Investor · Parkland, FL · Member since 2017 · 20 posts · 5 votes
Hello guys. My name is David and very excited to be part of bigger pockets. I am looking for my first rental property but with high prices down here ( Broward ) properties don't seem to cash flow ( at least the ones I have chedcked so far). Any suggestions on what part of Broward or even palm beach or Miami date will be a good location for rental property. thank you for your response and for helping a new real estate investor.
Investor · Miami, FL · Member since 2015 · 379 posts · 330 votes
9y
Jose Rueda
I'm so confused..
Why did you include an ARV on your calculations for a buy & hold? If you're buying for cash flow I'm not sure what value ARV has in such formula.
My math with your numbers would be more like this:
Acquisition:
Asking: 290k
Repairs: 15k
Total Acquisition: 305k
Revenue: 28,800
Taxes: 4583 Insurance: 1800
Cap ex: 2400
PM @ 10%: 2880
Total: 11,663
NOI: 17,137
Cap Rate: 5.6%
Cap Rate w/o PM: 6.56%
Not a crazy return but pretty normal to see in Miami if you're purchasing in middle to upper class neighborhoods.
Most of my clients seem to be really content 7-9% down here.
As you are seeing, it's a tough market down here. Your same purchase $ doesn't buy you the same $'s or rent in return as in other markets.
I would recommend attending the local REIA meetings (there are quite a few). You will hear lots of great ideas and get some great wisdom.
Right now I am looking North of PBC these days. Stuart, Fort Pierce, Vero, etc. But locally I love Lake Worth and Wellington. Quite a few multi's there.
In your area Coral Springs seems to have a few multi's as well.
Coral Springs, FL · Member since 2017 · 39 posts · 10 votes
9y
I live in the Coral Springs area and I've seen a lot of multi family for sale from investors but the properties are over priced and after all expenses I'll have negative cash flow. I have come across some for sale by owners and made offers but the ones I've contact do not seem very motivated. Either way I have been following up every month to see if it changes. I was thinking about implementing the subject to strategy just to obtain a property here. If anyone else is having any luck please let me know.
Rental Property Investor · Boca Raton, FL · Member since 2014 · 104 posts · 55 votes
9y
@David Mejia definitely high prices and hard to find cash flowing properties right now especially if you are looking in A-B areas, I have seen a couple off market properties in Delray, Lake Worth and in general north Palm Beach that have some decent returns but still not great. Talking about meet up we are having one this Saturday in Delray would be awesome if you could make it :)
Investor · Parkland, FL · Member since 2017 · 20 posts · 5 votes
9y
@Emanuele Pani Thank you so much for your reply. I am planning to attend the meeting tomorrow. I will see you there and maybe we can talk further. Thank you
Investor · Parkland, FL · Member since 2017 · 20 posts · 5 votes
9y
@Bob Razler thank you for your reply. I checked the meetings online but i am afraid they will try to sell training or products. Have you attended any of those meetings?
Investor · Torrance, CA · Member since 2017 · 10 posts · 1 vote
9y
@Jose Rueda Hi, can you provide one of those multi family examples that you're not interested in saying will be negative cash flow? Just curious to see if I'm getting the same numbers. I'm finding some that cash flow in B areas. Thanks
Coral Springs, FL · Member since 2017 · 39 posts · 10 votes
9y
@Scott R so an example of one of the multi family units I've came across was a Duplex 2x(2/1) that was listed for sale for 290K. For sale By owner.
ARV=210K
Comps
1) 189k within 6 months 2x(2/1)
2)203k within 1 year 2x(2/1)
3)239 within 6 months 2x(2/2)
Rental income would be about 2600 a month but being conservative I assumed 2400.
Expenses
2016 taxes =4583
Insurance = 150 a month so 1800 a year for closing.
Cap ex= 2400 for one month overturn
Repair costs = 15K for new ac and roof.
Property management 10% = 240x12 = 2880
MAO=(ARVx80% to be conservative) 168k
-expenses 26663 =141337
The rule of thumb for the 50% rule states that half of my rental income would go to expenses and the other half would be gross income minus rent. So 2400/2= 1200- mortgage(667) =+533. If I buy it at 290k I would be about -171. 141k Would be the number that I need to buy the property after expenses but the owners do not want anything less then 290k. Other duplexes that are for sale are for sale 280k and up. Now I'm still new at this so I might be off on my calculations but from what I know now, it doesn't look like a good deal to me. If anyone has any ideas or comments to help me that would be great.
Investor · Miami, FL · Member since 2015 · 379 posts · 330 votes
9y
Jose Rueda
I'm so confused..
Why did you include an ARV on your calculations for a buy & hold? If you're buying for cash flow I'm not sure what value ARV has in such formula.
My math with your numbers would be more like this:
Acquisition:
Asking: 290k
Repairs: 15k
Total Acquisition: 305k
Revenue: 28,800
Taxes: 4583 Insurance: 1800
Cap ex: 2400
PM @ 10%: 2880
Total: 11,663
NOI: 17,137
Cap Rate: 5.6%
Cap Rate w/o PM: 6.56%
Not a crazy return but pretty normal to see in Miami if you're purchasing in middle to upper class neighborhoods.
Most of my clients seem to be really content 7-9% down here.
Boca Raton, FL · Member since 2017 · 10 posts · 3 votes
9y
Hi Im also in South Florida. I rent here and buy in the Cleveland Ohio area. Im waiting until the market goes back down to even think about purchasing anything down here. I dont see many cash flow opportunities down here either.
Coral Springs, FL · Member since 2017 · 39 posts · 10 votes
9y
Gabe Amedee I'm fairly new at this and I'm still trying to understand the math. The math you did was great at explaining it. Would you still use that math to wholesale the deal? If not, what is needed? Also, what is NOI and how do you get it? What are expected cap rates that we should be aiming for?
Investor · Miami, FL · Member since 2015 · 379 posts · 330 votes
9y
Jose Rueda
1. Would I use this math to wholesale? I use this type of formula for every RE transaction to get an understanding of how the numbers look in different calculations. Cap Rate is not subject financing so I'd compare it to CoC (cash on cash return) to see if this property would be better for a financed buyer vs a cash buyer or to see if this property should be held short term vs long term, etc. I personally do not wholesale buy & hold deals so can't really give much credible feedback. The investors I surround myself with would not park all their money in one property yielding 7% a year when they could invest it in flipping or hard money loans for 20-30% a year.
2. NOI: Net Operating Income. It is all your gross operating income minus all your operating expenses. Like rent minus taxes, insurance, vacancy, etc.
3. You can check the market in certain areas and see what income properties are being rented for as well as sold for so you get an idea of what cap rates are in that specific area. I have a 6 unit listed on the market for 7% (which on paper sounds good) but it is in an area where investors are expecting more around 8-10% (C/D class). So it all ranges. Must know your area.
4. Cap Rate or Capitalization Rate is NOI/Purchase Price. If NOI is 10k and purchase price is 100k then Cap Rate is 10%.
Don't sweat the questions. We all started somewhere!
Coral Springs, FL · Member since 2017 · 39 posts · 10 votes
9y
Gabe Amedee thank you for that explanation! It helps a lot on my journey to understanding it. I'll practice the math with properties in my area so I can get the hang of it and I'll be putting offers in. I plan on making my first deal before this year ends. One last question, and again sorry for bombarding you at this time at night, so if I was to take out an FHA loan, the 3-5% down payment would fall under acquisition and the mortgage for the year would fall under the expenses right? Then I would do my calculations after that correct?
Developer · Closter, NJ · Member since 2016 · 392 posts · 109 votes
9y
Welcome to bigger pockets !!
I think your best option is to start in Boyton beach. When I lived in Delray Beach from 2010-2014 the market had just about started to rise. A 3 bedroom in Murano of Delray was going for 99 today they are 200k. Mind you the properties were being sold for 300+ three years before.
Another area is anywhere near Nova Southeastern. That school is growing and more students are going to need a home to call their for years to come.
Although the cap rates are rough in SoFlo keep in mind the market has stabilized and worth taking advantage of. Remember you live where people vacation.
Rental Property Investor · Boynton Beach, FL · Member since 2014 · 273 posts · 197 votes
9y
@David Michael - The three years since 2014 have done a lot to the price/rent ratios here in boynton. After acquiring my first three properties in boynton the past for year, I purchased my first rental outside of boynton earlier this year because finding anything with acceptable cash on cash return was difficult at best (excluding the D neighborhoods)
Gabe Amedee thank you for that explanation! It helps a lot on my journey to understanding it. I'll practice the math with properties in my area so I can get the hang of it and I'll be putting offers in. I plan on making my first deal before this year ends. One last question, and again sorry for bombarding you at this time at night, so if I was to take out an FHA loan, the 3-5% down payment would fall under acquisition and the mortgage for the year would fall under the expenses right? Then I would do my calculations after that correct?
FHA would mean owner occupied so no cash flow. If it was a 5% conventional (which my lender does) then you would count the down payment as the investment and the cash flow as the return.
(These are rough numbers just for explanation purposes)
Coral Springs, FL · Member since 2017 · 39 posts · 10 votes
9y
Lenny Machin so I'm noticing that the cap rates are less then 10%. Is that to be expected here in south Florida? I was under the impression that a rental's cap rate should be at least 10%. Or should I be looking at it in the sense of, if it's higher then inflation of 3-4% then I'm good?
Property Manager · Miami, FL · Member since 2013 · 21 posts · 3 votes
9y
@Jose Rueda - I'm not a realtor and definitely no expert, but my dad has over 100 apartment units and his "magic number" is 6% cap rate. I agree with your last statement "...higher than inflation of 3-4% then I'm good". It's conservative. Is a higher cap rate in SFL realistic? Perhaps in a different market than Miami Lakes condos or Hialeah apts, I'm just not aware. All I can say is do more homework & find out for yourself. In the mean time, let me know if you're interested in my unit. All the best! :)
Investor · Fort Lauderdale, FL · Member since 2016 · 22 posts · 15 votes
8y
More Millionaires were made through real estate...
I can assure you, making a 5% to 7% cap rate and dealing with tenants is NOT a way to BECOME a Millionaire. It’s where investors who are already millionaires *might* park their money with a good property manager, to keep (diversify) their money.
If you’re new to real estate, and want to be successful in South FL:
1) know where we are in the cycle and buy right, your money is made on the purchase, not the sale.
2) know your neighborhood and values
3) be thinking about an exit strategy, what’s your “make me move” price.
(And this is coming from a buy and hold investor...)
4) and last, get a good return (aka, cap rate) for your holding period.
Because, the South Florida market, sell prices fluctuate so wildly compared to relatively stable cash flow markets like the mid-west.
Cap rate is very important, but here in S. FL, it can be swamped by price moves.
Example. I bought a condo in Coral Springs for $35k, sold it a couple years later, no renovation, just paint, for over $100k. Now you can buy it for $85k to $90k, 2-3 years ago it was going for $45-$50k.
The cap rate is important while you’re holding the property, but when it’s time to sell, making or losing $50K in 2 to 5 years time will make all the difference.
You need to buy in the right year, use patience and negotiating skills to buy it right!