Is this a good deal in Riverside Jacksonville?

Question

Lindsey Clark · Answer

Those are some very good tips @sarah shockley. The structure was built in 1950. I will have to do my research on typical problems for these older homes. I know the owner has updated the units and done several repairs including part of the roof and re-piping under the house. My realtor brought me this deal so I have to go through her. Once I have more experience and see how things work I may feel comfortable not using an agent. I'm just not on that level yet. In the mean time my realtor is trying to negotiate seller financing. I may not have luck with that because the property is in a self managed IRA. So she has less incentive since she won't have to worry about capital gains. If she wont hold papers I may push for her to go down on the price to compensate for the upcoming taxes. Anyways, you gave me some extra hope for this deal. It seems like it will be a good one if everything works out.

Jack Bobeck · Answer

@Lindsey Clark Congratulations on finding the deal! Tired landlords are the best way to find things "off market". Would the tired landlord be willing to hold some "paper" for 1 year while you make updates? The landlord may even be willing to help with some management or maintenance just to smooth the transition, that's a big tax bill all at once too.

I don't look at cap rates, I look at cash flow in rentals, because if you need a mortgage, the bank or lender will only want the cash to pay the note. I would look at rentometer or check with some of the neighbors and see what nicer properties are getting as well, to see if you can indeed bump the rents. Riverside is HOT for sure.

What are your insurance costs? What are the rent roll histories for the property? Maintenance schedule? What is your cost to separate the meters? Lawn/pest? I'd err high on prop mgmt at 10-15%. Prop taxes today are 3869 based on the previous sale, but once the city sees the sale at 215,000, plan on a bump especially for Riverside. I think the numbers are do-able as is, but is say expenses of 1600 a month (P+I+T+I) and bringing in 2,110 enough? At least the previous owner is on the hook for the deposits, I presume at least 1 month for each. So you have some cushion. But even now, your monthly rate is not enough to cover the taxes, and maintenance may become an issue too with not enough in the kitty.

I think you would be better off working with someone and your cash to find a flip and make 9-10% unless you can get the owner to hold some of the paper in exchange for time to get the rents up and even then, I would look to push them to cover your taxes in a month's time. But that is a big jump. I'd add pet deposits and per pet agreements, other amenities to future tenants. Its a great area for sure. Best of luck to you!

Jack Bobeck · Answer

@Sarah Shockley Good insight on Lindsey's deal for sure. However, in any deal, you want to limit your personal risk. Why do the paperwork yourself? A few thousand bucks can save you a lot of headache now and in the future. I have an excellent real estate attorney and she is worth every penny I pay to her. If she is busy I have another. Networking is the key to a good investor, you need to know a lot of people that can help you when you need it. You cannot be a real estate investor on your own.

As a Realtor, you have access to the MLS and insight that an investor might not have. The MLS is a powerful tool with many great features to look up landlords as well and their addresses. I know because my ex used to do this for me to reach owners. The market today is very hot for NEW housing. People that rent can take their rental payments and move up to a home for not much more. Money is more liquid than probably any other time in US history and rates are going to fall further to head off a possible recession due to the "flu".

What is the rate of return on a flip that takes 3 months versus a buy and hold strategy when buying at $71k per door? Granted its hard to find a flip for $71k, but they are available in Murray Hill for not much more than that, add 40-50k using cheap money and flip the house for 250k. I don't see the value in buy and hold right now, when the upside is greater in flipping in Jacksonville. Lots are being purchased and new homes are going up all over the city. When there is a housing shortage, to me, its a no brainer to feed the home buyers looking for fixed flips.

There will always be burned out landlords that want to sell and it gets better when the market gets worse and worse, as rents fall. I think its risky right now to buy and hold, than to fix and flip.

Sarah Shockley · Answer

Hi @Lindsey Clark good luck with your deal!!

I'm a buy and hold investor with 9 doors in Riverside, and without knowing anything else I'd say $215k for a triplex is a sweeeet deal.

Also the current tenants are definitely paying considerably below market. My cheapest apt rents for $750 and my 1-bedrooms are around $1k these days. Sounds like there's a good potential to increase rents, especially with renovations. One thing I will say is the the rental rate you can get in Riverside ranges widely depending on the level of renovation done. For that reason Rent-o-meter is almost useless.

@Jack Bobeck is providing some good information regarding holding costs. Yes your property taxes will likely go up - and I agree - the property taxes are too dang high! However I disagree that your money would be better spent on a flip - renovating a 100-yr-old property from long-distance would be difficult strategy for a newbie - investing on hard mode for sure. Unless you have a background in historic building restoration I wouldn't recommend that.

That being said - definitely get an inspection and try to find an inspector familiar with old buildings. 1920s buildings have different common pitfalls to check than 1950s buildings and 1990s buildings. The most important things to check are things that are more expensive to repair. Other than the foundation; usually the age of the systems - roof, electric, plumbing, and hvac - can tell you if repairs/replacement are needed. I've had to replace the water and drain lines on all my multi-family properties, for example.

Also, separating the meters will be extremely expensive. If you're talking about electric meters that may be worthwhile, but separating water meters probably not. Most of my buildings I pay for water/sewer and include that in the rent.

If there are security deposits, have the seller transfer them directly to the new property mgmt company outside of your closing. If you include them on your HUD (closing disclosure) they can inaccurately be counted as a seller's credit - so keep an eye on that. I made that mistake once.

One aside - this is an off-market deal and there's a realtor involved?  Are you paying them out-of-pocket? At a certain point you might consider learning to handle the paperwork yourself. In Florida there are only 2 standard contracts - I'm a licensed realtor but I feel it's fairly straightforward for most deals. You'll need some negotiation ability, and also to be able to communicate your offers clearly to a seller, but I've found it worthwhile to diy in exchange for a price break.

Lindsey Clark · Answer

True @Michael Stonk. Those are rentometers numbers but I mention in my original post that I estimate I can get about $2510 per month more or less. I am realizing I still have a lot of numbers to work out. It will be the difference between this being a good deal or not. I will be making a lot of phone calls on Monday. Thanks for taking the time to respond to my post.

Michael Stonk · Answer

First, congrats on finding a house you are excited about. It's a great way to get started and it's nice to see new investors in the neighborhood.

You might want to ask this question though: you project the studio to rents for more than the 1 bedroom? Does that sound right to you? Either the studio is too high or the 1 bed is too low. Make sure you know which it is.

I also think your estimates for property management and tax increases (the house will get assessed again upon sale) are too low. You might also want to carefully consider what to do about the utilities as well. Seperating the meters legally would easily cost more than a new roof or HVAC system would ever cost. You could keep it in your name, but a 3-unit should easily cost $150 month in utilities, so make sure your rent increases are solid otherwise they will hurt your cash flow.

Don't rely on your realtor's estimates on cap rates before buying. Make sure you have done your due diligence on all your expenses by yourself before closing.

Is this a good deal in Riverside Jacksonville?

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