House Hacking in Fort Lauderdale
Investor · Fort Lauderdale · Member since 2019 · 9 posts · 1 vote
My goal this year is to purchase my first multi-family and I plan on house hacking it to learn the business before scaling. What has been your experience with multi-family properties in the greater Fort Lauderdale area? Any insights would be greatly appreciated.
My guidelines thus far are:
- Purchase with a conventional loan with 20% down (waiting for the sale of my condo)
- Live in Victoria Park, Wilton Manors, Pompano Beach, or Coral Springs (or another good area)
- Have the cash flow cover at least the mortgage, insurance, and property tax (using the rental calculator on BP)
- I'm mostly looking on Redfin for deals
@James Ross If you have the ability to put more down than the minimum down payment required you may want to consider your options as to why putting the minimum down maybe your best option for scaling your investment portfolio and increasing cash flow.
If you aren’t required to, what does putting more down really get you? 3% to 5% down works great because the less money you put down, the higher your overall returns will be (not to mention the appreciation rate on the property will be the same regardless of the amount borrowed). If you increase your down payment, all you are doing is buying cash flow. It usually reduces your return on investment.
Leveraging up will give you the greatest return, even though it's not the best cash flow. If you want to help with cash flow, then prepay PMI. Typically it'll be $5,000 or so to pay it up front if you have good credit and a house around the $400k price. PMI is wonky - talk with your lender.
If you only put 3.5 percent down you should have enough cash available for repairs and reserves and unforeseen expenses that always come up. Then, when you're living for right around free, save up more money to invest in your next property (either another house hack or a stand-alone rental).
Of course, make sure when you are calculating cash flow that you don't just use rent-payment. You need to include vacancy, utilities, repairs, CAPEX and management allocations. This is another reason to put less cash in and hold reserves. You want an emergency fund to cover the unexpected.
It’s all about leverage.. Do the math.. 3.5% of $700k is $24,500... 20% is $140k.. Is it worth it to invest the additional $115k to pay that much less of a mortgage even though you are out of pocket every month? Can you put this $115k to better use?
Could you have your cake and eat it too? By that I mean do minimum down with your house hack and then turn around and buy an investment property with the remaining $115k (of course making sure you have ample funds for repairs, reserves, CAPEX, etc)?
A key principle is to invest for cash flow. As long as there is sufficient cash flow and you maintain reserve capital, leverage can be a great tool that allows for exponential growth.
Have you determined if you are looking for turn-key properties or value add ones that need work?
Are you looking for duplexes only or bigger?
What price range?
These are a few items to pin down.
Thanks, Mitchell! Preferably one that needs some work, but if cash flow makes sense I'd be interested in a turn key as well. My plan is to stay under 4 units for the first deal to keep it residential. My budget is up to $700k.
@James Ross If you have the ability to put more down than the minimum down payment required you may want to consider your options as to why putting the minimum down maybe your best option for scaling your investment portfolio and increasing cash flow.
If you aren’t required to, what does putting more down really get you? 3% to 5% down works great because the less money you put down, the higher your overall returns will be (not to mention the appreciation rate on the property will be the same regardless of the amount borrowed). If you increase your down payment, all you are doing is buying cash flow. It usually reduces your return on investment.
Leveraging up will give you the greatest return, even though it's not the best cash flow. If you want to help with cash flow, then prepay PMI. Typically it'll be $5,000 or so to pay it up front if you have good credit and a house around the $400k price. PMI is wonky - talk with your lender.
If you only put 3.5 percent down you should have enough cash available for repairs and reserves and unforeseen expenses that always come up. Then, when you're living for right around free, save up more money to invest in your next property (either another house hack or a stand-alone rental).
Of course, make sure when you are calculating cash flow that you don't just use rent-payment. You need to include vacancy, utilities, repairs, CAPEX and management allocations. This is another reason to put less cash in and hold reserves. You want an emergency fund to cover the unexpected.
It’s all about leverage.. Do the math.. 3.5% of $700k is $24,500... 20% is $140k.. Is it worth it to invest the additional $115k to pay that much less of a mortgage even though you are out of pocket every month? Can you put this $115k to better use?
Could you have your cake and eat it too? By that I mean do minimum down with your house hack and then turn around and buy an investment property with the remaining $115k (of course making sure you have ample funds for repairs, reserves, CAPEX, etc)?
A key principle is to invest for cash flow. As long as there is sufficient cash flow and you maintain reserve capital, leverage can be a great tool that allows for exponential growth.
Thank you so much for the detailed reply, @Chace Fraser! I wasn't thinking about going below 20% because I was trying to avoid PMI but I'll definitely review if it makes sense cash flow wise and to free up funds for other investments.
I really enjoy using the rental property calculator on BP and have been using roughly 5% for vacancy, CapEx and Repairs. I plan on self managing so I put that to 0%. My goal is to get 10-12% cash on cash returns. What are your thoughts on those percentages? I know it's relative to the condition of the property but those are my benchmarks.
The BRRRR strategy might work well with low down payment.
Thanks again for your insight. Im grateful for it.
@James Ross happy to help! PMI is not the end of the world and in a lot of cases it will give you a higher ROI if you go with less cash out of pocket and pay the PMI.
I think your percentages are good, and you hit the nail on the head saying that it is all property dependant. I know people will use 8.33 percent on vacancy (one month per year) and about the same number for CapEx/repairs combined. So their numbers would be 16.66 percent. This is very conservative and a lot of properties won't pencil if you use these numbers (especially if you add in 10 percent for property management!).
However, if you go with a low down payment, and then put the extra money you had into savings for vacancies/repairs/capex, you could then move forward on more properties.
Don't try to hit a grand slam. Get a good first property and then move on. Don't try to hit a home run with a rundown pile of junk that might make you some money or might sink you. Most of my clients have base hits properties. Base hits add up in the long run to an amazing portfolio.
For your first house hack, start simple and go from there. Find a nice, pretty property that is in great shape and make sure the numbers work. There are plenty of houses out there right now that can potentially work for you.
Thank you so much for sharing your insights, @Chace Fraser. I'll let you know when I close on my first one!
Any success on your House Hack journey? My wife and I are planning on doing the same. Just wanted to know if you had any advice? Good luck!
I am also looking at multi families however the price range and areas have been insane. Have looked at SFH, however, fort lauderdale is very expensive. I own a property next to downtown and looking around the numbers do not make a lot of sense from what I see. Let me know how your journey is. Looks like a couple of us are near each other, and if you all would like we could meet up for lunch or to network as we all begin this journey.
I just tried to buy a duplex in near Victoria Park, it was actually 2 blocks North, in a cheaper neighborhood but on Victoria Park Road. It was $400k for a 2/1 and a 1/1. The rents were $1350 for the 1/1 and he said you could get $1500 for the vacant 2/1.
I just had a hard time making the numbers work. It needed all new hurricane impact windows (replacing Jalousie) and a new roof, current roof 50+ years old, but the place was beautiful inside with quartz kitchen etc.
The person I was bidding against was also offering full list price. I got it under contract, but In the end, I walked.
I'm currently under contract on a 2/2 condo in Coral Springs for $138k which also rents for $1350 and has a $290/mo HOA payment.
I look at it like this:
$138k for $1350 rent vs $200k for $1350 rent. ($200k is 1/2 the duplex price).
Although the “Victoria Park” duplex had re-development potential (townhouse) because of the large yard, excluding that, since I don’t want to get into new home building, doesn’t the condo seem like a much better deal for return on investment?
Since there has been so much appreciation in Victoria Park already,I don’t see how new buyers can make good cash flow. I read Another BP investor got a nice 6-plex in the same neighborhood, she made it work by putting 40% down.
I think you will need to put at least 20% down to get a break-even or positive cash flow on a multi-family in the cities you mentioned.
I have owned duplexes in Coral Springs before, I did very well. but right now, I can’t seem to make the numbers work for multi family in any of the cities you mention. I really want to buy a multi, but condos seem like a better value.
My advice is to wait til the end of the year to see if there is going to be a correction like many people are talking about, with $600/Week unemployment benefits running out. If so, swoop in and buy low. If there’s not a correction, you can still buy multi-family within your 12 mo time frame.