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.
If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.
If you think you will go FHA, Conventional, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.
Interesting question. Look forward to experienced investors jumping in on this. My thought is trying a duplex for my first investment and living on one side. I'm south of Orlando so I'm not sure the markets are equivalent .
@Dana Walker I forgot to mention, I plan on being an owner-occupant as well. The thing is when I use the BP rental calculator I tend to ALWAYS get a negative cash flow. Are you experiencing this as well being south of Orlando? I've heard Napes, and Cape Coral are good areas to invest in. I haven't really looked into it though.
@Dana Walkerundefined
I havent dug that deep yet @Daniel Roman. I'm at the stage where I'm still considering taking the plunge and honestly I'm depending on a BP mentor that I've met on here to decipher any deals for me. My thoughts are in Orlando area because I grew up here and know the area.
Hey Daniel, The deals are out there. I used to live in the Fort Myers area and the property prices are a lot lower compared to where I am now( West Palm Beach, FL). I still am able to put some good deals together that have good numbers even while using that calculator. I like looking for distressed real estate though. The ones that need some work, and bank REO's are also a good places to look especially in this Broward and Palm Beach. Remember the prices are just a guide not a rule of thumb for what you have to offer on the property! Run the numbers that fit your investing style and make an offer based on that. The worst you can hear is no. Hope this helps.
Awesome, Thanks @Shaun Patterson glad to hear that. I know I can definitely dig deeper and possibly find a deal. But as far as the online listings go, there's just bad cash flow in it. Quick question though, what usually kills me is my mortgage/pmi insurance. Since i'm looking to get a FHA loan a 10k downpayment on a $300,000 on a triplex in my area leaves me with a monster mortgage that really cuts into my cash flow. Any advice you have for me? I am also looking around the west palm beach area because it is not too far away. do you have any real life examples of deals you have made there?
hi Daniel I'm a wholesaler here in south Florida. I come across great Multifamily deals all the time. Please direct message me your email address and I will add you to my buyers list.
We are currently in a house hack purchased in 2014 that we got this way.
3 bed 2.5 bath
Purchase price:124k
10k downpayment assistance from
| The Florida Assist (FL Assist) |
3k in closing cost assistance from the bank.
2.5k out of pocket for down payment and closing cost.
2% closing cost paid by the seller.
10k in repairs.
The value now of this property is 169k(based off Zillow, and the townhouse next door selling for 162k). We are now getting everything finished to sell the property.
The mortgage payment that we had was 958.
We rented out the 2 rooms using air bnb and craigslist to supplement during that time.
FHA can work but it has to be a good deal. The rents in broward vary based on where you are buying the triplex. It might just be that where you are looking the rents are to low to cover the 300k loan that you will be getting. If so then look into 4 unit properties to make the FHA loan work since you will need to be cashflow positive while living in one of the units.
I'm guessing that you are running the numbers based off just living in one apt and renting out the other 2?
Howdy @Daniel Roman
Are you analyzing the property as if it is fully rented (after you move out)? If not you should be. If it still does not cash flow then it is a problem.
The problem with house hacking is it can be a two pronged sword. It's great to get the low interest rate and low down payment. But, as you've seen it causes you to have a high mortgage payment that can kill any cash flow opportunities.
So the key is figure out your financing parameters first. Loan amount, down payment, and mortgage payment. Then figure what your monthly rental income needs to be (less 50% for expenses) in orders to meet your minimum cash flow goals. It should help you identify property purchase prices and rental market rates to get you where you want to be.
If it doesn't cash flow while you are living there that is ok. It's part of your living expenses. But, it must cash flow when you move out.
Also, good deals are out there. You just have to be patient. Are you using a Realtor to help in your search? You should be.
Wow! Those are great numbers. Thanks for the information, it's giving me a lot of hope. How did you come across a deal like that? Also, how do you qualify for a program like that? Yes I plan on being an owner-occupant. The numbers are based off of that, but as far as the deals go on loopnet, zillow, realtor.com ect.. the cash flow is negative by a huge amount, that isn't very sustainable (800-1500)
Yes i'm factoring in the numbers, prior to, and after me living in one of the units. No I have not, I was just seeking out some general advice, or possibly something to just boost up my moral. To go forward and start reaching out to realtors, brokers, wholesalers ect.. I am definitely glad to hear that finding a good deal in this market is still feasible.
We actually used a realtor and scoured the MLS for different areas that we wanted to live \ invest in. We also drove to a lot of areas. We then checked to see how many sales are in that specific area. How close is the property to the shops malls, types of schools around, etc. As John said the mortgage was the issue that we had when we found this deal. You have to have a plan in place for what you are going to do when you get in. The loans are out there so that's not a big problem. It is what you do after you get in the property is what counts. We overcame our issue with this deal buy thinking out of the box. I know that having a slight negative cash flow might be fine for your investing style if you are planing on leaving after the first year. For our case we waited for almost 2 years so we had to make sure that it was positive from day one because we had a longer time frame and I just don't like losing money on deals. The Loan requirements have changed since then but if your google that program online it will tell you the banks that do it and what the updated requirements are. When you get there just start asking questions about promotions because retail banks always have them especially around this time so they can close loans.
Awesome
Thanks for all the information it is much appreciated. I will definitely write that in my notes as something to call about and get some more information. Good to hear, I definitely plan on reaching out to a realtors to find a possibly good deal. Like you said I just want to make sure all my finances are in line first so i'm not wasting anybodies time
@Daniel Roman I replied to your other post but I'll just reiterate again that you need to build a good team to help you find deals. I'm an investor and realtor. I'm working with two clients right now to find them a multifamily that fits their criteria. That being said. Both of them have different criteria and different areas that they want to buy in. If you get serious about buying a MF property you need to find a realtor who knows the area, the market rents, and also knows the in and outs of being a landlord. You will be looking for a very long time if you're only using zillow and loopnet to find properties. You need boots on the ground. You also need to get pre-qualified for a loan so that when you do start to build your team they know you're serious about buying. I just found one of my clients a nice duplex in Dania Beach and the numbers are good. They want to do the same thing as you and house hack for a year then move out and rent both sides. They will have a nice positive cash flow after moving out. Hope this helps.
@Daniel Roman South Florida is extremely overpriced. You will be hard pressed to find a MFR (Multifamily Residence) priced at less than $100,000 per unit unless you are will to consider Class D Neighborhoods. How are you running your your numbers? What are you basing your numbers on that is leading to a Negative Cash Flow Scenario? When you are crunching numbers to you factor 10% of the Gross Income for Capital Reserves and 10% of the Gross Income for Property Management as expenses? If you are interested in how I analyze a property, to determine feasibility for acquisition, please visit http://www.actinvestmentproperty.com/investment-strategy/ , scroll down to the photo, and click on the photo where a PDF opens.
I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking." Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.
Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.
If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.
If you think you will go FHA, Conventional, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.
Hi @Daniel Roman, I am seeing some great deals all over central FL if you are interested.
@tjfran Great info I am looking at this exact same scenario.
Thanks for your opinion on the subject. This is definitely another angle I should look into. The problem is I don't have the capital to put down 10% on something better than a D Class Neighborhood. Would you suggest moving to a sate where this will be more feasible for me? I get the hint that my area isn't such a great place to begin a real estate investing career.
@Daniel Roman You appear to be set, on House Hacking despite the negative consequences either short or long term that I mention. If you want inexpensive, your best best is the Midwest. In these markets you will not have high year over year appreciation. Do not surprised to see 1-2% per annum. With that said, you need to make your money up front in the form of forced equity, at the time of closing, to help hedge against you being able to satisfy a Baloon Note.
@Thomas Franklin Excuse me, I meant I do not have %25-30 capital to put down on a property through seller financing witch would allow me to close as LLC. I am not completely set on the idea of owner occupancy. I have just not heard anything about the possibility of being sued if you can't close under LLC. As I said it is definitely another angle I would have to look into. Yes, I may need to go somewhere more inexpensive to get started. What would you say the minimum amount of reserves a investor may need to get serious with MFR in the Ft Lauderdale area is?
@Daniel Roman You need to reread my post. I never stated a 25-20% down payment, for Seller Financing. I stated 10-15% as a down payment, for Seller Financing.
If you use Bank Financing, lenders will require 6-12 months of reserves to cover mortgage payments, property taxes, and in some states property insurance.
@Thomas Franklin Hmm okay. So seller financing seems like the logical thing to do. Let me see if I have this straight. I can close under an LLC, there will be no PMI, and I only need 10-15% down to acquire a property?
@Daniel Roman The 10-15% down payment is the range I would propose. When an owner is willing to consider Seller Financing is because he/ she is motivated, to sell. In such a situation, you ask a thought provoking question such as: "Why are you selling?" Listen to their story, to learn their needs. You need to present yourself as problem solver and demonstrate that you sincerely want to help them. The ultimate goal is to create a Win-Win Situation, for all vested parties.
Yes, you can close in a LLC and there is not PMI. PMI is only applicable, to mortgages where there is not 20% Property Equity...a combination of down payment and forced equity relative to Appraised Value.
We are currently in a house hack purchased in 2014 that we got this way.
3 bed 2.5 bath
Purchase price:124k
10k downpayment assistance from
| The Florida Assist (FL Assist) |
3k in closing cost assistance from the bank.
2.5k out of pocket for down payment and closing cost.
2% closing cost paid by the seller.
10k in repairs.
The value now of this property is 169k(based off Zillow, and the townhouse next door selling for 162k). We are now getting everything finished to sell the property.
The mortgage payment that we had was 958.
We rented out the 2 rooms using air bnb and craigslist to supplement during that time.
FHA can work but it has to be a good deal. The rents in broward vary based on where you are buying the triplex. It might just be that where you are looking the rents are to low to cover the 300k loan that you will be getting. If so then look into 4 unit properties to make the FHA loan work since you will need to be cashflow positive while living in one of the units.
I'm guessing that you are running the numbers based off just living in one apt and renting out the other 2?
@Shaun Patterson I'm on the same boat. I was also offered the down payment assistance by my mortgage broker. My offer is $15k dpa like a second mortgage (with no interest) to cover down payment and closing cost. But the trick is I have to have it for 5 years. But 20% is forgiven each year. For example, if I sell it 1 year after, $3k is forgiven and have to pay the $12k back; in 2 years, $6k is forgiven and $9k has to be paid back. For an owner-occupied property, it may be a good deal. But for a quick fix-and-flip, it may not matter. Do you have to pay back the $10k for dpa?
We are currently in a house hack purchased in 2014 that we got this way.
3 bed 2.5 bath
Purchase price:124k
10k downpayment assistance from
| The Florida Assist (FL Assist) |
3k in closing cost assistance from the bank.
2.5k out of pocket for down payment and closing cost.
2% closing cost paid by the seller.
10k in repairs.
The value now of this property is 169k(based off Zillow, and the townhouse next door selling for 162k). We are now getting everything finished to sell the property.
The mortgage payment that we had was 958.
We rented out the 2 rooms using air bnb and craigslist to supplement during that time.
FHA can work but it has to be a good deal. The rents in broward vary based on where you are buying the triplex. It might just be that where you are looking the rents are to low to cover the 300k loan that you will be getting. If so then look into 4 unit properties to make the FHA loan work since you will need to be cashflow positive while living in one of the units.
I'm guessing that you are running the numbers based off just living in one apt and renting out the other 2?
@Shaun Patterson I'm on the same boat. I was also offered the down payment assistance by my mortgage broker. My offer is $15k dpa like a second mortgage (with no interest) to cover down payment and closing cost. But the trick is I have to have it for 5 years. But 20% is forgiven each year. For example, if I sell it 1 year after, $3k is forgiven and have to pay the $12k back; in 2 years, $6k is forgiven and $9k has to be paid back. For an owner-occupied property, it may be a good deal. But for a quick fix-and-flip, it may not matter. Do you have to pay back the $10k for dpa?
Hey Lin,
Yes we have something just like that program. They put a no interest 2nd on the property and when you sell the balance is taken out of closing. When we did the numbers we factored the closing amount that would have to be paid.