All Forum Posts by: Bhavya Shah

@Bhavya Shah agree with the others! I started my process with R2R for a new build in early June. Closed on financing end of July 2021. Trevor is right that the permitting office is absolutely slammed. Right now I am about to finish permitting. In fact, I was just told lot clearing and filling is beginning as of today. In total, I am definitely looking at the 12 month window you mentioned. The numbers are great though. My all in cost was $265k and mirror what Trevor is suggesting. I am very happy with my decision and purchase. Even at todays prices, if I had the money I’d buy more but I have It tied up elsewhere! Feel free to reach out to connect. Good luck!

Thanks for sharing @Jay Hinrichs. That's a fascinating background. I may try reaching out to the Cape Coral zoning and planning group to see what I can find out about their plans for future expansion. 

Hey Bhavya,

I'm assuming in your example you are factoring in buying the lot cash and using that equity as part of your down payment to finance the construction. 

From what I've seen, LT lenders will usually cash out refinance 70-80% of the value ... depending on which you decide to use. You do have to factor in closing costs for the new LT refinance. 

Remember to also factor in carrying costs (interest, closing, orignation points) when calculating cash needed for the construction piece, whether you are using hard money or a 2nd home loan. 

@Bhavya Shah great follow-up questions. I'll answer what I can based on my experience, but I'd highly encourage you to reach out to the Rent to Retirement team if you haven't already. 

My lots are spread throughout NW Cape Coral. They are all fresh-water lots. Here are some of the pros and cons to fresh-water vs dry lots I've learned:

Freshwater Lots:

- Cost about $3-5k more than dry lots

- Rent about the same as dry lots - possibly $25-$50 more at most right now

- Usually an additional $5k for the developer to construct a 4:1 grade in the backyard down to the canal in lieu of a seawall

- The same model on a canal lot has been selling for roughly $15-$20k more than a dry lot

So all that to say, you'll pay more up front for a freshwater lot. However, as the saying goes "you can change anything about a house except its location." If you plan to hold the home indefinitely as a rental, maybe it makes sense to just have a dry lot. If you plan to sell or cash out refinance where an appraisal will matter, you may want to consider a canal lot. 

You have to understand that Cape Coral - especially North Cape Coral - is essentially a myriad of quarter acre plots owned my hundreds of different people - some investors, some not. So you don't have one large developer who can come in and buy 1,000 acres and build a huge development for example. While some investors have been able to purchase a row of lots, that's more of the exception than the rule. As such, small investors like you and me are on a more even playing field. 

Regarding the loan process, that will typically depend on the lender you go with. For me, I purchased the lot, received pre-approval, signed the construction contract, put down a deposit with the builder, then closed on the construction loan. Thereafter, it is indeed interest payments during construction. When you near finish, you'll approach a long-term lender to refinance into a conventional loan and pay off the construction loan in the process. If things go how they have been thus far, you'll not only pay off the construction loan, but often the new build will appraise high enough that you'll be able to pull out some or all of your investment as well (i.e., a new construction BRRR of sorts).

Hi @Bhavya Shah, I was one of the first investors in Cape Coral through Rent to Retirement. I identified my first property in February of last year and officially closed in April. It will be finished next month. So 10 months total. The builder shares pictures along the way and I've also had both my parents and a contractor friend go through the house and they were very pleased by the quality of the build. I'll actually be going down there next week to inspect myself and then likely back out when it's done in February for a final walkthrough. 

When I first signed the contract in April, I was told my property would rent for around $1,850/month. Now that it's nearly complete, the PM plans to list it for $2,400! I was also "all in" for $238k including the lot, and the same model on similar freshwater canal lots are appraising for $375-$410k so I'm definitely very pleased and will plan to cash out refinance as soon as I can. Right now I have 4 lots under construction including the one mentioned above. 

I've not heard builds taking 18 months. I have heard 12 months however. I read somewhere that Cape Coral has something like the 2nd most new builds/capita in the nation right now and their permitting department is absolutely inundated. That's the real bottleneck and unfortunately that's out of everyone's control. 

To your other question, I've learned to be patient. After you close on the construction loan, you'll be staring at a piece of dirt for months and think nothing is going on. Behind the scenes there is a flurry of activity: surveys, design docs, permitting, ordering materials and delivering to the site, etc. So just be patient. It's been a long ride, but the built-in equity upon completion, strong cash flow, and appreciation I've had has been just incredible!

I somewhat disagree with others poster about "Cash flow". Yes, the property you buy right now is mostly don't have cash flow. Thus, you have to forced it via house hacking and location is a key for rental properties. And find a best lender out there to give you the best loan terms even with investor loan.

Don't rent "empty" house and wait for appreciation kick-in down the road. Be creative and create cash flow when you buy!

What you could do is:
- Buy property with value-add - big lot to ad ADU (1,200 sqft), Jr. ADU (500 sqft), convert the 2-cars garage, look for big lot to leverage SB9, SB10. The CA state already passed it, now we just wait for the city blessing then game on.

- You need to fully furnished the property

If your property is at a desire location:
1. Close to any attractions like theme parks, downtown, lake/mountain - You could attract vacationers, tourist - which is a Short-Term-Rental (STR) that rent for <30 days.

2. Close to Hospital, medical center - You could attract traveling nurses, medical professional - which is a Mid-Term Rental (MTR) and rent for 3-6 months

3. Close to business park, University/Colleges - You could attract Corp housing, Student housing - which is a Long-Term Rental (LTR) and rent for 6-12 months

4. With the Pandemic, we have another group of clients that could work remotely, like engineer, white collar, etc. - Which is Long-Term rental

And since we rent the property "fully furnished" which you could rent by the room or the whole house to command a premium rent vs. long term rental (technically an empty house/room)

** Disclaimer: I am an investor and a licensed realtor. I lived in San Diego and our investors group just bought a property in Rancho Bernardo and currently renovate it.

I suspect your cash flow projection is fairly accurate for the average San Diego RE.  These are not what the successful San Diego RE investors are purchasing.  

Some advice:

• Find yourself a good investor RE agent.  Ideally someone that invests themselves.  Note, I am not an agent.
• Learn to identify opportunities. All markets have opportunities. Whether it is the 1200' workshop that already has plumbing and electrical (convert to ADU for much less cost than usual), a motivated seller that has an issue that you can solve for them, a purchase that for some reason has elevated risk (weigh the risk reward scenario) such as unpermitted unit, a killer BRRRR RE, a RE with under utilized zoning, etc. Basically there are a lot of different types of opportunities.
• Cash flow is one source of the RE return.  Be careful judging a property based on just one source of the return.

>Has anyone ever bought a property that was negative cash flow? If so, what were your reasons for doing so?

I have yet to purchase a property that with my pro forma indicated negative cash flow, but I have purchased twice with my pro forma showing cash neutral and I would not be adverse to purchasing a property with negative cash flow.  Here is some of my thoughts: 

• You may need cash flow to pay the bills, but if you do not you should be concentrating on total return.  
• A property with one of those opportunities listed above can provide instant equity gain while allowing a refinance to extract out the initial investment.  This allows scaling much quicker than cash flow.
• The appreciation in San Diego RE has historically far outpaced the great cash flow markets return from cash flow.  How much so?  I have quite a few properties with various hold lengths and purchased with poor timing and great timing.  My worst appreciating RE has appreciated $2k/month over a long hold period.  There are two ways to judge best appreciating RE, the one that has appreciated the most or the one that has appreciated the most for its hold length.  our highest appreciating property has appreciated $4.5k/month over its 19 year hold.  The fastest appreciation for the hold period has appreciated $6k/month over its 12 month hold.  I do not know how the appreciation will be in the short term (as indicated I have purchased before and the prices declined after purchase), but I have a lot of confidence that the long term appreciation will exceed inflation.
• I have a lot of confidence in continuing high rent appreciation. This is not just because of history. It is because the RE has risen faster than the rents which implies that the rents are going to be in catch up mode for quite a while. The various Covid rent moratoriums identified a new risk to LL. New risks need increased margins to justify. The fed has already announced that interest rates will increase this year. This will drive up the true cost of purchase which is likely to cause further rent increases. I suspect we have at least 5 years of high rent appreciation. This will improve the cash flow each year. A negative cash flow property will quickly become cash neutral and soon will have some decent cash flow. If not refinanced to extract value, it will eventually have cash flow that is incredible. All of my properties meet the 1% rule (rents exceed 1% of purchase price). Some of our properties exceed the 2% rule. One STR in 2019 had rents at 4% of purchase (tough comparing STR to LTR, and 2020 was poor and 2021 still had not caught up to 2019). meeting the 1% and 2% rules is due to rent appreciation.
• Cash flow is a single source of profit.  Because I do not need the cash flow to pay my bills I rank it very low on my desired list.  Cash flow is taxed annually.  Cash flow is a slow way to accumulate revenue to scale.  Cash flow historically pales in return compared to appreciation

Every market had deals to make/find.  Learn to identify the opportunities and you will see there are many opportunities.

Good luck