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Hello, would you please advice about this deal? Additional information:
- I'm a FL resident so going to see the actual property is possible.
- It would be my first deal.
- It's a turnkey property.
Thanks for your input!
@Orestes Romero - Looks like a nice little house! How many bed/bath? These are just my initial thoughts and how I look at and think about a deal like this.
- Is the house CBS? Age of roof/AC/electric/plumbing/? The note about AC repair in 2 years is somewhat concerning. Depending on what sort of HVAC repair you need in 2 years, it could easily wipe out all your cash flow. Replacing a unit would wipe out at least 1 full year of cash flow. A split system down here can easily cost $2,500 (or more) to replace.
- Down payment is pretty high - what sort of financing is this? I would want better financing rates if I'm going to put down 55%!
- How long has the renter been in place? Do you know what rents would be like if they left - and how quickly/easily you could lease it back up? Loosing 1 month of rent (never mind paying commission to get a new renter) would lower your annual return to 5% and 2% if you have to pay a commission to re-lease it.
- Do you have any T-12 info? Previous expenses to get a sense of the history of the maintenance of the project.
- Taxes may be a little low for this area - I know that in Palm Beach County, taxes would be more like $150/mo.
I'm always nervous about single-family just because the scale is so small that if anything happens (replace an AC unit - $3,000) you wipe out a whole year of cash flow. I had a house that was very similar to this just outside a super hot neighborhood in WPB and I got burned because of little repairs that wiped out almost my entire return. The property was nothing but stress for 2 years. I don't want to be negative, please take all this with a grain of salt, but just make sure the physical property is in good condition because renters (especially low income/Section 8) tend to beat up properties and when you only have one stream of income, it can crush you.
Happy to talk through anything with you and help any way that I can.
If I put $30K down I want to make sure the neighborhood is good and it has the potential to appreciate and raise the rent after lease expires. If it is a 2/1. That will not be the case. We have plenty of poor rating schools here where the students can not even write proper English. But school rating in these shoot out neighborhoods is 4-5 out of 10, not 1/10 (lowest).
If it was me I will look for a better cash flow neighborhood may go in with 3.5% FHA or 10% down better deal. I pass.
This house is a tough area. Unless you live locally I would move away from this deal.
Put your 30k to work somewhere else, that zip code leads Jacksonville in homicides, most of the people living there would rather live elsewhere too.
1. Take all of the "stay away" recommendations with a grain of salt. They very well could be right that it's a rough area by their standards (subjective to each investor), but there is a market for that type of neighborhood. I'd say that your chances of getting a bad tenant are greater than in say PVB, but you'll get a bad tenant in ANY neighborhood (A+ down to D-). Also, when people say beware, ask them what experience they have investing in these neighborhoods. I don't mean to discredit the posters above as I've seen them make great points in other threads, but just because a property won't appreciate or attract anything but struggling people doesn't equate to "beware" or "move elsewhere." One person's C neighborhood, is another's D or B or A, which is why I never listen to other people's subjective opinions on a zip code.
2. @Nicholas White brings up some great points about the downside of this turn key deal. The CAPX combined with the types of tenants that you're most likely (but in no way guaranteed) to get could turn the deal sour in a year or so. Then again, once you buy a new AC, roof, etc, you don't have to again for a decade or so. Then your cash flow catches back up. I like the idea of flip to rents (BRRRR), so you don't have to worry about the immediate CAPX expenditures.
Again, I'm not saying that the posts above are incorrect. It's a rough area, but that could be exactly what you're looking for - max out cash flow. PVB (just an example of the opposite grade neighborhood) won't cash flow without significant money down. Ignore nay sayers and make your own decision about what fits best into your vision whether that be million dollar flips, slum lording, BRRRR, notes, SF/MF, etc. Man, investing is so similar to parenting - everyone has an opinion on what's best for your kids and they will absolutely tell you about exactly how you're messing up (like I am doing,.. damn hypocrite).
@Nicholas White Thanks for the help and the input. Really good points to take into consideration. Some of these points (1, 3 & 5) are covered in the details of the deal: Not CBS, roof in good condition (5+ yrs), wood exterior would need some repairs in short time, electric OK, plumbing would need repair. As for financing: I only put standard data, rates should be better for a 50-55% down payment.
Renter has been in place since Feb 2018 and lease is over 03/31/2019.. I assumed a 5% vacancy rate.
4. I do not have the T-12 info, I could potentially ask for it but I'm inclined to pass from this deal.
As @Larry F. and @Jack Bobeck said, the area has a lot of crime and it's very possible that I may have very difficult tenants. Other Section 8 areas may be better for investing.
Thank you all for your comments. They are very useful and help me see other variables to analyze besides the numbers.
@Jonathan New I agree. Thank you for your input. Every deal is different for each investor depending on their strategy, experience and resources. In this case, I will pass; I'd rather focus on better rated areas in my first deals and then see if slum lording would actually fit my profile.
This particular deal called my attention to analyze, but I'm more focused on flipping and BRRRR in other areas in Florida.