Closing on 1st Real Estate Investment with questions.

Starting Out
8yFollow

Closing on 1st Real Estate Investment with questions.

Aaron Thivierge
Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes

Good afternoon. I've been a member for 4 years or so, but I got distracted for 3 of them.  Now, the fire is lit again, and I'm motivated. 

I have been in discussion with 3 owners of a single family home that has been a rental for 19 years.  The same tenant has been there for 19 years.  It's a 2 bedroom, 1 and 1/2 bath in a very good location in  Jacksonville, Florida. The home sits on a double lot with a massive yard in a very desirable A school district ( people literally buy homes in this area just to send their children to this particular school).  
2 of the 3 siblings have agreed to a purchase price of $60,000 and I cover all closing costs and do diligence money ( survey, title search/ insurance, real estate attorney, etc...).  The third sibling will most likely consent as well....he's been distracted burying his mother in law and settling her estate.  But, he is most likely on board as well.  

Here are the numbers:
After repair value:  $180,000
Purchase price :  $60,000
Repair costs:  $45,000
Fair market rent:  $1,100/ month
Current rent ( and has been since 1998) : $600

I have talked to the Tennant ( with permission from the three siblings/ owners) and his plan is to retire in September and move back to Ky.  So, I have options.  Do I :

A.) put the repair money into the home, flip it in this hot market and clear $65,000 after all expenses? I have an amazing contractor ( also a flipper and close personal friend whom I trust exclusively).  He walked the property with me and sent me a renovation proposal with a 2 month time frame start to finish.  

B.) Put $20,000 into a light rehab and rent it for $1,100 / month and hold it long term

Property taxes are $1100/ year
Insurance will be $1200/ year 

 My ultimate goal is to acquire buy and holds for long term wealth. 

This is a unique situation because the numbers make sense to flip it.  But, my desires are to add doors to my portfolio.  I am 41 years old and have a $400,000/ year salary currently, so I don't need the money immediately ( except to put back into acquiring more real estate).  

What would you do and why?  I appreciate your opinions.  

1Reply
135 views

Most Popular Reply

Brandon H.
Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
8y

First I'd check the zoning and make sure you're in compliance with the property with the house, gazebo, and garage (e.g. be absolutely certain it's not too close to the lot line, utilities are setup properly, etc.). If the vacant lot is zoned for a duplex, I'd probably go that route but wouldn't bother going through the re-zoning process to do it - this is an area outside of my level of experience so I wouldn't be comfortable going that route. Might be worth exploring though - go down to your local building/zoning office and ask them how it works. Every market is different. I'd also get some quotes from contractors to build a SFH or a duplex (any chance you could fit a threeplex on that lot?) so you can start running the numbers. If you go down this route, you may need to secure a construction loan from a bank or, alternatively, refinance your other property to get cash and use your line of credit (discussed below) to pay for the construction.

You may also get yourself into some trouble if you rent the property out and don't write the contract to explicitly state that it's only the one lot (this means that you are responsible for maintaining the vacant lot).  You sound like a smart guy so you've probably already thought about this.  Just calling it out.

Regarding the line of credit - is the rate fixed?  If so, for how long?  What are the terms (e.g. can they call the debt on you)?  I'm assuming this is a typical interest only loan.  Going the line of credit route isn't necessarily a bad thing - it will save some of the hurdles you normally have to go through for a conventional mortgage (e.g. appraisal, inspection, etc.).  Interest only payments would be ~$417/month - slightly higher than my original analysis and you're never paying off principal.  Here's an updated breakdown:

Rent = $13,200 (i.e. $1100/month)

Interest only loan payments = $5,000

Property taxes = $1,100

Insurance = $1,200 (as stated above, this is probably high)

Property mgmt @ 8% = $1,056

This would yield $4,844/year in cash flow before maintenance, HOA, vacancy, placement costs, etc. but, this time, you wouldn't have put any money down since you're using the unsecured loan. Downside is that you are never paying down principal since it isn't a mortgage. You could simply make extra payments each month to pay down the line of credit which would increase your cash flow.

In my view, this isn't a bad option and I'd probably do it - you can always refinance the property to a traditional mortgage later on down the road.  To be honest, 5% isn't a bad rate either - I have 4.75% on my rental in Jacksonville and I did that loan before rates went up over the last 18 months.  If you're getting a conventional mortgage, you might be in the 5% range anyway.

My opinion: Take the $100k line of credit and close on this property ($60k). In the meantime, start researching your options with the vacant lot: (i) sell the vacant lot, (ii) build a SFH, (iii) build a duplex, (iv) some other option, etc. Once you close and the current tenant moves out, begin the light renovation work ($20k), and get it rented out so you can use that cash flow to cover your operating expenses. You should still have $20k left unused from your loan. It's highly unlikely that you'll be able to build anything for $20k so you'll need some more capital. Look into refinancing the occupied property - you should be able to get enough cash from there to do the construction on the vacant lot. This is a big project so take your time in getting your plan together.

2Reply
See this reply in the discussion

27 Replies

Jump to latestLatest
  • Al Williamson
    Rental Property Investor · Sacramento, CA · Member since 2011 · 2k+ posts · 1k+ votes
    8y
    @Aaron Thivierge since you don’t need the money now, consider creating a self directed retirement account and buying the house as an investment that goes into your retirement account. It’s good to get cash flow producing assets into your retirement account. Best to you.
    1Reply
  • Caroline C.
    Investor · Jacksonville Beach, FL | NYC | Tamarindo Costa Rica · Member since 2014 · 182 posts · 130 votes
    8y

    @Aaron Thivierge Congrats on getting into the game! I think Jax is a great place to invest, and you have such an advantage living there - we have a few investments there as out of state investors, but plan to relocate to Jax at least part time starting next year.

    Most of the time people flip because they either want to make money from a side project, or want to be in the renovation business and keep doing flips - they want a relatively quick and repetitive payday from it. It doesn't sound like you need the money now so it makes good sense to do the light rehab and hold onto this one. Especially since good schools will always be desirable (especially in Fla where good schools are hard to find!) and you can sell another time. 

    The other option, if you wanted quick cash, is to wholesale it to someone who will flip it - let them do the work. On the surface, this deal looks great and probably would be easy to wholesale. But for me, I'd hold it!

    Good luck closing this, and finding the next one!

    1Reply
  • Carolyn Morales
    Investor · Jacksonville, FL · Member since 2015 · 504 posts · 217 votes
    8y

    I am thinking since the market is high and if the area is as good as you believe it is, I would flip it and take the cash to buy a couple more in average rental neighborhoods. Maybe keep flipping til you accumalate $ to buy cash rentals for buy and hold. I have been her since 1979 and have 29 years USPS plus investing since the 90s.. Do you mind sharing the zip code?

    1Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    Thanks all for the replys.  I will expound more later tonight.  The zip code is 32210, and the school is John Stockton Elementary School.  

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    I really like the idea of flipping this one for cash then buying 2 more in average neighborhoods to hold long term. 

    I have a very good friend who just bought a bank. I met with him about this particular deal and others down the line. He has agreed to finance this property (and others that the numbers make sense) for 80% of LTV of ARV ( including purchase price and repairs) at 4% amortized over 20 years.

    I also like the idea of doing a light rehab then renting it at fair market value and holding it long term. 

    I will follow up with this thread once we close.  Thank you again for all the thoughtful ideas and contributions.  

    0Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y

    I would buy the property, do the light renovation once the current tenant moves out, and then rent it out at market rate.  You'd be into the property ~$80k which you could then refinance via your buddy (using your numbers - 80% loan at 4% for 20 years = $388/month mortgage payment).  

    Rent = $13,200 (i.e. $1100/month)
    Mortgage payments = $4,656
    Property taxes = $1,100
    Insurance = $1,200 (this sounds high to me, my property in Jacksonville sold for $165k and my insurance is only $442/year)
    Property mgmt @ 8% = $1,056 (you didn't specify if you were going to self-manage but you should set this money aside to pay yourself for your hassle)

    This would yield $5,188/year in cash flow on $16k in equity before taking into account maintenance/repairs, HOA, vacancy, and tenant placement costs. In my view, these numbers make it a slam dunk for a first deal and will start giving you a tax return history that you can use for loans once you get two years of rental history (this is what my lender requires). You don't need the cash so why flip the property and pay taxes on your gains? Further: why flip the property, pay taxes, and buy two mediocre properties? Quality is what matters, not quantity.

    1Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y
    Originally posted by @Brandon H.:

    I would buy the property, do the light renovation once the current tenant moves out, and then rent it out at market rate.  You'd be into the property ~$80k which you could then refinance via your buddy (using your numbers - 80% loan at 4% for 20 years = $388/month mortgage payment).  

    Rent = $13,200 (i.e. $1100/month)
    Mortgage payments = $4,656
    Property taxes = $1,100
    Insurance = $1,200 (this sounds high to me, my property in Jacksonville sold for $165k and my insurance is only $442/year)
    Property mgmt @ 8% = $1,056 (you didn't specify if you were going to self-manage but you should set this money aside to pay yourself for your hassle)

    This would yield $5,188/year in cash flow on $16k in equity before taking into account maintenance/repairs, HOA, vacancy, and tenant placement costs. In my view, these numbers make it a slam dunk for a first deal and will start giving you a tax return history that you can use for loans once you get two years of rental history (this is what my lender requires). You don't need the cash so why flip the property and pay taxes on your gains? Further: why flip the property, pay taxes, and buy two mediocre properties? Quality is what matters, not quantity.

    To be clear - I stated "$16k in equity" assuming you refinanced only based upon your costs ($60k purchase price + $20k rehab = $80k value and finance 80% => $64k loan + $16k "equity"), not after repair value.  I used this same assumption when calculating the mortgage payment using 4% for 20 years.

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y
    Originally posted by @Brandon H.:

    I would buy the property, do the light renovation once the current tenant moves out, and then rent it out at market rate.  You'd be into the property ~$80k which you could then refinance via your buddy (using your numbers - 80% loan at 4% for 20 years = $388/month mortgage payment).  

    Rent = $13,200 (i.e. $1100/month)
    Mortgage payments = $4,656
    Property taxes = $1,100
    Insurance = $1,200 (this sounds high to me, my property in Jacksonville sold for $165k and my insurance is only $442/year)
    Property mgmt @ 8% = $1,056 (you didn't specify if you were going to self-manage but you should set this money aside to pay yourself for your hassle)

    This would yield $5,188/year in cash flow on $16k in equity before taking into account maintenance/repairs, HOA, vacancy, and tenant placement costs. In my view, these numbers make it a slam dunk for a first deal and will start giving you a tax return history that you can use for loans once you get two years of rental history (this is what my lender requires). You don't need the cash so why flip the property and pay taxes on your gains? Further: why flip the property, pay taxes, and buy two mediocre properties? Quality is what matters, not quantity.

     BRILLIANT! this is why I posted this opportunity here: to get this type of feedback ( and similar advice over the past 24 hours by the other contributors). Thank you. This makes perfect sense as my hearts desire IS to hold this property longterm.  

    Brandon, would you share your insurance company or brokers contact with me?  The insurance quote I got was $1200/ year.  

    0Reply
  • Darci Minshall
    Fleetwood, PA · Member since 2018 · 15 posts · 8 votes
    8y
    I have debated a similar situation myself. When it came down to it, I am opting to hold the property knowing that at any point down the road I can sell it and use the proceeds to further my investments. I knew that I would personally regret letting go of a property that would have solid cash flow. My strategy is going to be to build a rental portfolio first and then entertain flips when the numbers are right for it. My two cents (for what its worth) are build the portfolio first. Best of luck on whichever route you go!
    1Reply
  • Jeff Riber
    Real Estate Broker · Jacksonville, FL · Member since 2012 · 85 posts · 26 votes
    8y

    Hey Aaron!  We met some time back right?  I'm with Brandon (in part).  I would buy, renovate, rent, and then sell.  Potentially 1031 exchanging into the next deal.  Like you said, you don't need the cash.  So, be wise in how you pay (or don't pay) taxes as part of the process.  Feel free to shoot me a message and I'll share my spreadsheet to help make the decision. 

    Cheers,

    Jeff

    1Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y
    Originally posted by @Aaron Thivierge:
    Originally posted by @Brandon H.:

    I would buy the property, do the light renovation once the current tenant moves out, and then rent it out at market rate.  You'd be into the property ~$80k which you could then refinance via your buddy (using your numbers - 80% loan at 4% for 20 years = $388/month mortgage payment).  

    Rent = $13,200 (i.e. $1100/month)
    Mortgage payments = $4,656
    Property taxes = $1,100
    Insurance = $1,200 (this sounds high to me, my property in Jacksonville sold for $165k and my insurance is only $442/year)
    Property mgmt @ 8% = $1,056 (you didn't specify if you were going to self-manage but you should set this money aside to pay yourself for your hassle)

    This would yield $5,188/year in cash flow on $16k in equity before taking into account maintenance/repairs, HOA, vacancy, and tenant placement costs. In my view, these numbers make it a slam dunk for a first deal and will start giving you a tax return history that you can use for loans once you get two years of rental history (this is what my lender requires). You don't need the cash so why flip the property and pay taxes on your gains? Further: why flip the property, pay taxes, and buy two mediocre properties? Quality is what matters, not quantity.

     BRILLIANT! this is why I posted this opportunity here: to get this type of feedback ( and similar advice over the past 24 hours by the other contributors). Thank you. This makes perfect sense as my hearts desire IS to hold this property longterm.  

    Brandon, would you share your insurance company or brokers contact with me?  The insurance quote I got was $1200/ year.  

    I sent you a PM with my insurance agent's contact info.  I've never had any claims so I can't speak to that but I can state that the insurance rates are much lower than I anticipated.  

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y
    Originally posted by @Jeff Riber:

    Hey Aaron!  We met some time back right?  I'm with Brandon (in part).  I would buy, renovate, rent, and then sell.  Potentially 1031 exchanging into the next deal.  Like you said, you don't need the cash.  So, be wise in how you pay (or don't pay) taxes as part of the process.  Feel free to shoot me a message and I'll share my spreadsheet to help make the decision. 

    Cheers,

    Jeff

     Hi, Jeff. Yessir. We met for coffee 4 years ago. I took a hiatus for a bit due to family growing, children, life, fishing, etc... Now, I have got my focus back.  Closing next week on this property. I got a text from the 3rd sibling last night.  He has all his ducks in a row ( he just got back from burying two relatives last week).  Very excited to see this deal come together.  I will update right after closing.   Thank you everyone.  Aaron 

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y
    Originally posted by @Account Closed:

    Since its your !st lets assume your numbers are no where close to what you think it is.  Forget about $150 a door rental houses.    You make $400,000.    Save and buy prime property.

    This is a prime property to hold long term.  Flipping isn't really what I want to get into at this time.  Building longterm wealth passively with doors is my real goal.  Thanks. I will post real numbers after closing next week.  

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y
    Originally posted by @Brandon H.:
    Originally posted by @Aaron Thivierge:
    Originally posted by @Brandon H.:

    I would buy the property, do the light renovation once the current tenant moves out, and then rent it out at market rate.  You'd be into the property ~$80k which you could then refinance via your buddy (using your numbers - 80% loan at 4% for 20 years = $388/month mortgage payment).  

    Rent = $13,200 (i.e. $1100/month)
    Mortgage payments = $4,656
    Property taxes = $1,100
    Insurance = $1,200 (this sounds high to me, my property in Jacksonville sold for $165k and my insurance is only $442/year)
    Property mgmt @ 8% = $1,056 (you didn't specify if you were going to self-manage but you should set this money aside to pay yourself for your hassle)

    This would yield $5,188/year in cash flow on $16k in equity before taking into account maintenance/repairs, HOA, vacancy, and tenant placement costs. In my view, these numbers make it a slam dunk for a first deal and will start giving you a tax return history that you can use for loans once you get two years of rental history (this is what my lender requires). You don't need the cash so why flip the property and pay taxes on your gains? Further: why flip the property, pay taxes, and buy two mediocre properties? Quality is what matters, not quantity.

     BRILLIANT! this is why I posted this opportunity here: to get this type of feedback ( and similar advice over the past 24 hours by the other contributors). Thank you. This makes perfect sense as my hearts desire IS to hold this property longterm.  

    Brandon, would you share your insurance company or brokers contact with me?  The insurance quote I got was $1200/ year.  

    I sent you a PM with my insurance agent's contact info.  I've never had any claims so I can't speak to that but I can state that the insurance rates are much lower than I anticipated.  

     Got it. Thanks so much. I will call her later today for a quote. I am grateful for this contact. Thanks for sharing.  

    0Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    Let me get your opinion on what to do w/ the second empty lot:

    There are two lots, two real estate ID's, two property taxes: the lots are adjacent, and the home, garage and gazebo are built on one lot. The other lot is landscaped and grassed. Looking from the street, you would not know there is two separate real estate id's, just a massive lot. 

    I forgot to mention, my primary residence is less than 1 mile from this property.  

    If I Airbnb or monthly rent the house, garage and gazebo, what would you guys do w/ the empty lot?
    Sell it? build a duplex?  nothing?  build another Single family home? any creative ideas?  

    By the way, I have a signed Florida Real Estate Purchase and Sales agreement from all three siblings for the $60,000 purchase price.  I will be sending it to "Title America" when I return from Key West Monday next week.  We are heading away to fish for 4 days, then back to close on this property.  

    Also, an update: I met w/ my banking friend yesterday, and he changed the plan ( for the better I think): he offered me a $100,000 cash line of credit: uncollaterized, unsecured to use at my discretion.  
    Is this superior than a mortgage?  It's easier, less reporting, less stipulations.  Am I missing anything by going this route? No money down, 100K to spend.  Interest only (5%) payments, principle due at my leisure.  

    0Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y

    First I'd check the zoning and make sure you're in compliance with the property with the house, gazebo, and garage (e.g. be absolutely certain it's not too close to the lot line, utilities are setup properly, etc.). If the vacant lot is zoned for a duplex, I'd probably go that route but wouldn't bother going through the re-zoning process to do it - this is an area outside of my level of experience so I wouldn't be comfortable going that route. Might be worth exploring though - go down to your local building/zoning office and ask them how it works. Every market is different. I'd also get some quotes from contractors to build a SFH or a duplex (any chance you could fit a threeplex on that lot?) so you can start running the numbers. If you go down this route, you may need to secure a construction loan from a bank or, alternatively, refinance your other property to get cash and use your line of credit (discussed below) to pay for the construction.

    You may also get yourself into some trouble if you rent the property out and don't write the contract to explicitly state that it's only the one lot (this means that you are responsible for maintaining the vacant lot).  You sound like a smart guy so you've probably already thought about this.  Just calling it out.

    Regarding the line of credit - is the rate fixed?  If so, for how long?  What are the terms (e.g. can they call the debt on you)?  I'm assuming this is a typical interest only loan.  Going the line of credit route isn't necessarily a bad thing - it will save some of the hurdles you normally have to go through for a conventional mortgage (e.g. appraisal, inspection, etc.).  Interest only payments would be ~$417/month - slightly higher than my original analysis and you're never paying off principal.  Here's an updated breakdown:

    Rent = $13,200 (i.e. $1100/month)

    Interest only loan payments = $5,000

    Property taxes = $1,100

    Insurance = $1,200 (as stated above, this is probably high)

    Property mgmt @ 8% = $1,056

    This would yield $4,844/year in cash flow before maintenance, HOA, vacancy, placement costs, etc. but, this time, you wouldn't have put any money down since you're using the unsecured loan. Downside is that you are never paying down principal since it isn't a mortgage. You could simply make extra payments each month to pay down the line of credit which would increase your cash flow.

    In my view, this isn't a bad option and I'd probably do it - you can always refinance the property to a traditional mortgage later on down the road.  To be honest, 5% isn't a bad rate either - I have 4.75% on my rental in Jacksonville and I did that loan before rates went up over the last 18 months.  If you're getting a conventional mortgage, you might be in the 5% range anyway.

    My opinion: Take the $100k line of credit and close on this property ($60k). In the meantime, start researching your options with the vacant lot: (i) sell the vacant lot, (ii) build a SFH, (iii) build a duplex, (iv) some other option, etc. Once you close and the current tenant moves out, begin the light renovation work ($20k), and get it rented out so you can use that cash flow to cover your operating expenses. You should still have $20k left unused from your loan. It's highly unlikely that you'll be able to build anything for $20k so you'll need some more capital. Look into refinancing the occupied property - you should be able to get enough cash from there to do the construction on the vacant lot. This is a big project so take your time in getting your plan together.

    2Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    @Brandon H. I am sitting at the gate right now in Ft. Lauderdale waiting for the next leg of the flight. So, time is limited.  I enjoy and appreciate your contributions and thought process'.  Here's another addendum to my thought process.  
    I am considering AIRbnb 'ing the property.  I have three friends who have similar homes in similar ( maybe less desirable) areas here in Jacksonville.  They are running 75-90% occupied consistently .  It was recently suggested to me by one of them to AirBNB this property (once the current Tennant moves out).  Even at $70/ night  (very conservative) and 66% occupancy (again conservative) that would beat the fair market rent ($1400 vs. $1100).  
    And as my buddy puts it "they aren't there long enough to mess the place up or destroy anything".  I live less than 1 mile away and have a flexible schedule to turn the house over after a airbnb'er left.  So, THAT is also an option.  

    As you can see, I am all over the place with my options and opportunities.  Thanks for giving me MORE to think about.  I will circle back when I have something constructive to share. 

    I agree with taking it slow, considering all angles and not committing to anything until all avenues have been evaluated/ analyzed.  

    Thanks agin. 

    1Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y

    One more thing I should've mentioned regarding the interest only loan - check what the fees and payment penalties are.  For example, sometimes they charge a fee if you pay off the entire loan or charge a fee when you pay down principal.  I've never personally done an interest only loan so I'll let others who are more informed chime in but read the paperwork!  This is going to be a big project and a few grand in fees over the next several years can make a big difference in your investment if you don't navigate it properly.

    Best of luck!  Keep us all posted on how it goes.  It's great to learn from others' experiences and see how different strategies work out!

    0Reply
  • Brandon H.
    Rental Property Investor · San Francisco, CA · Member since 2016 · 52 posts · 48 votes
    8y
    Originally posted by @Aaron Thivierge:

    @Brandon H. I am sitting at the gate right now in Ft. Lauderdale waiting for the next leg of the flight. So, time is limited.  I enjoy and appreciate your contributions and thought process'.  Here's another addendum to my thought process.  
    I am considering AIRbnb 'ing the property.  I have three friends who have similar homes in similar ( maybe less desirable) areas here in Jacksonville.  They are running 75-90% occupied consistently .  It was recently suggested to me by one of them to AirBNB this property (once the current Tennant moves out).  Even at $70/ night  (very conservative) and 66% occupancy (again conservative) that would beat the fair market rent ($1400 vs. $1100).  
    And as my buddy puts it "they aren't there long enough to mess the place up or destroy anything".  I live less than 1 mile away and have a flexible schedule to turn the house over after a airbnb'er left.  So, THAT is also an option.  

    As you can see, I am all over the place with my options and opportunities.  Thanks for giving me MORE to think about.  I will circle back when I have something constructive to share. 

    I agree with taking it slow, considering all angles and not committing to anything until all avenues have been evaluated/ analyzed.  

    Thanks agin. 

    Based on your circumstances, AirBnB would be a good option in the short-term until you either (i) get tired of dealing with the turnover process, etc. or (ii) decide on other plans.  With AirBnB you can stop doing it pretty much whenever you want.  If you have a 12 month lease, you're locked into that tenant.  It's a good way to keep your options open.  Either way, you still have some time until the current tenant moves out to mull over what you want to do.  For me, it'd come down to how much of my personal time I want to dedicate to this investment versus having it on autopilot with a professional property manager - perhaps it'll be the same for you, maybe not.  Regardless, you have a great first deal on your hands.  Great start!

    Enjoy your vacation!  

    1Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    I will be the property manager for SO many reasons.  


    PS: Just called Gail and left her a vm for the quote for the insurance quote. Thanks again for that contact.   

    0Reply
  • Simon Collins
    Rental Property Investor · Saint Augustine, FL · Member since 2018 · 102 posts · 58 votes
    8y

    @Aaron Thivierge I would hold it.  Just from a strictly tax standpoint and your income you would pay at least 35% of that gain in short term capital gain taxes vs only 15% if you held it longer than a year.  That ALONE would have me at least hold it for a year at min.

    Anyway,  I noticed you said you have a good contractor.  If you recommend them to get houses renovated quickly at a fair price with no supervision can you PM their contact information please? (If they are up for it or can handle the work load)

    Thanks!

    1Reply
  • Caroline C.
    Investor · Jacksonville Beach, FL | NYC | Tamarindo Costa Rica · Member since 2014 · 182 posts · 130 votes
    8y

    @Aaron Thivierge I know people do it, but just be careful with AirBNB in Jacksonville - my understanding is that it is really not allowed, so at any time you could be fined or shut down.  Just know that you might have to convert the property to long term rental at some point.

    http://www.jacksonvillemag.com/2018/03/28/thinking-of-becoming-an-airbnb-host-city-of-jacksonville-says-no-way/

    1Reply
  • Jack Bobeck
    Rental Property Investor · Jacksonville, FL · Member since 2008 · 784 posts · 528 votes
    8y

    A few things to share:

    • As stated above, be careful with AirBNB, there is a new Committee that was formed by the new City Council President to look into taxing for AirBNBs. The City wants their fair share, so keep abreast of the changes.
    • Rents, never assume you can get 12 months of rent, only look at 10 months and use 1 month for taxes/insurance, the other month for repairs. 
    • All Lines Insurance is who I use and most of my insurance is around $500-$600 for Murray Hill properties. I included the link. 
    • I use Traditions Realty to find and qualify tenants, they do an outstanding job and if you tire of managing the property, they can do that too. Ask for Sasha.
    • If you have never built a home or a garage, don't start now. If you think the lots are a good value, buy them and sell them to Jax Wealth Builders or someone else that wants to build and has done building. Materials are rising and there is a real shortage of contractors to do the work. Time factors against you in building, so leave that to professionals. 
    0Reply
  • Account Closed
    Rental Property Investor · Chula Vista, CA · Member since 2016 · 20 posts · 35 votes
    8y

    @Aaron Thivierge - Have you thought about BRRRR-ing it?

    Purchase $60,000

    Rehab $45,000

    All in for $105,000

    Refinance ARV ($180,000) at 80% ($144,000) from your friend at 4% for 20yrs ($873/mo Principle&Interest):

    $1,100 (rent) - $873 (PI) - $92 (taxes) - $50 (Realistic Insurance) = 

    $85/mo cash flow before any repairs/CapEx, etc. (with essentially $0 invested in the house, so it is an infinite % return if you get any cashflow)

    +

    $39,000 cash (new mortgage of $144,000 - all expenses of $105,000)

    You could use that $39,000 to go and buy two more properties that are $85,000 each ($17,000 down [20%] each, plus a little cushion for closing costs)....or a multifamily for $170K.

    Then you would have 3 properties, with $0 invested!!!  I think that's magical. 

    You wouldn't have to pay $42,000 in taxes (35% of the $120,000 profit from flipping). You also get the tax benefit of depreciation, and if you really wanted to capture the additional $36K of equity ($180K ARV - $144K mortgage), you could sell it in one year and 1031 the profits into another property (one with better cash-flow), and defer the taxes (similar to what @Jeff Riber suggested).

    Could you PM me your lender's information?  I'd be interested in talking with him about some lending options in Jacksonville.

    1Reply
  • Aaron Thivierge
    OP
    Investor · Jacksonville, FL · Member since 2014 · 172 posts · 73 votes
    8y

    UPDATE:   We closed yesterday with Title America without a hitch.  We bought our 1st rental property and the vacant lot beside the home. 
    I met with the tenant at 415 yesterday afternoon and had a unique and pleasant experience. 

    He had been paying $600/ month for 19 years. I told him I needed to bump that number up to pay for PITI and all the capital improvements forthcoming. I said $700/ month seemed fair. His reply " I was thinking more like $750". WHAT?!
    You want to go UP in rent further than I suggested?  He said, yes and I want to help pay for anything that breaks along the way: hot water heater, HVAC, etc..
    I told him he was very kind, but let's settle at $725/month.  
    We agreed. Shook hands and then I met my family for a lovely celebration dinner and swim. 

    Now, here's the nuance: When I asked him his time frame for moving back to Tennessee as he mentioned to me months ago was his ultimate goal. 

    He said, "well I don't know. Maybe next year, the year after possibly.... SO, I concluded that he is there for a good while still: All improvements and getting higher value off the property will be on standby until Cleve moves back to Tennessee where he is from and his extended family still resides.  

    All in all, I am thrilled and delighted with the immediate cash flow, amazing tenant, proximity of the property to my primary residence, and the opportunities this property present in the future.   


    Thanks for all the support along the way bigger pockets and friends.  

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free