Can this work?

[Matt Blutowski]

I'm thinking about a SFH or condo in the central west florida area (e.g. sarasota et al.). I don't live in the area so will use property management to rent it.

This will not be a business, more of a longer term investment and a way to diversify my savings (all in stocks). I don't own a home, pay no rent, have no debt and have access to a 50K loan at 1% (borrowing yen - so changes in the exchange rate could make the real rate negative, or up to 5% - I would guess that real rates will be 1% or less). I can make up for the rest of the mortgage by borrowing $ at 4.7% 30y fixed.

Property is selling at less than $100/sq. foot in some areas, and although it may take time, I think there will be appreciation in the area. I don't know what rents are like in Sarasota.

How do I know when a deal makes sense for me - if I'm interested more in a buy and hold investment than a cash-flow business? Any rules of thumb?

I have read about a 2% rule, and 50% rule, but am not sure if they both are rules of thumb for a SFH/condo?

Any thoughts would be much appreciated!

[Michael Rossi]

Matt,

To make an accurate analysis of your colleague's deal, we need the gross rent, purchase price, the cost of any initial rehab she did to the property, and her mortgage payment (P & I) and terms.

My general impression is that she is NOT making money on this deal. Mom and pop "investors" often convince themselves that they are making money when in fact they are not. They do this by paying irregular expenses out of pocket and off budget. For example, when they are forced to evict someone, they consider that a one-time event; pay it out of pocket; and don't count that toward their expenses (that wouldn't make them feel good). The same is true of other "one-time" events, like excessive damage done by a tenant, a lawsuit, a furnace or roof that needs replaced; etc. When these real expenses are thrown into the equation, it is clear that they are losing money on the deal.

I would strongly suggest reading the 50% Rule threads at the top of the 'General' and 'Landlording' forums.

Having said that, you can make money with rentals if you buy at the right price and manage the property correctly.

Good Luck,

Mike