Florida Buy and Hold Investment Property Suggestions

38 Replies

I am interested in Southern Florida and a planning a scouting trip for a week in January. I was quite active in Southern California between 2009 and 2012, but the pickings here are getting too slim. I have been heavily researching cities on the loop from Orlando to over to the east cost, down to Ft Lauderdale and Miami, west to Cape Coral, to Port Charlotte and up to Clearwater. I know this is kind of like saying I am researching properties somewhere between San Diego and San Francisco, but other than researching demographics, recent listings and sales, current rents and crunching some seemingly favorable numbers (compared to Southern California these days) , I am not very intimately familiar with this area. I am very interested in the thoughts of those who know these various areas.

My general criteria that has served me well in the past is:

1. Buy and hold SFR or condo with 7.5% to 8% minimum NET return after all costs, reserve and property management fees (not interested in vacation rentals)

2. Growing area with comparatively low vacancy rates and potential appreciation

3. Within 8 to 10 miles from the beach

4. Class B or C working class neighborhood, with plenty of kids, but close to areas with educated upper middle class and higher end jobs.

5. Unemployment rate equal or less than the national average (tends to keep people out of mischief and able to pay rent).

6. Buying for cash, less than $150k

My numbers and demographic research tell me one thing, but without boots on the ground and a sense of the neighborhood vibes it is difficult to know where to concentrate my scouting trip. Any suggestions from Florida Vets?

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I can only speak about St. Petersburg. In the last 12 months we have purchased 9 properties that would meet your criteria. 1 Triplex, 2 duplexes, and the rest are SFH, we think B grade. It's too early to talk about actual NET, but we expect to do a little better than your 7.5-8%, but we do our own property management. With property management, it would probably be a little below your expectations.

There is lots to like about the area, vibrant downtown revitalization essentially complete, people moving to get close to the activity, vacancys rent in less than a week in our $750-1000 price range.   But we could be a bit late to the party?   Only time will tell.   Also be prepared to deal with our higher cost of property insurance, should you want to insure.   All of ours are out of flood zones, but the windstorm is still very expensive.

Best Bob Ebaugh

Cape Coral and St. Petersburg are both good cities that should continue going up in value long term.  If your goal is appreciation, most of the cities you mentioned should be great.  If you want cashflow, look in the midwest.  I aim for 20%+ net cash-on-cash and do so with nice properties that attract young professionals.  If you go working class C-B properties, you can easily do better than this (hard to find a good PM for C class properties though).

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@Bob Ebaugh  

Thanks for the Info. I like the low vacancy rates and growing, vibrant community. It seems everybody's definition of A,B,C,D class rating is different, but I prefer working class neighborhoods where tenants tend to stay longer term. Definitely not a fan of the battle zones, even if they have higher potential return, A little bit lower return, in my opinion is better than the cost of high turnover. I know insurance and property taxes are much higher than I am used to and will definitely be looking in zone "X" as far as FEMA flood zone designations. I really appreciate the offer and will contact you as I narrow my search!

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@Bob Ritner  

None of our properties are in what I would call a battle zone, but some are close.   Some of that is this area, $400 a SqFt property can be only 4-5 blocks from $100 a foot neighborhoods.

Florida is a service based economy, not a lot of traditional working class neighborhoods like there are in the rust belt.   Florida and transient seem to go together, although there are exceptions, we moved here in 1985 from and never looked back.

Good Luck!

Originally posted by @Jerry Poon :

@Michael Siekerka 

Where in the midwest?

 All of my holdings are in Louisville KY, which is a great city to invest in.  There are also plenty of others that could be on your radar if you don't have any particular drivers outside of pure investment (ex. I may start investing in St. Louis because I have family and friends there).  Here's a brief list:  St. Louis, Memphis, Indianapolis, Cincinnati, Kansas City, Nashville...this is just a small sampling though, there are plenty of mid-large sized cities throughout the midwest where returns will blow anything you can get in FL out of the water!

@Michael Seeker  

For Louisville and Indianapolis, what range of properties should I shoot for if I want cashflow? Is it better to get a few lower priced properties or to get one or two nicer ones?

@Jerry Poon  

It depends on what you consider "lower priced" properties. You can do well in carefully selected C and B neighborhoods. I don't recommend cheap D class properties. They might look good on paper but they rarely pan out. Good tenants don't want to live in bad areas. I recently talked about this topic on my radio show. I'll be happy to send you a link to it if you want.

Feel free to reach out if you want to know more about Indianapolis or Kansas City.

Originally posted by @Jerry Poon :

@Michael Siekerka @Mike D'Arrigo  

For Louisville and Indianapolis, what range of properties should I shoot for if I want cashflow? Is it better to get a few lower priced properties or to get one or two nicer ones?

I'm personally a fan of nicer properties.  The returns don't look as good on paper, but here are some reasons to go higher end instead of low-income:

-Liquidation - you can sell a nice property in good location pretty easily, the low-income ones are difficult and you can easily have to take a loss to unload.

-Expenses - nice properties don't sit vacant, the tenants typically care about their credit scores and pay on time and don't tear up the units.  Management costs will be lower on nice properties because the PM will get less phone calls (the one PM I used for ~1 month charged a minimum of $32.50 labor, even for changing a light bulb...that adds up if you get a lot of calls).

-Value - the nicer properties will go up in value.  Lower end ones tend to hover around the same value.

-Headaches - even if you have a PM, you have to manage them.  If they have fewer headaches with a property, then there are fewer that get passed along to you.

If you poke around the forum, there are people making money in the ghetto or gated communities.  It really comes down to your personal preferences.  The more money you want to make, the more work it's going to take (at least initially).

@Mike D'Arrigo  @Michael Seeker  

Thanks guys!

Michael, I am with you on the nicer properties. I would definitely want to keep it as liquid as possible. The less headaches from longer lasting tenants sounds extremely attractive as well.

Originally posted by @Michael Seeker :
Originally posted by @Jerry Poon:

Michael Seeker 

Where in the midwest?

 All of my holdings are in Louisville KY, which is a great city to invest in.  There are also plenty of others that could be on your radar if you don't have any particular drivers outside of pure investment (ex. I may start investing in St. Louis because I have family and friends there).  Here's a brief list:  St. Louis, Memphis, Indianapolis, Cincinnati, Kansas City, Nashville...this is just a small sampling though, there are plenty of mid-large sized cities throughout the midwest where returns will blow anything you can get in FL out of the water!

I have been researching Tampa Bay area and based on what I am finding blows Lexington Kentucky rentals out of the water.  I only own 4 rentals in Lexington now but it is hard to find deals that cashflow well if you are looking in B and C class.  I did the low income high cashflow and you can keep the headaches.  Maybe more up north is better.  Right now we are considering moving to Florida and buying.  

What are your ideal goals in terms of cash flow and/or CAP rates? What kind of debt (if any) would you carry on these acquisitions? Don't overlook Atlanta or long term leases in Orlando on your way down here. You can find deals in EVERY market.

Originally posted by @Brian Johnson :

I have been researching Tampa Bay area and based on what I am finding blows Lexington Kentucky rentals out of the water.  I only own 4 rentals in Lexington now but it is hard to find deals that cashflow well if you are looking in B and C class.  I did the low income high cashflow and you can keep the headaches.  Maybe more up north is better.  Right now we are considering moving to Florida and buying.  

Do you have any examples?  I'm talking like-kind properties...you can always find higher returns if you're comparing apples to oranges.  Also have you factored in the higher taxes and insurance?  Property taxes in FL and insurance rates are a lot higher than the midwest (generally speaking) so a 2% property in FL is not the same as a 2% property in central KY because the fixed costs will be higher even if all other details are equal.

@Michael Seeker  I'd love to see specifics too, but to be a 2% it should have taxes & insurance factored in, else you could be a .5%, I hope people always calculate all expenses in. Else it's not worth even comparing anything.

Originally posted by @Jesse O. :

@Michael Siekerka I'd love to see specifics too, but to be a 2% it should have taxes & insurance factored in, else you could be a .5%, I hope people always calculate all expenses in. Else it's not worth even comparing anything.

 The 2% rule doesn't account for expenses at all, it suggests that you need 2% of the purchase price in monthly rents in order to cash-flow well (i.e. a $100K property needs to bring in $2K/mo in gross rents).  If you're just comparing purchase prices and rents between two different locations, then that doesn't account for fixed or variable expenses which can be very similar or vary greatly from location to location.

Originally posted by @Michael Seeker :
Originally posted by @Brian Johnson:

I have been researching Tampa Bay area and based on what I am finding blows Lexington Kentucky rentals out of the water.  I only own 4 rentals in Lexington now but it is hard to find deals that cashflow well if you are looking in B and C class.  I did the low income high cashflow and you can keep the headaches.  Maybe more up north is better.  Right now we are considering moving to Florida and buying.  

Do you have any examples?  I'm talking like-kind properties...you can always find higher returns if you're comparing apples to oranges.  Also have you factored in the higher taxes and insurance?  Property taxes in FL and insurance rates are a lot higher than the midwest (generally speaking) so a 2% property in FL is not the same as a 2% property in central KY because the fixed costs will be higher even if all other details are equal.

Michael,

I am flying down to the Tampa Bay area and finding out for sure how the home prices to rent are for real. So I will be looking at everything like the area the homes in my price range are at. I will also be looking at the insurance and taxes because that does play a big part in the comparison to our surrounding area. I will be spending 6 days researching the area. I will get back with you on what I find.

Asides from cash flow, how is the appreciation in the areas you mentioned? how does it compare to other markets?

Originally posted by @Michael Seeker :
Originally posted by @Jerry Poon:

Michael Seeker 

Where in the midwest?

 All of my holdings are in Louisville KY, which is a great city to invest in.  There are also plenty of others that could be on your radar if you don't have any particular drivers outside of pure investment (ex. I may start investing in St. Louis because I have family and friends there).  Here's a brief list:  St. Louis, Memphis, Indianapolis, Cincinnati, Kansas City, Nashville...this is just a small sampling though, there are plenty of mid-large sized cities throughout the midwest where returns will blow anything you can get in FL out of the water!

With Lightning owner Jeff Vinik remaking Tampa's downtown and the potential lifting of the trade embargo with Cuba now a possibility in my lifetime, I am very bullish on the Tampa market right now.  As long as interest rates stay stable, it is blue skies for real estate.  

Originally posted by @Mike Mitchell :
Asides from cash flow, how is the appreciation in the areas you mentioned? how does it compare to other markets?

Originally posted by @Michael Siekerka:
Originally posted by @Jerry Poon:

@Michael Siekerka 

Where in the midwest?

 All of my holdings are in Louisville KY, which is a great city to invest in.  There are also plenty of others that could be on your radar if you don't have any particular drivers outside of pure investment (ex. I may start investing in St. Louis because I have family and friends there).  Here's a brief list:  St. Louis, Memphis, Indianapolis, Cincinnati, Kansas City, Nashville...this is just a small sampling though, there are plenty of mid-large sized cities throughout the midwest where returns will blow anything you can get in FL out of the water!

Appreciation is pretty stable around 3-4%.  The midwest won't get crazy jumps like some of the coastal cities (San Fran, NYC, Miami, etc.).  We also weren't hit as hard with foreclosures and price drops during the recession.  If appreciation is your game, then the midwest might not be the best place for you.  If you want a combination of modest cashflow and modest appreciation, then investing in A neighborhoods in midwest cities is a good approach that might be comparable to investing in B-C neighborhoods in some of the more expensive coastal cities.

I personal want to buy in a area hit hard by the foreclosures back in 2010.  Those areas have the best discounts and best potential for appreciation.  What goes around comes around and I see Florida making a big come around in the next few years.  That is only my option. 

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