Does this investment make sense for our family to do?

Florida Real Estate Q&A Discussion Forum

Does this investment make sense for our family to do?

Member since 2021 · 9 posts · 2 votes

Hey Team,

i'm in escrow on a 3/2 home in South Tampa brand new remodel. We are in escrow at $390k and we are putting 25% down. We are only cash flowing about $125-$250 a month. Our cash on cash return is 2-3%. Lord willing, this home would be a long term investment and it's a flip so we wouldn't have to rehab just the general maintenance. We are from San Diego and I still like the Tampa market long term. Is this still a good investment considering the capital we are putting in to get a little return at first?

0 Reply

48 views

Most Popular Reply

Darius Ogloza

Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes

Ha! I would buy every property I could get my hands on with that rent to purchase price ratio in my primary market (Marin County - San Francisco). That said, I would be naturally skeptical about buying a flip for investment, as you will almost certainly be paying an amount that includes the flipper's profit margin and likely, as a result, be invested in a property that sits at or near the top of the neighborhood in terms of price (thereby violating the maxim that you want to buy the least expensive property in the most expensive neighborhood). These are not deal killers - just flags that should be processed. Every investment should be evaluated in its particulars. In general, keep in mind that Florida has no income tax and so they take it out of property owners' hides through higher taxes than you will be used to in SD. We are paying almost 50% of the tax we pay on our principal residence in Marin on a waterfront property we own in Charlotte Count, Florida - just down the coast from Tampa. The Florida property is worth about 20%-25% of the California property.

3 Reply

See this reply in the discussion

23 Replies

Jump to latestLatest

Sort by

Courtney M.Pro Member
Investor · Tampa · Member since 2018 · 21 posts · 8 votes
4y
What kind of rent do you think you are going to get? I don't see how this could cash flow
0 Reply
Michael Stowers
OP
Member since 2021 · 9 posts · 2 votes
4y

@Courtney M. We could rent out this home for $2500
0 Reply
Mariel DeVito
Member since 2022 · 115 posts · 49 votes
4y
Too many missing pieces for me to advise one way or another. As a buy and hold investor, I never expect to hit it big in the first year. I barely made any money with my first investment (condo) and eventually started losing money due to increased monthly associated dues and annual assessment fees. After over a year, it did pay off when I sold it. I made $100K+. I don't think I'd ever see that amount of money if I had rented it out. Again, I don't know what you bought and where in the Tampa area. Just like any city, some areas increase in price more than others. Also, flips don't guarantee that there is no further work needed on the home. My second investment was a house that was flipped. I had to put in at least another $10k before I put it on the rental market. Not sure if your cash flow now would generate the cash needed for any 'hidden' work/maintenance that may be needed on the home.

0 Reply
Courtney M.Pro Member
Investor · Tampa · Member since 2018 · 21 posts · 8 votes
4y
@Michael Stowers Nice!! If your numbers work I would be happy with it. Tampa's market is on fire!!
0 Reply
Michael Stowers
OP
Member since 2021 · 9 posts · 2 votes
4y
@Mariel DeVito thank you! It's in Hilsborough county area in South Tampa. Totally agree with you on that. We have accounted for cap ex, maintenance, and vacancy also. We are blessed to have good paying jobs so may have some years where we don't cash flow, but I think Tampa long term is a good play. We are close to a military base out there also
1 Reply
Jon KellyPro Member
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Michael Stowers why did you wait until you're in escrow to ask this question? What made you go this far and now hit the pause button?
Completely depends on your goals. A lot of investors invest for cashflow, so this would be an easy "NO" for them. Others will bank on future appreciation and be willing to hold. You have to ask yourself which strategy you prefer.
0 Reply
Emy Bernardo
Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes
4y
As long as you've crunched all the numbers including insurance costs and reserves for vacancy and maintenance, and you are still cash flow positive, I'd say go for it. Rents will continue to go up, the debt will get worn down by the impending inflation, you have the tax benefits, and a home that if you had to escape California, could move to one day.
2 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Michael Stowers ok you said this is a long term investment and a flip? It’s one of the other
0 Reply
Michael Stowers
OP
Member since 2021 · 9 posts · 2 votes
4y

@Jonathan R McLaughlin We are buying an investment property that would be a long term hold that was recently flipped
0 Reply
Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
ah, got you. The cash return should be combined with the paydown and (potential) tax benefits to get your true return. The 2500/390K is a little scary but time cures a lot of ills on a long term hold and maybe taxes are low and the expenses are all tenants. Does your cash flow account for vacancy, etc? Flips can vary in quality to say the least, so not sure you are right about the capex.
The long distance scares me on your behalf, as well. But if its a solid home in a solid neighborhood that attracts good tenants you should be fine. If its a turnkey/dubious neighborhood kinda thing I think you will have trouble. Good luck though, wishing you well.
0 Reply
Darius Ogloza
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
4y
Ha! I would buy every property I could get my hands on with that rent to purchase price ratio in my primary market (Marin County - San Francisco). That said, I would be naturally skeptical about buying a flip for investment, as you will almost certainly be paying an amount that includes the flipper's profit margin and likely, as a result, be invested in a property that sits at or near the top of the neighborhood in terms of price (thereby violating the maxim that you want to buy the least expensive property in the most expensive neighborhood). These are not deal killers - just flags that should be processed. Every investment should be evaluated in its particulars. In general, keep in mind that Florida has no income tax and so they take it out of property owners' hides through higher taxes than you will be used to in SD. We are paying almost 50% of the tax we pay on our principal residence in Marin on a waterfront property we own in Charlotte Count, Florida - just down the coast from Tampa. The Florida property is worth about 20%-25% of the California property.
3 Reply
Peter Walther
Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
4y
Some rough calculations for a $390k investment purchase in Tampa with 25% down, the PITI comes out to about $3,300 a month. Assuming you can rent it for $2,500 a month and there aren't any additional recurring costs such as HOA or management fees the cash flow would be <$800> per month not including set asides for maintenance and vacancies.

.
1 Reply
George Azita
Los Angeles · Member since 2022 · 97 posts · 96 votes
4y
Hello! I am new to this forum. Thank you for having me on the forum.
It would be interesting to see the entire math for this property and if you post the numbers I will do the math for you.
Recently, an investor was bragging about earning $5,000 per month on a few rentals he was purchasing out-of-state and he claimed he was earning cashflow of about $500 per single-family home. As shown in the charts below, I came up with $185 vs $500.
Many investors put capital expenses and maintenance in their projections, but those two expenses are totally aside from the costs to clean and bring a property up to snuff after a tenant moves and when a tenant moves the costs to clean a home usually exceed $6,000 even if you do the work yourself. You need to figure that the average tenant will stay in your rental for 2 to 5 years and then the cost to paint a $1200 to $2000 sq ft home is about $3,000 to $4,000 plus flooring replacement, tree trimming and other yard work, blinds, cleaning and many repairs like broken sinks, faucets, appliances, fence repairs, etc.
Post all your numbers and lets have a look.
I am guessing that by the time you pay a property manager and pay for the inherited additional expenses due to owning long distance you will lose money on this property with the exception of if the property appreciates in value, significantly, and my guess even includes factoring in the principal paydown. I included in my calculations an annual appreciation rate of 5% and that is actually super high since everyone is taking a wild guess in regards to how prices will continue when they are already at a very high ceiling. I purchase properties hoping they would appreciate only 3% annually and 10 years later they didn't even appreciate 2%. So, rather than hoping, praying and crossing my fingers I always project the bad that can happen in the future and not what I hope will happen in the future.
0 Reply
Kristina Kuba
Tampa, FL · Member since 2021 · 383 posts · 389 votes
4y
@Michael Stowers I personally live in South Tampa. Judging from the limited information it appears like you will breakeven, perhaps? However, you can expect strong appreciation in South Tampa.
0 Reply
Peter Walther
Specialist · Winter Springs, FL · Member since 2009 · 1k+ posts · 747 votes
4y
Originally posted by @Kristina Kuba:
@Michael Stowers I personally live in South Tampa. Judging from the limited information it appears like you will breakeven, perhaps? However, you can expect strong appreciation in South Tampa.

Can you show your math that suggests the cash flow might break even?

0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
4y
Originally posted by @Michael Stowers:

@Courtney M. We could rent out this home for $2500

No way that has positive cash flow in Florida with their property taxes when allocating for all expenses. What did you allocate for maintenance/cap ex? Did you use actual prop tax based on purchase price?

good luck
0 Reply
Account Closed
Member since 2021 · 217 posts · 190 votes
4y
This is just classic 2022, hoping for marrow in a dry bone, REI.
They can't raise the interest rates and choke off this market fast enough for me.
0 Reply
George Azita
Los Angeles · Member since 2022 · 97 posts · 96 votes
4y
Maybe, you should come up with an excuse to back out of the escrow even if you take a little loss.

"Not all money is good money" That is what one of my employees tells me almost every day. I think he means; if you have to suffer to earn money then the money earned is not worth the stress and grief

It seems like many people get into real estate because they hear of others earning money. They read books, watch videos and think they are ready to walk on water.

Sadly, I read many threads where OP's ask questions and then provide tidbits of facts. It would be nice to see how you did the math before opening escrow and then maybe you and others can learn from success and mistakes. When I purchase properties I do the math about 10 times, ask my broker to do the math, a relative with extensive math skills helps with the math and then I compare the math and save every sheet of paper with math calculations for future reference so I can see how good or bad we meet our projections.

Saving all your math calculations helps you to see whether you are doing well or bad with your investments and even if some investments are doing bad your keeping your math calculations can help motivate you do do better because you will know where you made mistakes. If you don't do the math and don't save your calculations then you are investing blindly and with no compass to guide you.
1 Reply
Michael Haynes
Investor · Tampa, FL · Member since 2016 · 681 posts · 288 votes
4y
Hello Michael Stowers from San Diego, I just sold my last rental house in Tampa a few months ago and cleared $200,000 after renting it for 12 years and living in it for 3 to make it a Tax-free Sale of my Residence. I had a few duplexes and houses in S. Tampa for thirty years. If you gave me the address I could go on Zillow.com and tell you what the lot value is. Then you figure the value of new construction per sq. footage of the house to know what it would cost you to build the same. I sold my four commercial lots about ten blocks up from the Base on Dale Mabry Hwy two years ago. Just went on Zillow and looked at 3/2 Houses up to $500,000 and it looks like everything in that end of the peninsula is $400,000 or less. Here is Florida we warn new Real Estate Investors to not get yourself a "Gator." To make this one work, I would say that you probably could try and rent for a time and then live in it later on and Sell as your Residence. For now, to make it work I would think STR Short Term Rental and start asking around for Management to give you their estimates. My friend lives in Safety Harbor and uses VRBO instead of Airbnb to not have any problems. You property would not be a Beachhouse in Clearwater, but, it is good for the Base and Business and Family rentals. Hope you did not buy in a Flood Zone. There are A, B and C Zones in South Tampa to be aware of.
1 Reply
Ryan Hamaker
Rental Property Investor · Tampa, FL · Member since 2018 · 73 posts · 35 votes
4y
Hi Michael,
I think what you need to do is find a local RE investor that can verify your pro forma. From a cashflow standpoint, assuming your calculations are correct, you cannot afford any unforeseen maintenance, vacancy or rental rate surprises. Most RE investing books say to NEVER invest for market appreciation just in case things don't go your way. Your home is in south Tampa but is not in the posh south Tampa area everyone speaks of here. You're close to MacDill AFB which is really a different area. Ultimately you're banking on something you don't heave control over (market appreciation) but you most certainly do have control over what investments you can make based on cashflow requirements.
1 Reply
Robert Comstock
Member since 2018 · 138 posts · 56 votes
4y
If your investing strictly for the numbers I would say no. You can do 2-3 in San Diego.....why go OOS for that return? I assume there is some other (personal) criteria that you used to pick that market?
0 Reply
Dillon Cook
Realtor · Greater Tampa Bay · Member since 2014 · 219 posts · 130 votes
4y
South Tampa won't see much cash flow during years 1-3. It's an appreciation play. Hold 10 years and you'll be happy.
0 Reply
Mark Frattini
Real Estate Agent · San Diego, CA · Member since 2014 · 338 posts · 176 votes
4y
@Michael Stowers
Here's are my thoughts: You're paying a premium for a property that is turnkey and recently flipped. What's your exit strategy?
You could do better on buying a property in San Diego where you create equity by fixing it up and pushing up the rents. Plus you will be able to see and touch the property anytime you want. You could also self manage it saving you 10%+ on gross rents. This just seems like a lot of risk with narrow margins for an out of state investment.

0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.