Help analyze this Cape Coral, FL New Construction (Buy and Hold)

[Andrew Craswell]

Anyone have in depth knowledge of the Florida and Cape Coral markets? I had been planning to buy my first property to get my feet wet and was looking for an easier turnkey property, but I came across an interesting new construction deal where the lender was offering just 10% down. The numbers aren't amazing, but seems Cape Coral (33993) area might have a decent chance at an equity play with higher than normal appreciation values which may be a bonus. Few other advantages I see:

• New construction should mean less hassle and lower expenses which may be more suitable for a first property
• The house costs $220k and the lot is just $10k, so depreciation should provide a great tax write-off
• I actually love Florida and wouldn't mind visiting when the place is vacant
• 10% down makes the CoC rate pretty decent, and unlocks a lot higher value property

I'd be happy to pay a consulting fee to connect to someone in the area who could help advise on this, or help think through any Florida specifics since the market is new to me.

I suspect the cash flow in this example proforma is inflated. I'm assuming the rent value would come in closer to the lower end of the deal, especially if Covid is still raging. First year owning the property probably wouldn't be great performance. I suspect the vacancy rate is also closer to 7%, as this is something I read in a few articles from last year.

A few other things I'm doing:

• Scheduling a meeting with a property manager to get their opinion on the property and get a sense for what they might price the rental value at. I'm also interested in property management recommendations.
• Scheduled a meeting with a CPA in in my area that is active on BP and came highly recommended from other investors. Hoping to plan our LLC structure and get a sense for Florida specific issues, taxes related to new construction, and how to plan ahead for when I own 3, 5, or 10 properties.

[Matthew Shedd]

Andrew, I will preface the balance of my comments by stating I considered myself a novice investor and don't have an "in-depth" knowledge of the Cape Coral area. That said, I have (and am) investing in several Florida markets purcshing new construction including SW FL. My comments may draw criticism from those who have much more experience, but here are my thoughts just the same. 1) Due diligence. I know many seasoned investors say you can invest from out of state drawing all the requisite data you need from the Internet. As a novice, I find it incredibly useful to do my own on-the-ground due diligence. If you're willing to buy a $220K home on the other side of the country, why not spend $500 to fly there, get a rental car and hotel for 2 days, and investigate the area? I have learned a lot doing this. In most cases, it validated the seller's/builder's claims, in others, it yielded information that wouldn't have shown up on the Internet; information that steered me away from the investment. 2) Paying for sound advice. I'll be the first to concur that paying for sound advice is a good investment, but be discerning in whom you pay. Even with new construction, we always pay an independent home inspector and an attorney to review closing docs. Again, I've had many people tell me both these steps are unnecessary, but I can assure you it has paid off tremendously. That said, you can ascertain much of what you need from your own due diligence and information resources on the Internet. Don't pay for information that is readily available for free. 3) Rates of return. As you point out, the builder's proformas are often positively skewed, but you can easily validate or challenge them through Internet research. For example (not to state the obvious), comparable rents are available on countless RE sites, taxes can be estimated by finding a comparable property in the neighborhood on the country tax page, and insurance quotes can be easily requested. The insurance rate for the property you cited seems a bit low for a home in a coastal area. Also, two things I didn't see you mention were PMI if you're not putting 20% down as well as the possibility of flood insurance which may be required by the lender. So those are my thoughts. I hope they complement your research. Feel free to PM if you have other questions about my experience in FL (overwhelmingly positive). Matt