Hello! Inaugural post of a time lurker and podcast fan. I’m living in the DC area and looking at the possibility of investing in either Jacksonville, FL or Tampa, FL since I’m in the military and there is a good chance I might be headed there next. When I originally joined the site my focus was on financed buy & hold deals; however, the below opportunity recently presented itself and now I’m starting to change gears. Interested to know if I’m missing anything; right now it sounds like a great opportunity to get my feet wet as an investor.
-2-3 partners purchase relatively new single family or townhome (no rehab required) for ~$250k
-Some of our potential properties are located in gated neighborhoods/communities, so I acknowledge that they’ll likely not increase in value too much
-Pay full cost with cash payment
-Rent property for cash flow
-One partner located in local area and agreed to manage the property
-One of the partners is set on paying all cash so financing isn’t really an option
-Have cash to spare
-Rental income would provide great return on investment
-Not looking for another deal for another 2-3 years, so immediate return is not a priority
-Purchasing a new-ish property will minimize risk of running into major repairs & would allow time to build up a maintenance fund (we can cover these costs now...but would likely use rental income to build a separate/shred pot of cash for this purpose)
Looking forward to hearing from you all!
Hi Kimberly, just a couple questions to clarify? Why don't you think a property in a gated community would increase in value? Also, are your partners already in place? What would you have to contribute? 1/3 of the cash?
Regarding increase in value: my understanding is that the property will increase in value, maybe just not as much as if it were more centrally located - right now the areas were focusing on are Jax suburbs - my assessment could be wrong though!
Regarding the payment split: one partner (the one who wants all cash) is footing the majority of the cost, likely around $150k. Myself and the other individual will cover the rest, I’ll likely contribute 50-80k with the last person providing the rest.
I understand there are some advantages to an all cash deal however I am wondering what are your teams goals. For instance if you were to purchase this 250k place and rent it for 2000-2500 assuming you cashflow around 50% of gross rents, your return likely would be around 5% on your cash. It seems that it would take 15 years depending on appreciation and increases in rent to be ready to make back your initial investments. I am not suggesting it's a bad idea, but really not sure I understand the motives of buying an all cash deal with no value add.
I agree with Jonathan, I think it would be better to keep yourselves liquid in case you find another really great deal and could double your equity for the same cash output, but that really wasn't your question, I don't think. If the 50-80K you put up still leave you other money to do other deals then maybe the deal is ok, but if it is all you have and you want to invest in other deals, possibly not. I think it depends on your goals.
@Kimberly Wood all cash if certainly one way to go. Have you run the numbers to see what your CoC would be for both financed and all cash?
@Kimberly Wood , I am not sure if this really changes the deal at all, but what if the "all cash" investor simply acts as your lender and you and the other partner are equity investors. This doesn't really change the capital structure, but if the all cash person is looking to keep risk very low, then you can pay them their interest each month, and you and the other partner get access to the upside, thereby making the deal a little better for you.
I would also be very clear about the local partner and any expectations for compensation above and beyond their prorata portion of rent. Leasing and managing a property is generally not too much work, when it is just one, but it can be a pain from time to time, and in my experience those painful times always come when other parts of life need your attention.
But the true answer to your post: if this is aligning with your goals and you are happy with the returns it will provide, then go for it.
Thank you all so much for the feedback - I think my big take home point is that I need to get more specific about all the numbers and call some of the properties we’re interested in to get a more accurate idea of what the cash flow will be.
@Evan Polaski - I appreciate the input regarding outlining expectations. The local partner is recently retired and offered to manage the property to fill his time, but outlining this in writing is an excellent idea.
@Linda Wright - Quick re-visit to the topic of property value - my initial assumption that the property value might have a relatively sluggish growth rate was based on a recommendation from an older colleague...but I realized I have no data to back up the claim. I looked up that an average national growth rate is 3-5% - but is there a way to get a more accurate idea of the local growth rate, would my best option here be to talk to a real estate agent in the area, is this written somewhere in public record?
@Kimberly Wood I would talk to one as the MLS should give them information about the area, the zip code, and even maybe that specific community you are looking in. It would be a helpful way to find the best neighborhood for return on your investment. Try to find one that works with investors and they could also be on the look out for you for a good property. Just be upfront and let them know you may be looking on your own to, but remember you don't have to pay a buyer's agent, they get paid by the seller. Always check a property they may pitch to you with your own research by using Zillow and public records (county Appraisers office) to see if the value is there and what the rentals in that specific area are going for.
Hello Kimberly Wood. Have you ever heard that the worst kind of Business to get into, is a Partnership? Have you seen a written contract? Did your Lawyer agree with the terms? Are your Partners family or longterm friends or an Investor who does this for a business? You don't seem to know your numbers for the Deal. Do you know what it is to Buy a Pig in a Poke? You have a JOB. Sounds like you have plenty of Cash for a Down Payment. You don't own your own Home. As a Military person you know that they don't let you buy your own home by transferring you out to another JOB or Base every two years or so. What did you read or hear that convinced you that Real Estate Investing is a good way to park your Money at a time when the Fed has moved the Interest Rate down to Zero? Have you ever read that past results do not indicate future returns to any Investment? Rental houses almost never pay for themselves. I just moved outside of Tampa to a quieter and safer town after managing my portfolio of Rental houses and duplexes in S. Tampa for 30 years. I paid $275,000 Cash for a 3/3, 1600 Townhome with garage and pool in a small, ideally located community. It was built in 2006 and was like new. It would rent for $1500 a month. Does that compute to satisfy the 1% or 2% Rule? I think not. But, I am selling my fixed up, 3/1 block home in Tampa that I just lived in for two years so that it will be a Tax-free Sale of my Residence. That house was rented for ten years at $1000 a month and paid for the mortgage. I will get $200,000. I paid off that mortgage after the sale of my Commercial lots in S. Tampa. So, I will have that money Tax-free in my Money Market account at less than 1% Interest a year, in another month. I could buy a like new, 3/2 pool home with two car garage in an excellent location for under $250,000 that would rent for around $2000 a month. Does that sound good? If I did not have a lot of paid off properties in Brazil, as a retired single guy, I would be happy to buy another, brand new 3/3 Townhome with garage and pool community, for $200,000 in Brandon to rent for maybe $1800 a month. With my SSI and what's left of the rent after HOA fee, Taxes etc. I could take care of my health and travel whenever I wanted to. My Daily Cash Flow comes from Daytrading the S&P Emini contract online. If I were younger and had not planned to retire near Rio, I would be thinking to buy a block of apartments or a Trailer Park to consolidate all of my Rentals in one place and have someone manage it for me. The one problem I had with my Portfolio of Rentals was that for 30 years I had to drive around each day, taking care of all the problems and collecting the rents etc. You need to have at least 10 Rentals in order to make the numbers work to have a Manager and Team and still make some money. I think that Absentee Ownership is a nightmare that I don't want to suffer. Everything I do is Tax-free or Tax-deferred. You can Invest and Trade out of your Roth IRA. If you stay in the Military for 20 years and get a Retirement, you can be a Triple Dipper and get another Government JOB like the Post Office after that and when ready, collect SSI and get Medicare. Any Real Estate Investment that you would consider, has to make you money from day one. You cannot count on Longterm Appreciation if we go through another 2008 Economic Collapse in the future...which we will.
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