multi-family investing in florida

[Daniel Roman]

Hello BP.

I am looking to start out my investing career here in Broward, FL. My first investing is going to be a triplex, or fourplex. The only problem is that I always get negative cash flow on the properties I search for on zillow, loopnet, ect. Is this due to an inflation to prices here in South Florida? I Cannot find a decent property under $200,000. If anyone has some information please share! 

[Thomas Franklin]

@Daniel Roman South Florida is extremely overpriced. You will be hard pressed to find a MFR (Multifamily Residence) priced at less than $100,000 per unit unless you are will to consider Class D Neighborhoods. How are you running your your numbers? What are you basing your numbers on that is leading to a Negative Cash Flow Scenario? When you are crunching numbers to you factor 10% of the Gross Income for Capital Reserves and 10% of the Gross Income for Property Management as expenses? If you are interested in how I analyze a property, to determine feasibility for acquisition, please visit http://www.actinvestmentproperty.com/investment-strategy/ , scroll down to the photo, and click on the photo where a PDF opens. 

I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking." Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.