Hello! I'm Gustavo from Oviedo, FL, and I'm excited to dive into the world of real estate investing! I'm relatively new to this journey and am eager to get some insights and advice. Here’s my situation:
I purchased a 4-bedroom, 3-bath, 2,222 sqft home in 2020 for $415,000 for myself and my family. The house is in pristine condition with a top-notch kitchen I added in 2021, and it is located in a premier gated community northeast of Orlando. Including the downpayment and new kitchen, I invested around $120,000. We moved out in June 2023, and since then, I've been renting it out, generating around $1,450 in monthly cash flow, not counting variable expenses. The current market value of the home is about $645,000.
Key Details:
- Purchase Year: 2020
- Purchase Price: $415,000
- Current Market Value: $645,000
- Mortgage Interest Rate: 2.99%
- Equity: $320,000
- Current Monthly Cash Flow: $1,450
- Return on Equity (ROE): 5.44% (without variable expenses)
- Return on Investment (ROI): 14.5% (without variable expenses)
However, I've noticed some trends that are starting to concern me:
- - Home prices in my area are slightly reducing, and rental prices are also on the decline.
- - There are more houses listed for sale and rent in the neighborhood, which is pushing rent values down.
- - My current lease is up in September and the tenant is leaving, and I expect my monthly cash flow to reduce to $950, lowering my ROE to 3.57% and ROI to 9.5%, again, without variable expenses.
- - Homes are staying on the rental market for a few weeks, sometimes months, even at lower prices. My house seems to be a better pick than the ones on the market (new kitchen, pool, etc.), but still.
Given these factors, I'm questioning whether I should sell the property and look for better investment opportunities. Here are a few considerations:
- Market Trends: The local market shows signs of softening with more homes for sale/rent and lower rent prices.
- Future Cash Flow: With expected rent reductions, my cash flow could drop to $950/month.
- Alternative Investments: I haven’t found any local deals that generate positive cash flow. Florida home prices are high, and insurance costs are increasing.
- Management: Currently, I manage the property myself, which has been relatively easy. However, I have not built my team yet (real estate agent, lender, property manager), and I’m not sure about owning a property I cannot visit and monitor myself, given my inexperience as an investor.
- Economic Outlook: I’m a bit concerned about the economic outlook but can hold onto the property even with lower rent.
My Questions:
- 1- Should I sell the property now and look for better deals, considering the declining market trends and my decreasing cash flow?
- 2- How do you weigh the benefits of holding onto a property versus selling it in a softening market?
- 3- I am not quite sure what to consider as variable expenses as so far they have been low. With only one year of rental experience, I'm not sure what to expect. If I consider variable expenses of around $600 per month, my ROI comes down to 8.5% and ROE to 3.19%, and if rent comes down, ROI of 9.5% and ROE 1.31%. What changes in this scenario?
I plan on continuing to invest in real estate and aim to become financially independent within 10 to 15 years.
I appreciate any advice or insights you can share. Thank you in advance for your help!
