Hi-I'm new Here!--Evaluating Current Birmingham, Al Income Property and Investing in Brevard County, FL.

3 Replies

Hello everyone.

I wanted to introduce myself and ask a few questions.

I'm Mike and I currently live in West Melbourne, FL (Brevard County)

Prior to moving to Melbourne, FL (Where we own a single family home), my wife purchased a townhown in Gardendale, AL (Birmingham Suburb) which we were unable to sell when we moved for my work.

After this we had several tenants in the property. At first we managed the property ourselves remotely (We actually managed to do several major repairs completely remotely with only one bad ending). Subsequently, we hired a management company to handle the property and were able to rent the property quickly (They charge first month's rent and 10% of rent thereafter). So far we are are on our third tenant, but we have only so far have had it vacant about 5% of the time. The city recently decided to create it's own school district which should be a draw to residents, but so far we have not rented to any tenants with kids. Overall there are several rentals in the neighborhood, but our townhome is one of the nicer in the neighborhood so we seem to command about $100 over other 3/2.5s and $250 over 2/2s. I think that the house is one of the few with 4 dedicated parking spaces (The rest have on street parking) and a larger back yard seems to help with the price premium. I would say the current fair market value for the house would be $80-$92k. I am not sure of the current stats on owner-occupied homes in the neighborhood, but I would say a fair number of people had to rent theirs out due to the market being flooded with foreclosures and still not recovered.

Other than the neighborhood the house is in, most other renters in the area are in large multifamily apartment complexes.

Below are a summary of approximate proforma financials for the property:

Gross Rent $13,200.00 ($1,100/Month)

Expenses

Management Fees $1,320.00 (10% A Month)

Interest $4,131.00 (5% FHA (Approx 25 years remaining). Balance Approx $81k)

Mortgage Insurance $457.69

Insurance $713.00

Taxes $543.00

Depreciation $2,343.00

Repairs $1,500.00 (Estimate)

Total Expense $11,007.69

Net Income $2,192.31

Cash Flow:

Net Income $2,192.31

Add Back Depreciation $2,343.00

Minus Mortgage Principal Reduction $(1,814.00)

Net Free Cash Flow $2,721.31 


 

We expect the property will need a new HVAC system ($2-$4k) at any time and there about 5 years left to go on the roof. The back fence is in bad shape but we are not planning on replacing it for the time being. We have a 5% FHA on it, but have not had any luck at option to meaningfully to lower the interest rate due to not being able to qualify for conventional mortgage due to the debt to equity ratio.

Our initial opinion was to sell the property once we could be comfortable that it would sell quickly and that we would not have bring cash to close, but we are starting to look at the potential and wondering if there are starting to be compelling reasons to keep the property longer even though we are long distance landlords and build equity. I was wondering if anyone else had feedback on the performance of this property.

Additional, I have started to give more though to owning a second income property likely Brevard county/Melbourne/Palm Bay.

I think that from everything I read being a buy and hold investor is the most compatible with my goals which is to focus on long term net worth enhancement and steady rates of return. I would say I would like to take a conservative approach to finance with either a cash purchase of a low end property or a traditional mortgage and use any free cash flow from a property to ether pay down additional prinical or save for the down payment for future property. My current mindset would be to focus on purchasing a property once I reach the goal of maxing my 401k contribution, which hopefully I'll achieve within 2 years.

The main thing I see right now is that in looking at real estate as an investment I am conflicted about proceeding on couple of things.

First, In Florida, I notice a big savings in home owners insurance with homes built to the FBC2004 building code and most of the properties would be in more expensive. Overall, I am generally bummed about the impact of insurance on the profitability of potential rentals in the area. On my personal house, buying a home built to FBC2004 saved me about $1200/yr on my insurance.

Second, while I hear a lot of duplexes, triplexes, etc being great from a cash flow perspective, I have some concern about their appreciation compared to single family homes and their difficulty to sale should I need to. I was wondering if anyone had some insights in the Florida market.

Third, while my preference would be to purchase a property locally, I have to say that the numbers and advantages of the Birmingham area (lower taxes and insurance) seem to outweigh some of the local options.

Just wondering if anyone had any advice for my situation.

Welcome to BP.  I'm rather new to the area, so don't know the market like a champ yet.  I agree that insurance is high in Florida, and this is without a direct hurricane hit in the past 10 years.  That said, my own strategy has been to buy 10 years-and-newer homes so that I don't have to replace major systems on the early side of my real estate career.  I don't see that there is a clear strategy that you are after.  Buy and hold will work, and it will be slow and steady in this property.  Your property doesn't product enough income to offset the A/C and a roof...one or both of those costs will be out of pocket.  A refinance isn't in the works, and you may just be accumulating a bit of equity through appreciation and through debt pay down.  If you sell, can you do better elsewhere?  Can you obtain better cash flow?   Perhaps this place isn't doing anything for your long term goals and you can deploy your resources better doing something else.  Good luck~

Sounds like you are going to have to put a bunch of money into this property in 5 years. If you dont have a long term strategy in place, you need to think about how you are going to come up with 10k+ for the CAPEX.

You said you could not sell when you left, do you see the market improving so you can sell? maybe a lease option would work for you to try and sell. 

good luck. welcome to FL. Melbourne is a great area. 

Well we have a $1.5k/year line item in our budget to pay for repairs, which may over several years absorb the needed Capex, but that is of course a prediction about the future. I put that line in to make our forecast income more conservative. We already have a small sinking fund being built up to cover the expected repairs.

We actually had a prior tenant who put a lease-option in the lease; however, we had a AC repair person out to the house and he disclosed to the tenant the estimated life of the HVAC (which has a minor R-22 leak that can't be fixed and needs to be charged every 2-4 years so at some point will need to be replaced) and therefore he moved out and decided not to exercise the option.

The neighborhood it's in is not fully recovered; but I say that the houses that do sell quickly seem to be the ones that have already had their major systems updated (New HVAC, Roof, Etc). At the area attracts a lot of first time buyers it seems that most want a house without the need to major CapEx over their heads. This is a nice way to say that I think we would likely have to make the CapEX regardless of whether we hold or sell. My thought would be that since we are likely to have to make the repairs, why not let the rental income cover the repairs, and if we decided to sell, we would have a cost basis increase that would not trip a capital gain.

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