All Forum Posts by: Andrew Galloway

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $465,000
Cash invested: $58,000

I bought this property as an FHA House Hack. After scouring the market, I was able to get large builder financing and discount incentives that allowed me to buy the property at below retail price and get good financing terms. I also quite liked the unique property design. The property appraised at $25,000 over purchase by comparison method and around $60k over by cost method. FHA was the only available financing due to my personal DTI. This is an ROI-focused strategy.

What made you interested in investing in this type of deal?

Discounts on new construction, wanting to use a house hack strategy, available FHA financing, insurance costs in FL. Lack of experience and availability with finding deals on older homes to be able to buy below retail price and obtain positive cash flow.

How did you find this deal and how did you negotiate it?

Extensive MLS and realtor.com searching, real estate agent

How did you finance this deal?

FHA

How did you add value to the deal?

Bought at below retail, financing via FHA to lower downpayment and increase ROI

What was the outcome?

Appreciated $25,000 over purchase.

Lessons learned? Challenges?

If targeting new construction, keep searching for an extended period of time until you find a builder that has a good deal, avoid builders that clearly will be difficult to work with, it was easy to spot.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes, Sidney Galloway

 Thank you, I will check out those Youtube channels. I may have to break the years of laziness and try to find a professional tax firm. I am able to read and absorb a lot of material but there are a lot of complications for this type of strategy so I was interested in a real world example of it playing it.

Hello Bigger Pockets CFL community. I am looking into the STR and STR/bonus appreciation strategy as a way to offset W2/short term income. Since the market pre-May 2022 just is not comparable anymore I am interested in anyone who has done this in CFL from around May 2022 onward successfully and how it went.

The goal would be to aquire a STR that would cash flow itself, or at worst break even and also use that to maximize deductions to lower W2 federal income tax. I've read about strategies to do this and bonus depreciation and how the 1 year bonus depreciation is being phased out. While Orlando is a huge STR market, I'm also aware that it is currently a tough and saturated market.

If anyone has successfully done this in CFL, please give as much detail about how you did it and how it went. Or if you tried it and it failed also let me know. Another caveat: there are a lot of STRs out there that are breaking HOA/local government/state/federal laws or strongly bending the rules, and I'm looking for people who did not do that or who mitigated risk there.

For myself, I am a high income W2 earner and I currently have FEIE foreign income tax exclusion but at some point I have to be able to return to the USA fully or at least hedge against that possibility. So I am looking at this as a way to decrease my federal income tax if I lose FEIE. Otherwise I would start getting hit with very nasty taxes. I also am looking at this strategy for a family member who is in the area with W2 income.

Thank you!

 I don't have that much experience with STRs in Orlando other than hearing that its heavily saturated and very competitive. Having just scoured the whole area for single family homes, I noticed a huge disparity between different areas in terms of property values and rental values. For example, avoid Haines City or areas of Davenport too close to it, saw multiple short sales in there and properties that weren't appreciating well. 

Something else I learned recently, is that theres a ton of homes for sale with solar on the roofs, and that can be a very bad thing. Some of them are under 100% financed terrible deals that they may try to transfer over with the property. The solar installs themselves can compromise the integrity of the roof, and home insurance is already expensive. Some of those companies are going bankrupt. Personally I'd avoid any home with a solar install or get it heavily inspected and make sure it can be insured.

Also some of these condos have an owner occupancy for 1 year rule, meaning you can't rent it out - period - for at least one year.

There 4 types of income from real estate, appreciation, cashflow flow, principal pay down and tax write offs. In an ideal perfect world you are cash flowing or near break even starting out and also either buy the property under its actual value or add forced appreciation quickly. 

It would be a good goal to base your deals on assuming no appreciation, but that thinking is no longer realistic for this high interest rate market.

Assuming you choose good locations for appreciation and don't buy an overvalued property, that should be good income. There are different philosophies to real estate investing and it depends on your finances, if you have less capital, you're going to have to be more creative on deals and need cash flow, if you have access to some capital, you can tolerate cash flow losses. Some people will say leverage, leverage keep growing but it depends on your risk tolerance.

I would keep in mind the global cash flow of your portfolio, because while a few properties not cash flowing is fine, if you have 30 and none are, that would be concerning. As they say, you are sort of rolling the dice, you can keep winning 30 times then lose big once and go broke. Decreasing risk may decrease your gains though. 

Ideally, within a few years, you could pull your own and your investors capital out of the deal and take that back and leave the property hopefully at that point cash flowing. You can either take those profits or let the property just pay itself down overtime.

 Thank you Ash. My brother's father in law actually recommended that also. Do you recommend any books or podcasts to start gaining knowledge in that area? I know Bigger Pockets touches on it occasionally. How do you find deals and what type of capital requirements are there getting started? Is it something where I need to physically be close by. I am often overseas working remote. I have family that are agents in the CFL area, residential agents.

@Shawn McCormick Sorry for the delayed response and thank you for the reply. I'm a military contractor so I spend time working remote and bouncing around some overseas on site. I haven't chosen a specific strategy yet, I figured I had a slightly competitive advantage in single family in the greater central florida area leaning towards buy and hold.

I've done a lot of deal analysis over the last few months and I'm still new. I am interested in other types of deals but haven't seen that many opportunities. The plan was to gain more experience with a few more lower maintenance type single family deals before moving beyond that.

I definitely don't understand the multifamily market, looking around, it looks extremely overpriced. I'm sure there are some off market deals but not being plugged into that I figure the professionals who are mailing out 400 flyers a week are all over those. A multifamily using an FHA primary residence sounded appealing but at least looking in CFL areas, I can't believe the price people are trying to ask for mutlifamily. There arn't and lower interest rate FHA loans to assume on multifamily which would put you in todays higher market rates. I'm sure with enough offers or by using seller financing, it would be possible to get into multifamily in the CFL area. I am guessing there are markets outside FL where its easier.

I was wondering if building multifamily or trying to modify/repermit something as multifamily might be a better plan. I don't know how complicated that process is.

For single family, I have looked at loan assumptions, and currently, what the new home builders in CFL area are offering seems like the best bet, if one can do a primary residence.

I would love to attend a CFRI meeting, I will reach out when I am closer to returning back to Orlando from my current trip.

Nice initials. I'm fairly new myself but I would not recommend spending on a coaching program or syndications. The first thing you should focus on is education, the Bigger Pockets Podcast is extremely informative, I would attune to that and read some of the books they recommend. You should try to find a mentor or get plugged into the real estate investor community in your area. 

It would help if you could participate with someone else while gaining knowledge, what I mean is, its better to be applying or thinking about applying the knowledge as you learn it rather than just absorb a bunch of knowledge but not go through the difficult part of applying it to the real world.

One thing you can do is look at strategies you would like to do. Go ahead and start analyzing deals now for practice. 

Other than your $20k in stocks, what is your financial situation, income level, etc.? Likely you want to keep that for emergencies. 

Do you have general contractor skills? Personally I do not. However, if you can learn those, or participate in property management, you can start gaining invaluable experience. If you have less capital, you can bring those skills to the table in a partnership and attract financing from others.

If you're a veteran, the best strategy is to do a house hack with a VA loan. New home builders are offering great rates with their lenders and paying closing costs, with a VA loan you can put 0% down, its insane. You can house hack a large house and rent out rooms in it. If you have the income to get into a house hack and don't have a family, you can absorb a higher level of risk and that would be a good way to get started. You could also do a VA loan assumption of a loan from 2021-mid 2022, that way you'd have to put less down and still get a good rate, it would have to be on a property with less appreciation.

Oh and if you have a friend thats an agent, get MLS access in your area if they will possibly add you as an assistant, etc.

I am also in the same boat if someone has a good referral please DM. In addition to real estate they should have some expat tax knowledge.