Allow me to introduce Jana Lane, the second. This is a two story townhouse in Jacksonville Florida. Jana Lane has 1,170 square feet, 2 bedroom, 2 bathrooms, and is in excellent shape. It is currently tenant occupied with significant room to raise rents. The property was purchased through a wholesaler who already had the property under contract-very similar to the property on the same street I posted about in the last edition.
As I had already driven the area to scope it out, I did not need to return to do the same thing a second time. Major score right there. Saving time is saving money!
My wholesaler was able to gain access to the property a week earlier at the same time he had checked out the first Jane Lane proeprty. The pictures he sent showed the unit was was surprisingly clean with no clutter, no messes, no stains, mold, mildew or damage. If you’re new to real estate investing, I can assure you this is not the norm. While I usually have to budget for repairs just to make the place rent ready, in this case, the property was rent ready upon purchase and needed zero repairs (I do plan to make some upgrades to the property but that will come at a later date when the property is vacant).
The fact the property was already rented meant I had zero vacancy before I could collect rents. This, combined with the fact it did not need any work, meant I was cash flow positive from the minute I closed on the deal. This is something to be said for using a wholesaler. I was able to get all the benefits of a turn key property but not have to pay top dollar prices to buy it!
In addition to needing no immediate work, the property was already occupied by a tenant paying $650 a month. A quick search of the expected rents for the area revealed a property the same size in good condition could expect to rent for $750-850 a month. The property manager I met with stated the target rent would be $800. This was supported by comps from rental websites and craigslist. I plan to upgrade the kitchen and bathrooms in order to get the max possible rent and hopefully a better tenant application pool.
The asking price of the property was $40,000. Because I was buying it in coordination with the first Jana Lane property I purchased, I was able to negotiate the price down to $35,000 for each. This Costco method (buying in bulk) is a great way to improve your leverage when negotiating. In this particular case, the seller wanted to unload both units, and because I was in the position to buy both I got a better deal.
Crunching The Numbers
Much like the unit I featured in the last update, the expenses are almost identical to each other.
A run down of the expenses of the property produced the following information:
Property Taxes= $40
Management Fees= $63
Total = $319
At current rental rates ($650), this gives me an expected monthly cash flow of $331.
The properties were purchased all cash, 14 day close, 10 day inspection period, with a $2000 earnest money deposit on each. These are very strong terms and contributed to the lower sale price being accepted.
I was able to secure a mortgage on the property for $27,000 from a local bank at an interest rate of 4.75%. When taking into account the $9,250 I put down, with a monthly cash flow of $331, this works out to a cash on cash return of 43%! While I am happy with this return, it is important to note that cash flow is virtually my only benefit to this property as appreciation and ease of resale are not likely to be factors in a property of this type. Another factor to consider is if I’m able to raise rents to $800 a month, I can expect a cash on cash return of 62%.
A lot remains to be seen about this area, the tenant base, the vacancy rates, and the headache factor (a factor there is no column for in a spreadsheet). I’ll be sure to keep you updated with how it goes, but at this point I am hesistantly optimistic about the possible returns in the area and more deals to be found!
What I Learned On This Deal
As this was my second purchase in the area, my learning curve was much sharper than it was on the first deal. I was able to replicate several of the systems, processes, vendors, and contacts I had acquired in the first deal. This is a vital step in the process of putting together a system in a new state and I hope you are taking notes and paying attention as I share how I’m doing so as this information can’t be found anywhere else I’ve looked for free! A few of the notable things I learned:
- Florida requires surveys to be done before a loan can be given. This was an unexpected cost I didn’t anticipate on the first purchase. The price is typically $300-400. This time around I was able to schedule the survey along with the appraisal and get a better price on each.
- The property tax was about $10 a month more than I anticipated on the first purchase. By bringing this property to the same insurance provider, I was able to get $10 a month less than the first deal with the understanding I would be bringing more properties their way.
- Learning on the last deal that there aren’t alligators everywhere in Florida, I felt torn between being relieved and also disappointed about this. Alligators are pretty cool when you think about it, just not when they are near YOU.
- There are townhomes in Florida with no HOA’s. I intend to take full advantage of this fact.
- Replicating a system is much easier than developing a new one!
- The inspection process went much better the second time around as I used the same inspector and had an easier time signing his online documentation and negotiating a better price.
- People overall in Florida are just much nicer than the west coast. You should see this for yourself.
- Jacksonville Florida is divided into three sections by locals. The Coast, the mid-coast, and the inland area.
- If you find a good thing, keep going to that well until the well runs dry. Much of the work in the beginning is labor intensive, stressful, frustrating, and slow. Make use of the work you did on the first deal to make the second that much easier!
- If one is good, two is better. Maximize your negotiating leverage by sweetening the deal for the seller by purchasing more than one property from them if possible.
- Economies of scale-By purchasing two identical properties in the same neighborhood, I am able to come up with ONE design/upgrade plan and execute it twice. This cuts my planning, phone calls, thinking, and emailing time in half.
- Crunch the numbers of your investment to make sure it makes financial sense to buy. Remember, when buying for cash flow, you are not buying a property-you are buying an income stream.
- Get inspections on anything you’re purchasing and find a trustworthy inspector. I love the fact this guy gave me a phone call when he left and told me the areas of concern he had, and provided referral’s for making the repairs. I will be making sure to send this guy much more business to express my appreciation for taking care of me!
- Trust is important, but it’s not everything. Trust but verify. Get contracts signed by anyone you plan on hiring to do a job, even if you have a prior relationship with them (You can thank Daniel Ramsey of www.myoutdesk.com for that nugget of wisdom)
- If you are looking for a great, trained, and professional personal assistant, contact Daniel at his website for more info.
- If you’re lacking on information, or are having trouble finding deals that work, don’t keep looking for deals-look for someone who can find them (in my case, the wholesaler).
- If you can buy a property that makes sense at the current rent, good. If there is room to drive rents higher, even better. Always look for the value-add component to create wealth. Prepare for worst case scenario but plan for best case scenario.
- Cross reference your information over several mediums. For rent use:
- 1. Property Managers
- 2. www.rentometer.com
- 3. www.Craigslist.com.
- For price comps use:
- 1. Realtors in the area
- 2. Online sites like Zillow.
- 3. My KW app to see what nearby homes are selling for (email me to get a free copy if you don’t have one).
- If you can’t pay as much for a property, consider stronger terms. If you can’t offer strong terms, consider paying a little more. Nobody likes someone who asks for the world but doesn’t give back in return. Learn to bend and you won’t be broken.
- Get several bids for any construction work and offer multiple jobs to the crew if possible. You can get a better deal on the work if you can give them a higher volume of work.