Jacksonville, FL - SFH new construction

[Brandon H.]

Long time reader, first time poster here.  I wanted to include the details of my most recent deal and open it up to critiques and suggestions.  I am working with a turnkey company (JAX Investments) and Suncoast Property Management.  This is a new home on the west side of Jacksonville (4 bed / 2 bath).  

Onto the numbers...  

Target rent = $1395-1365

In a typical month, I should cash flow around $328-301/month. This includes the mortgage payment of $647, property taxes @ 1.5% ($207/month), annual insurance ($398 for liability/PD + $574 flood), $250/year HOA, and the 8% property mgmt fee. I'm assuming $0 in maintenance for the first two years since the home is brand new with a warranty.

I setup a separate bank account which will process all transactions associated with this deal. I wanted it separate so it didn't impact our day-to-day finances. In that account, I'm setting aside ~$4k as reserves for any expenses that come up, vacancies, etc. My plan is to apply any proceeds above and beyond this reserve threshold to the mortgage since it would be a guaranteed 4.75% return and could pay down the mortgage faster. Hopefully, I could have the mortgage paid off within 15-20 years so when a major repair is necessary (e.g. new roof) the property would be cash flowing closer to $1000/month instead.

ROI should be around 7-8% depending on where the rent falls in the above range assuming no appreciation on the property. Granted, this rate does not take into account vacancy or tenant placement fees (50% of one month's rent + $150 renewal fee). In my annual pro forma, I assume one month vacancy and a new tenant every year which would bring the ROI down to the 3-4% range before appreciation. I'm not sure on my exact closing costs so these percentages aren't nailed down yet.

I could increase the above numbers if I opted out of flood insurance (the home isn't in a flood zone) but I'm waffling on that a bit. The more I learn and the more research I do on RE investments the more I think that every property has to cash flow at least $300/month otherwise it'll never be profitable. Unfortunately, there is no easy money in the world...

Looking forward to any input from the BP forum!

[Mary K.]

Question for anyone. I'm in Ocala. Back in 2006/07 I lived in the Marion/Citrus county areas and construction companies built hundreds of houses for (mostly out of state) investors (who flooded the area, like now) who had the idea of renting them out.  Soon the supply of houses far exceeded the # of renters and by the bust in 2008, 100s of these houses sat empty, many going to foreclosure. Is anyone worried about the same happening again since we are seeing so much investor activity? Granted, I wasn't in Jacksonville then but I think this happened statewide.  Do you all feel the jobs/growth/economic numbers in Jacksonville look good enough long term? Or in Ocala?  I myself am cautious about buying too much where lots of investors are jumping in (since history often repeats itself) but would like to hear everyone's thoughts.