Jacksonville, FL · Member since 2018 · 7 posts · 3 votes
We are newbies to the rental market and looking in Jax. What are your opinions on owning a 3 bed house in suburbialand in good school district or do you find better value in buying a cheaper house in a rough neighborhood with potentially higher cash flow but less appreciation potential?
Hey Terry. I think it would depend on your goal in the investment property. And absolutely the area. Some areas with duplexes are seeing good appreciation in the last few years but can be tight on cash flow depending on your financing options. Then some areas may see a little more cash flow but less appreciation. And I would also say the market is very important to take into account. Interest rates are rising and appreciation is starting to slow down, I do not mean depreciate, so there are some that are saying a correction will be coming soon. Just by the factor of timing in the market I would err on the side of cash flow over appreciation but once again the area will obviously make a difference.
That's very exciting, I'm a newbie as well. If I had to choose, buying in a bad neighborhood would not be a good place to start, It will be much harder finding and keeping a good tenant there. If you rent in the suburbs, the tenant risk usually lower. I would buy and hold a property near or in my neighborhood, I've read and heard people say "buy what you know".
Hey Terry. I think it would depend on your goal in the investment property. And absolutely the area. Some areas with duplexes are seeing good appreciation in the last few years but can be tight on cash flow depending on your financing options. Then some areas may see a little more cash flow but less appreciation. And I would also say the market is very important to take into account. Interest rates are rising and appreciation is starting to slow down, I do not mean depreciate, so there are some that are saying a correction will be coming soon. Just by the factor of timing in the market I would err on the side of cash flow over appreciation but once again the area will obviously make a difference.
Thanks guys. We definitely are going to stick with what we know. Have either of you used the rental income calculator to figure out deals yet? I'm struggling finding properties that meet the requirements that were suggested in the webinar (10% ROI, min$100 positive cash flow). The one property I found where then numbers look really good is a quadraplex in the hood. It's very shady but looks like it is a cash flow cow and already is fully occupied. I just don't want that to be my first property. Maybe I'm plugging in the assumptions incorrectly on the calculators (5% vacancy, 7% repairs, 7% cap ex, 3% insurance, 9% mgt fees). We can knock off the mgt fees if we need to because we plan to do everything ourselves.
Financing will make a big difference when looking at cash flow numbers. If you put 20% down, or 25% down, which is what a lot of lenders will require for an investment property, then your cashflow is going to be better in terms of dollars, but lower in terms of a rate (%). I have a property I bought in Pensacola with my wife with a VA loan. We only ended up putting down a few thousand dollars and our cashflow is a little above $130/mo but our rate of return is almost 50%. It looks great on paper but with just one month of vacancy I lose a year of cashflow because we are so leveraged. I've found that you can always make the numbers change with financing, insurance, property management, etc. The trick is finding the sweet spot.
On the other hand I have a duplex in Chicago, we make almost $400 in cashflow according to the calculator, but we also put down 25% through conventional financing. So we make more in terms of dollars to cover any possible vacancies but our rate of return is on the lower end. We went to both extremes on our first properties it seems and it has taught us a lot.
Also, 9% seems a little low in this area for management but I still don't have as much experience with property management in this area yet. Is that what you were quoted? I've heard 10% is on the low end with some managers going up to 12% or even 15% and even one property manager I spoke with said that with multifamily they charge $100 minimum for each additional unit. So in this area 10% for a single family seems like a pretty good deal but once you look into multi-family the numbers don't look as good. For example, you have a 4-plex renting at lets say $2500, but a manager that charges $100 per unit will ask for $400, instead of $250 at 10%. There's always something to learn. There's always a price that makes sense for every property, and there's different ways to come to that price and the expenses therein. Real Estate investing is both exciting and frustrating because its so subjective.
I know I've rambled on a lot but I hope you got something out of it.
@Kevin Kwiatek Thank you for sharing your experiences on the first properties you bought. It is interesting to see the difference in rates of return. One thing I keep hearing on podcasts is that even if a property has a good percentage for its ROR, it may not be a good deal if the cash flow is minimal, especially on a cheaper property. Thank you as well for sharing the general percentages that some property managers require. That will help a lot of people who are looking to invest in that location.
I my self have 3 SFH on contract in JAX. I'm not local but have an EXCELLENT agent there. According to my numbers I'm having a ROI around 9% and around $400 cash flow on each. These are all conventional loans with 20% down in B class areas. I think JAX is a good market now for investing, but I'm also convinced that we all I'm learning in BP I will be able to identify much better deal in the future.
My plan is to hold and little by little grow my portfolio.
Now that you ask, I re-ran my numbers. This is the exact reason why I came to BP, to learn. :-)
The $400 is including PITI without factoring reserves.
If I add a 10% vacancy/repair reserve the CoC is $200 for 2 properties and $300 for the third. This are estimates with a conservative rental price (I'm still on the process of purchasing and we should close in 20 - 30 days)
Depending on the area and tenants, that might work but that is a very aggressive number for reserves. I assume you are going to self manage with no PM expense?
Personally I use 28% for reserves which breakdown: 5% vacancy, 10% capex, 5% repairs and 8% PM. I've seen many on this board estimate 30% conservatively which helps offset any bumps in the road.
Had an HVAC repair needed in the first 6 months of my SFH and it was $4500 so make sure to think about reserves and how long it'll take in months (based on your percentages) to cover the things that will end up needing replacing.
3 deals at once is quite a feat, that's very exciting. I'm looking across several markets (Jacksonville is one) and looking for multifamily properties.
@Terry Davis where are you finding your deals? Most of my deals came from wholesalers. Direct mail also worked well. After starting my investing journey in Jacksonville in 2013 I am returning to the market but this time going after large multifamily. I'd be happy to share some techniques I used to get great deals in good areas like Riverside, San Jose, Mandarin and San Marco.
Thanks Erik. I’ll take you up on that offer. I’ve never done the Wholesaler route so I’d be curious to see how that works. I’m actually in Italy this week vacationing. I will look you up when I get back!