New far-far-away member & questions on investing in FL

[Christophe Noualhat]

Good morning everyone (it is morning for me and most likely this post will appear when it will be morning for you)... 

Yes I am from a far-far-away land called MADAGASCAR (and no, there are no penguins, lions, giraffes or hippos... only lemurs !!). 

I'm a european expat living there currently and looking across the ocean to invest in real estate in the U.S. I have been listening to a few podcasts from the hosts (which are great so thanks for offering this for free and making this community alive !) and read a few forum posts. 

Being the quiet type, I have not posted on any of the fora before today...

for those interested, a bit about me, for those not interested please scroll down.. 

I have 2 former dwellings from when I used to live in France which are now being rented. One is almost fully paid and basically paying the other as the rent is much lower than the the mortgage. For those who don't know the French market, it's nothing like the US market and ROIs are much much lowers if any...

I also recently aquired a set of 20 garages which offer a better ROI than apartments or houses and splits the risk of unpaid rent in exchange for more management... but I have a retired Dad :)

In the past couple months, I have been in contact with a few companies and individuals specializing in investing in the US for foreigners, some looking more dodgy than others but overall seeming to be doing OK... I have concentrated my research on FL and in the Tampa area, for no specific reason or personal preference...

In the past few weeks, I have been in contact with an agent/broker doing this kind of work and having a team for the closing/taxes etc.. able to manage the property and all, he seems good and has provided lots of time without asking for a penny (which is the job of a RE broker, only its a lot more time consuming when the buyer is not present ...)

Now I have my eyes on a property (it will be the 4th offer through him, the previous ones did not go through) and I would like to ask seasoned RE investors here a few questions...

The house is advertised as a duplex 2/1 + 1/1 but after the visit I was told that an extra split had been done so it looks now like a triplex 3* 1/1 ... This split has not been declared, what are the consequences and how to align with "the law" ? What will be the consequences in terms of taxes or other ? 

The current rent seems very interesting vs cost of the unit (2% rule reached and were probably over 2%...), split unit electricity and water in the landlord's name. From the outside the unit has been deemed in good condition and the neighborhood is ok (going uphill), criminality is low.

Rent seem to be high for 1/1s, the agent tells me it is because there is no offer for low rents in the area. The agent has not seen inside the house because 2 of the tenants were at work and the landlord did not want to insist on disturbing the 3rd one as he is afraid that if his tenants know he is selling they might leave... The owner is an elderly person who wants to ramp down on his investments. He has owned this unit for over 20 years... 

The house has been on the market for a year now and is listed at 60% its original price...On paper it looks very good... 

Any experienced investor see anything fishy ? anything I am missing ? Anything I should be looking at ? 

Thanks for reading me !

Best

Christophe.

[Dave Bingham]

@Christophe Noualhat

Hi Christophe. There were a few things that gave me pause.

1.) As Walter mentioned above the split in the future will give you issues when you try to sell. The best advice I could give you would to do some more due diligence to make sure that the split has been recorded at the county appraisers office. via the floor plan picture.

http://www.hcpafl.org/CamaDisplay.aspx?OutputMode=Input&searchType=RealEstate&page=FindByAddress

I would also check with the permitting office to make sure as well.

https://webapps.hillsboroughcounty.org/pgm/resources/onlineservices/permits/

If these things have not been done according to code or had permits pulled you're asking for trouble from a variety of directions. It's not worth it.

2.) Ask the agent to back up his assertions with data. It's very easy to flap your gums and tell someone how something is when they are unfamiliar with a situation, in this case the local market and submarket.

Ask specifically for like-kind properties for rent or that are currently rented. This will take 15-20 minutes of driving around to jot down phone numbers from sign sin the yard advertising available space. I'd call the numbers and get details such as the address (google map it and check out he street view for a visual. Also use the timeline function to see the changes in the neighborhood), the number of sq. ft., any concessions they are offering, how long it has been vacant, do the owners have any other units, if so how are those doing?

3.) The fear of disturbing the tenants and having them leave would only apply if there were no lease or if it were a month to month lease situation. If either of these are the case you'll need to budget in the cost of finding long term tenants with a lease. You always, always, always need to look in each unit when buying multi-family. Skipping them is analogous to doing a home inspection and not having access to see the kitchen and a bedroom. The inside of those units need to be seen to give an accurate picture of what you're getting yourself into.

4.) The house has been on the market for a year and is listed for 60% of its original price.  I'd not even look at information like that because it brings up too many variables and questions that are subjective and are often irrelevant such as, when was the original price tabulated? Was it at the apex of the boom? Who determined this original price, what was it based on? etc... Check recently sold via that first link I sent you for the county records. This will give you an idea of a range houses are going for in that area once you control for year built, sq. ft. and utility. Next I'd look at the months inventory. Your realtor should be able to get this to you. This gives you an idea of the supply of houses in the area and a starting point at how long it will take to sell. Taking this back in increments of 3 mos./ 6 mos. etc. will give you a velocity at which this number is changing. This will tell you if  a neighborhood is cooling or heating up in regards to demand. Tie this back into point 2. Is the area heating up because of investors or owner occupants? If investors are they flipping or creating a huge competition pool by creating rentals? Once you know what houses have sold for, the direction the neighborhood is moving you'll have a better idea of how to interpret the currently listed properties. Are the jumps in value of listed properties versus ones that have been sold justified by not only an increase in number of homes sold but also a reduction in the days on market? Or are the list prices below what is the value and trend of the neighborhood?

5.) I'd use Zillow for QUALITATIVE only. Look at the inside of your nearby comps with the pictures and make adjustments for quality accordingly. Try to quantify the ratio or for renters/owner occupied. Zillow has a function where you can search for rent only. Tie this into #2's list of landlords renting their properties. Eliminate the duplicates. For less trouble down the road I'd suggest passing on anything that has a value of .35 or higher.