Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
Hi all! Currently I’m building a 4/3 new build in Cape Coral. Total all in cost is about $265k and I financed It at around 3.6% with 10% down. Rents right now are at about $2300 and climbing. Currently post construction appraisals are coming back at $340k-$410k depending on location of the property. If I play my cards right I will be able to do a cash out refi, still cash flow decently and take all my equity out to do it again. Anyone else seeing this in new builds in other markets? Would love to connect. Good luck!
I have not tried to run any numbers on your case, but in many other cases I have found the old 1% rule pretty much a minimum is having positive cash flow. If you were to use your after build number, you are approaching 0.5%. My thoughts would be that you managed to build a great house to turn a profit on. I would sell it for the $400K and buy a couple(or three) of lower cost homes with a better rent ratios.
Just my first thoughts. Congrads on the low cost build!!
I have not tried to run any numbers on your case, but in many other cases I have found the old 1% rule pretty much a minimum is having positive cash flow. If you were to use your after build number, you are approaching 0.5%. My thoughts would be that you managed to build a great house to turn a profit on. I would sell it for the $400K and buy a couple(or three) of lower cost homes with a better rent ratios.
Just my first thoughts. Congrads on the low cost build!!
Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
4y
@Buddy Holmes it’s in the cards for sure as a great option! If I don’t refi and keep as is, that provides a ratio pretty close to 1% as well. Thanks Buddy!
Patrick, you are correct if you look at your $2300 Rent vs your $265K cost. It is 0.9%. However you should look at it from what amount f capital you have in the deal after construction. You mentioned an appraisals of $340 to 410K. If you use these numbers, you are at a 0.7 to 0.6% ratio. That is the view you should have. That is your build efforts have earned you $75-145K of capital gain. This is a VERY good first effort! If you sell and do a 1031 exchange, with say 10% cost of sale, you will clear $40 to $100K additional investment dollars to re-invest in lower cost existing properties which should have a much better rent ratio.
I would bet your build effort is in an area and a home that you wouldn't mind living in. Put on an investor hat and consider rentals that perhaps you would not live in but you or a property manager would collect rent and have a much better return n you newly increase investment capital pot! Just my opinion of how to be a successful Investor.
Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
4y
@Buddy Holmes I really appreciate the extra level of insight! Believe me, I’ve been thinking about that possibility as well and may consider It. It’s a good position to be in either way, which I am very happy about. Was a bit daunting at first starting a new build, but overall I would do It again… if I had more capital! Case in point lol. Thank you again. Merry Christmas!
Developer · New Orleans, LA · Member since 2015 · 1k+ posts · 898 votes
4y
@Patrick Bavaro if you never rent it. You can't 1031 it. If you cash out refi it, your interest rate will be higher and your max LTV will be 80% or lower on an investment property. I'm surprised you got such a construction loan with a 10% down payment on a house that is not intended to be your primary residence.
I agree with others, for that rent amount, I won't keep it, I would consider selling it.
Rental Property Investor · Larkspur, CO · Member since 2018 · 198 posts · 179 votes
4y
@Patrick Bavaro I'm struggling with this concept. It's not that I don't understand it, but why would said builder sell these for $265 if they're appraising for north of $340K? Why isn't he selling closer to that? Also, I'm presuming these are cinderblock and stucco as is common in FL? Would make sense that they're able to keep their costs lower than the stick builts because of that.
Finally, I'm assuming this is HOA and would have restrictions on STR?
Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
4y
@David Smit My understanding is that these are not traditional spec homes where the builder assumes some or all of the risk of buying the land, permitting, and finally financing the entire construction. In that mode, yes they absolutely sell at market. Instead, the buyer is assuming all of those risks and the builder is just building. Easiest way I like to think of It is that I’m paying them for the labor and whatever profit comes from that for them.
As for HOA, this property is NOT in an HOA and does not have restrictions. You are able to build on your own lot and most of Cape Coral does not have HOA based on what I've seen. Majority of new builds I am seeing are in NW and NE Cape Coral which are all developing.