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Triplex in beach town as investment for retirement?
Old 01-20-2013, 06:03 PM   #1
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Triplex in beach town as investment for retirement?

I've been reading the other threads on the forum regarding rentals as part of retirement income. I own a single family rental and things are going well.

I've been considering buying more rental property, a newly renovated tri-plex, in the same beach town on the gulf coast of Florida where I visit each winter, spending three - four months. Each unit has two bedrooms, one bath. I would use one unit for the time I'm there, then have the management company rent it out the rest of the year. The other two units would be rented as either annual rentals or vacation rentals, again, managed by the rental company. It is a block to the beach and a block to the bay, shops, and restaurants, prime location.

I've talked to a real estate agent down here and the rents generate about $75,000/year. The property is listed at about $700,000.

Interest rates are low and prices are depressed. Seems like a good time to buy. The management company will manage it for me.

I'd like to get some opinions on this. I don't have a lot of money to put down at the moment. How would I go about financing this kind of property? Would banks give me a loan with a small percent down? What are the interest rates on these kinds of properties? Should I get private investors? My credit is excellent, I own land worth about $65,000 and a rental property worth about $125,000 free and clear.
Equity in my home is about $50,000. I have guaranteed income.

Thanks in advance!
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Old 01-20-2013, 07:00 PM   #2
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Based on your monthly cash flow, this house is safely worth approximately 300k.
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Old 01-20-2013, 07:17 PM   #3
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I have no experience with rental property buy have a great deal of experience with living in a coastal area close to the water. Don't want to rain on your parade but I personally would be very concerned about buying property that is at or close to sea level and close to the beach. Hurricanes with rising sea level and sea temperatures are not going away any time soon and the insurance/rebuild/emotional pain is NOT worth the risk IMHO. The federal government may in fact have to start increasing the amount for Flood Insurance (traditionally very low) and denying it for some. A hurricane in the late fall that floods New York in my mind is the "new" normal. Beachfront property all along the MS Gulfcoast has and will be depressed for the forseeable future. Just food for thought.
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Old 01-20-2013, 10:31 PM   #4
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I agree with the posters here. I lived in S Florida for a while and considered buying property also. I finally backed out mostly because, even with depressed prices, I considered all the properties I looked at too overpriced: property taxes, insurance and power was quite high compared to what I expected. Insurance is especially ridiculously high. I would look quite closely at the notion that you could get someone to pay over $6000 a month rent for a two bedroom apt...no matte how close to the beach it may be. You don't have enough equity I would believe to cope with a $700K property. But that is me: I wouldn't do it...plus how much is the mgement company taking? The no's on the surface don't add up and don't pass the "gut" check. Not for me anyway! Good luck with your future plans!
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Old 01-21-2013, 06:19 AM   #5
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My brothers and I rented out a large rental home on the Jersey shore a few years back. It was quite nice, but I think I saw it very badly damaged in recent photos of the devastation from Hurricane Sandy. Part of being frugal, to me, in preparation for FIRE is making prudent decisions about what kind of risks I will take on. This includes the activities I engage in, the extent to which I'll expose myself to liability in that which I do for others, and also how much I'll expose myself to the possibility of catastrophic loss. That does mean that I'll miss out on some opportunities and otherwise limit the "up side" of things, but in doing so I'm also limiting the "down side" by the same amount. I think there are more than enough opportunities for me to engage in things that satisfy my needs and fulfill desires that I don't have to push the envelope.
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Old 01-21-2013, 07:17 AM   #6
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Does the listing agency's boss own the property? As an investment, I don't think this one passes muster. I'd keep renting at the beach and invest closer to home. Expect to put about 30% down and an interest rate about 1-1/2 to 2% over regular mortgage rates. I don't know if the bank would give you a break for using the place or not. But the IRS is pretty stingy on investment property you use yourself. Have a strong cup of coffee and move on to the next deal.
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Old 01-21-2013, 08:27 AM   #7
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Thanks for all the thoughtful replies. Lots of things to think about. The insurances and taxes are probably much more than I thought they would be. The woman I'm renting from now is paying about $18,000 a year in taxes and insurances, and she gets a break because she is homesteaded. The properties are about the same value, so I'd probably be paying more than that. Together with management fees, cleaning fees and power, it would be very expensive to keep up.

This property is on Anna Maria Island. Prices are depressed, but still very high. I had thought about the rising sea level, too. Another reason to rethink this.

If I bought this and the finances worked out, there could be a great upside. If it didn't, I'd be in trouble. It's a risk I don't need to take.

Anna Maria Island is where I'd like to stay for three, four months in the winter. Would buying a condo or part of a duplex for a couple hundred thousand here make financial sense? I could use it for the time I want and still rent it out the rest of the year. And the payments are what I could easily afford on my own.

Thank you, everyone.
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Old 01-21-2013, 08:59 AM   #8
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Originally Posted by jmzf1958
Thanks for all the thoughtful replies. Lots of things to think about. The insurances and taxes are probably much more than I thought they would be. The woman I'm renting from now is paying about $18,000 a year in taxes and insurances, and she gets a break because she is homesteaded. The properties are about the same value, so I'd probably be paying more than that. Together with management fees, cleaning fees and power, it would be very expensive to keep up.

This property is on Anna Maria Island. Prices are depressed, but still very high. I had thought about the rising sea level, too. Another reason to rethink this.

If I bought this and the finances worked out, there could be a great upside. If it didn't, I'd be in trouble. It's a risk I don't need to take.

Anna Maria Island is where I'd like to stay for three, four months in the winter. Would buying a condo or part of a duplex for a couple hundred thousand here make financial sense? I could use it for the time I want and still rent it out the rest of the year. And the payments are what I could easily afford on my own.

Thank you, everyone.
Don't forget that upper class rents require upper class furnishings and decor and there just aren't that many upper class people. I have a vacation rental in FMB. It's a fantastic investment but since you seem like such a nice person, I will sell it to you for 75% of what I have into it. Lol
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Old 01-21-2013, 09:00 AM   #9
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Don't forget that upper class rents require upper class furnishings and decor and there just aren't that many upper class people. I have a vacation rental in FMB. It's a fantastic investment but since you seem like such a nice person, I will sell it to you for 75% of what I have into it. Lol
FMB is Fort Myers Beach. Sorry.
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Old 01-21-2013, 09:59 AM   #10
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I just wouldn't own rentals I wasn't nearby to to deal with a multitude of issues even if I had a property manager.
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Old 01-21-2013, 10:17 AM   #11
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One of my best friends has decided to invest in rental property and I'm a bit bewildered about that actually. I understand how it could be a profitable venture if you're able to convert your own knowledge, skills, experience and effort into value - i.e., maintain, repair and manage the property yourself - but I don't see how an individual investor, with an individual rental property or two, could compete money-wise with the competitors in the marketplace. I know that people can make it work, but I wonder why, if that opportunity exists, why couldn't someone exploit it on a larger scale, and use the economies of scale to underprice the one-off or two-off rental unit owner.
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Old 01-21-2013, 11:48 AM   #12
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I know that people can make it work, but I wonder why, if that opportunity exists, why couldn't someone exploit it on a larger scale, and use the economies of scale to underprice the one-off or two-off rental unit owner.
Location, location, location.
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Old 01-21-2013, 11:57 AM   #13
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Location, location, location.
Yeah but, if you aren't going to leverage your knowledge, skills, expertise and effort to maintain and manage the property yourself, and you're not going to build a mini-real estate empire so you can capitalize on economies of scale, then I see that either as sheer luck (i.e., something that I wouldn't want to hinge my retirement on), or as a wash (putting luck aside - if the place has location appeal when you rent it, it had location appeal when you bought it).
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Old 01-21-2013, 12:00 PM   #14
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Based on your monthly cash flow, this house is safely worth approximately 300k.
How do you calculate this ?

I have little experience in rental real estate, but I always thought that price to rent ratios of 10x were pretty common and reasonable ?
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Old 01-21-2013, 12:03 PM   #15
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Two strikes against this one for me:

1. You'd be a long distance landlord.
2. Good property management company is an oxymoron. NO ONE cares as much about your property and collecting payments to protect your investment as you do, I don't care how much you pay them.
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Old 01-21-2013, 12:13 PM   #16
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A first level filter I use when evaluating rental property is that the gross rents need to be more than 10% of the buy price. This property passes on that filter (barely), but it sounds like your expenses are going to be significantly higher than the estimates I use so on deeper analysis it probably wouldn't be of interest to me. For example, you've got the management company's take (probably 10% of rents based on long term rentals, up to 30% based on short term vacation rentals) and your tax/insurance rates are triple what they run me. Are similar units really renting for $2000/month (which is what $75,000 per year translates to)? Base your calculations not on pro-forma numbers; instead make any offer contingent on the seller providing 2 years of tax returns for the building, and use these actual numbers for your calculations.

You can probably buy this with minimal cash down payment if you apply for a loan as owner-occupied. This would work best if you closed on the loan right before you spent your 3-4 months living on the property; after you move in there's no actual committment to continue to live there for any set period of time.
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Old 01-21-2013, 04:36 PM   #17
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Originally Posted by jmzf1958 View Post
Anna Maria Island is where I'd like to stay for three, four months in the winter. Would buying a condo or part of a duplex for a couple hundred thousand here make financial sense? I could use it for the time I want and still rent it out the rest of the year. And the payments are what I could easily afford on my own.

Thank you, everyone.
I live very close to Anna Marie Island and during the off season months there are rental signs everywhere. I would not buy with the thought you could rent it out in off season unless you decide to make your four months shoulder season months ( Nov, Dec. Apr ,May ) and rent out for Jan. ,Feb, & March .Then you could probably break even and frankly the shoulder season months are nicer less crowded & better weather .
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Old 01-22-2013, 12:02 PM   #18
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I don't see this thing with a positive cash flow unless you can do all 3 units as a vaction rental at 1500-2k per WEEK.

Management company will want 20% of short term rents 10% longterm (annual lease). Are people REALLY paying 2k/mo for 2b units? Seems high .... but I am not in the area.

Go to Homeaway and VRBO and check out the competition in the vacation rental business. Look at the comp calendar for vacancy rates and pricing ... then you'll now if this thing will float or sink.

FWIW my vacation rental (waterfront ... near skiing) grossed 45k last year. After we blocked out our time. So it can work ... but I do the booking and screening ... no 20% fee ... my cleaning/linens/lawn/plowing/garbage runs 10%.
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Old 01-22-2013, 12:28 PM   #19
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Just went to Homeaway to look at the competition ... dozens or 2b 2ba units ... waterfront renting 1500-2k per week. 1 block away (you) 1000-1500/week.

What surprised me was the HIGH occupacy rates. Some annual calendars looked 75% occupied. Obviously with that occupacy ... yes, it'll cashflow.

FWIW it took me 3 years to establish repeat clients. Breaking into this business will cost you - initially.
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