Analysis Paralysis - Should I take the plunge?

Question

Hoping to get some feedback on a property that I'm considering offering

I've dipped my toes into RE investing (currently renting a prior primary residence) but I've been a victim of analysis paralysis for years and want to do more.

I found an off-market deal in Tampa, FL through a wholesaler (I currently live in NJ) which I think is a growing market. My sister lives in Tampa so I'm there a few times per year and have a network.

SFH

$237,000

Taxes: $2,400

Currently rented for $1,500 / mo

The property is in good shape. The interior is very good, windows are 10 years old and roof is 8 years old.

I made 2 offers, one in cash ($212k) and one with financing ($235k), they've countered at $237k with financing.

It doesn't meet the 1% rule but it would cash flow right away with the current tenant. I could let the tenant renew in August or I could try AirBNB rental and probably make it more lucrative (but obviously more work).

Part of me is thinking it's a great lower risk opportunity to get started and I can put 20% down which I can comfortably afford and will cash flow right away. It's a growing market that I'd buy and hold in. It doesn't need much work.

The other side of me is reading about the eviction moratorium and thinking the market is going to burst and thinking I should stay on the sidelines.

Is this a good first foray into investing?

Are these good numbers for Tampa area?

Michael Haynes · Answer

Hello Jeff Laniado, you really want to be an Absentee Owner? Sight unseen and you make an offer to a Wholeseller who bought the property for how much? Maybe half of the asking? And you want to lose money every month for what? It makes no sense to take all that Risk and effort to not even clear $100 a month for something that may lose value if the new President gets his way with raising all the costs of living and taxes in our country.

Allen Wu · Answer

@Jeff Laniado

Does not come close to 1% rule. Try Cape Coral, you might get close to 1% rule at .8% on certain duplexes.

Carlos Ptriawan · Answer

Bad deal unless you live on it as a primary residence. This property and area don't need analysis paralysis.

Linda Wright · Answer

Maybe I missed it but what area of Tampa is it in? That would be part of my decision making process. Some areas will always be hot even if the market falls, so it may be worth a small negative cash flow, some areas not so much.

Tim Delaney · Answer

@Jeff Laniado if you are able to get a 30 year fixed loan at 4% which you may be able to get, your mortgage and taxes put you over $1,100/month. Repairs (5%), capex (5%) and management (10%) add another $300/month. Then you have insurance which I’m assuming would be over $100/month - so now you have zero or negative cash flow.

I would be careful making a speculative buy expecting appreciation - the market is hot right now, but who knows what will happen in the next year or two.

On the other hand, if you are going to self manage and you are prepared to come out of pocket for a major repair in the first couple years before building a reserve, then what you save in income taxes may be worth it. If you are already traveling to Tampa a few times per year and you plan to continue doing so - you may be able to turn those trips into business trips which would allow you to deduct the travel expenses from your income. I am not an accountant, so be sure to discuss this idea with your accountant before implementing.

Zachary Bliss · Answer

@Adam Poshka

I can attest to this as well, we’ve been looking for 1% rentals in Sarasota / Manatee / and Hillsborough counties for a month and half now and haven’t found any, you are lucky if you can get .8%.

Have you considered negotiating the terms for his seller financing?

Maybe if you could get him to do $230k, no interest with 10% down. That would give you some extra breathing room with your capital in case case anything out of the ordinary comes up, and your monthly payment would come down a bit.

But honestly in this area, the only way you can get good rental numbers right now is buying something that needs a lot of work and forcing appreciation on it, and even those are extremely rare right now.

Adam Poshka · Answer

It all depends on how you look at this. Personally, I am a cashflow person. However, the house you describe sounds like its in "my neighborhood" as the home values and rents are similar. Its pretty tough to find an home with a value less than 250K around here right now. Inventory is crazy low, causing home prices to rise drastically. Their are large amounts of people moving to Florida every day. So even if your not making crazy cash flow, you are paying off debt, have a (in my opinion) great % chance of seeing appreciation quickly, and now every time you come down to see your rental property you can visit family haha. You will not find the 1% rule in the immediate Tampa area typically, unless its in a D neighborhood or needs a crazy amount of work.

Benjamin Aaker · Answer

Using the 1% rule , it's 150k, quite a bit lower than the seller wants. The problem is that the seller is asking for retail prices and looking at comps for residential purchases. In this market, you won't be able to compete with that as an investor. A regular homeowner might think 220k is a great value. Get a tenant in there and you are suddenly underwater in this market. The only way it would work is if the rent is significantly lower than market rent. You should so some research, but we are talking about in increase of $700 in rent. That's probably not going to happen any time soon.

Analysis Paralysis - Should I take the plunge?

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