Hi-I'm new Here!--Evaluating Current Birmingham, Al Income Property and Investing in Brevard County, FL.

[Michael Zagorsky]

Hello everyone.

I wanted to introduce myself and ask a few questions.

I'm Mike and I currently live in West Melbourne, FL (Brevard County)

Prior to moving to Melbourne, FL (Where we own a single family home), my wife purchased a townhown in Gardendale, AL (Birmingham Suburb) which we were unable to sell when we moved for my work.

After this we had several tenants in the property. At first we managed the property ourselves remotely (We actually managed to do several major repairs completely remotely with only one bad ending). Subsequently, we hired a management company to handle the property and were able to rent the property quickly (They charge first month's rent and 10% of rent thereafter). So far we are are on our third tenant, but we have only so far have had it vacant about 5% of the time. The city recently decided to create it's own school district which should be a draw to residents, but so far we have not rented to any tenants with kids. Overall there are several rentals in the neighborhood, but our townhome is one of the nicer in the neighborhood so we seem to command about $100 over other 3/2.5s and $250 over 2/2s. I think that the house is one of the few with 4 dedicated parking spaces (The rest have on street parking) and a larger back yard seems to help with the price premium. I would say the current fair market value for the house would be $80-$92k. I am not sure of the current stats on owner-occupied homes in the neighborhood, but I would say a fair number of people had to rent theirs out due to the market being flooded with foreclosures and still not recovered.

Other than the neighborhood the house is in, most other renters in the area are in large multifamily apartment complexes.

Below are a summary of approximate proforma financials for the property:

Gross Rent $13,200.00 ($1,100/Month)

Expenses

Management Fees $1,320.00 (10% A Month)

Interest $4,131.00 (5% FHA (Approx 25 years remaining). Balance Approx $81k)

Mortgage Insurance $457.69

Insurance $713.00

Taxes $543.00

Depreciation $2,343.00

Repairs $1,500.00 (Estimate)

Total Expense $11,007.69

Net Income $2,192.31

Cash Flow:

Net Income $2,192.31

Add Back Depreciation $2,343.00

Minus Mortgage Principal Reduction $(1,814.00)

Net Free Cash Flow $2,721.31 

We expect the property will need a new HVAC system ($2-$4k) at any time and there about 5 years left to go on the roof. The back fence is in bad shape but we are not planning on replacing it for the time being. We have a 5% FHA on it, but have not had any luck at option to meaningfully to lower the interest rate due to not being able to qualify for conventional mortgage due to the debt to equity ratio.

Our initial opinion was to sell the property once we could be comfortable that it would sell quickly and that we would not have bring cash to close, but we are starting to look at the potential and wondering if there are starting to be compelling reasons to keep the property longer even though we are long distance landlords and build equity. I was wondering if anyone else had feedback on the performance of this property.

Additional, I have started to give more though to owning a second income property likely Brevard county/Melbourne/Palm Bay.

I think that from everything I read being a buy and hold investor is the most compatible with my goals which is to focus on long term net worth enhancement and steady rates of return. I would say I would like to take a conservative approach to finance with either a cash purchase of a low end property or a traditional mortgage and use any free cash flow from a property to ether pay down additional prinical or save for the down payment for future property. My current mindset would be to focus on purchasing a property once I reach the goal of maxing my 401k contribution, which hopefully I'll achieve within 2 years.

The main thing I see right now is that in looking at real estate as an investment I am conflicted about proceeding on couple of things.

First, In Florida, I notice a big savings in home owners insurance with homes built to the FBC2004 building code and most of the properties would be in more expensive. Overall, I am generally bummed about the impact of insurance on the profitability of potential rentals in the area. On my personal house, buying a home built to FBC2004 saved me about $1200/yr on my insurance.

Second, while I hear a lot of duplexes, triplexes, etc being great from a cash flow perspective, I have some concern about their appreciation compared to single family homes and their difficulty to sale should I need to. I was wondering if anyone had some insights in the Florida market.

Third, while my preference would be to purchase a property locally, I have to say that the numbers and advantages of the Birmingham area (lower taxes and insurance) seem to outweigh some of the local options.

Just wondering if anyone had any advice for my situation.