Newbie Advice Needed On Purchase
Hello everyone, I just stumbled across this website and it has some great info on it. The facts on my deal:
I am looking into purchasing a 5 unit apartment building in Fair shape. One unit needs to be completely redone and the other have moderate repairs need but not anything major.
The catch here is that I live in a HOT market (East Central Florida 6 miles from the beach), appreciation rates 30% for the last few years. The investment will be negative at first but in time and hardwork I hope to get it slightly positve (<1000.00) This is not my primary source of income rather it is a way to get my foot in the door of the renters market and build more equity or flip it within 1-3 years.
I estimate it will take 1-2 years to get rent rates up to an level I can see a meger profit. I do not mind the managerment/maintance side and plan to do 99% of the work myself. Is this crazy? Anyone else start off in the red hoping to make the profit years down the line?
I am borrowing a "pad" on top of the asking price to guarentee this will not be a financial drain. I speculate it should increase to 70-80k in value after sinking 15k into it coupled with continual appreciation over the next two years. Good idea or Bad risk? I feel I could easily exit out of it and break even if things are too much to handle. There appears to be a demand for $500-$800 rentals in this area. Home prices have doubled in the last 2 year keeping first homes out of reach for many. I am borrowing 1/2 commercial loan 7.5 15 yrs and the other will be from Home Equity line of credit (interest only for 1st 10 yrs).
price 355,000
rental income 3200 mth <<<<>>>>> Mortages+Insurance+taxes+electric = 3400 mth
Maintance per mth = ???? 200-500?
What is bad about my market is everything is very high in price...homes, condos, duplexes and shacks, this was the best deal I could find to almost break even, all others are even worse rental income to out going expenese ratio because of the high selling prices in the area.
[ Edited by Beachtown on Date 06/09/2005 ]
Thanks for the quick reply, Yes it a huge risk but in a strange way I am willing to take a negative cash flow for a while until it breaks even. I can afford to lose in the short term but I can see it becoming positive once the cosmetic renovations are completed and rents are re-adjusted to the market.
It will not net me several thousands a month but it will eventually cover itself with 500-1000 PCF a month. The best part is it is located within 15 mins of my primary residency.
If the bubble burst here I guess I could stomach loosing my shirt but I feel it will not anytime soon because this county has been under-valued for so long it is just now catching up with the rest of the nation. I am relatively young (34) so I could bounce back.
What looks like a bad investment around here becomes a gold mine the following year. I have watched my house tripled in value the last 3 years.
The location provides quick access to all major roads, a Super Walmart is going in less than 5 miles away, new Home Depot less than 3m away, new hospital less than 2miles away, Community College 2 miles away etc.; the city is the fast growing city 80,000 + and booming.
Everyone jumped on the bandwagon and began buying investment property. Single Family homes for rent are numerous around here with very high rents to help the first time investors to cover thier cost. Many renters are looking for places under $1000 and can not afford the current home prices. I think I have found a niche in the renters market. I am just a small fish testing the waters that sharks swim in...Hopefully I will not get eaten alive.
My gut is telling me to do this I am not looking to get rich quick just to invest in something that a renter is helping to pay off the loan. The location is right for cash flow, it just needs some help to get there.
[ Edited by Beachtown on Date 06/10/2005 ][ Edited by Beachtown on Date 06/10/2005 ]