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I am helping an investor buy an investment property in Tallahassee today. With most people concerned about the market and choosing to be sellers, he likes to “swim upstream” and so he has moved to a buying position in the Tallahassee real estate market.
I figured our selection process might make for an interesting blog post. The simplicity of what he is doing has caused me to realize that sometimes our fears cause us to miss the obvious signs of what we should do. But as he reminded me, the return in real estate is found in long-term, leveraged appreciation. Too many investors think the money is in speculation or in the “flip,” whereas seasoned investors like to watch the appreciation build up.
So, today’s Tallahassee Real Estate Blog will feature a home for sale in Tallahassee. This is a real home that is completely renovated and will draw rents of $1,250 to $1,300 per month from the market. And because it has been completely renovated, the operating expenses on this unit will be lower than a typical property as all replacements have been recently made. It makes for the perfect investment property in Tallahassee.
I have included a simplified, but accurate, purchase analysis that shows an investor can buy this investment property in Tallahassee and should expect to realize a long-term, annual rate of return exceeding 20%!!! Not too bad for a “down market!”
In this example, we see the home is purchased for $118K with the buyer paying 3% towards closing costs. Assuming the buyer put 20% down, that would be total cash out of pocket for the buyer of $27,140.
As we can see from the example above, the short-term after-tax “cash on cash” return is basically 7.6%, but the overall return exceeds 20%. You can build serious wealth over time when you get your return on investment (ROI) north of 20%, which is all the more reason to consider buying an investment property in Tallahassee.
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Keep checking out the Tallahassee Real Estate Blog every day for updates that include charts, graphs, and analysis of the Tallahassee real estate market.
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Joe Manausa is a real estate investor and the Broker and Co-Owner of Century 21 First Realty. He can be reached via e-mail through the Tallahassee Real Estate Website or catch his latest writings on the Tallahassee Florida Real Estate Blog , or by calling (850)Â 386-2001.
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{ 5 comments… read them below or add one }
Using your assumptions, the $118,000 home is 94 times the monthly rent of $1,250. That is an incredibly good deal for the lessor. I’ve read that 150-200 times monthly rent is, as a rule of thumb, the general rule. That would mean realistic monthly rent of $590-$785.
As it happens, I’m currently renting a home that recently sold for 250 times the monthly rent. That ratio would bring monthly rent on the 118K home down to $472.
Whoa…..Greg. Somebody has given you local info (I assume you’re not local to Tallahassee) that only applies in that given market. Generally speaking, our market is selling at about 110 times monthly rent, so you’re right, this property that I’ve featured is a very good buy. As we move up in price range, we start seeing numbers move higher than 110, and they do not make for as good of leveraged investments.
Regardless of localized market, money is money. Don’t buy investment real estate in a market that is trading at 250 times the monthly rent. You can do better elsewhere (like Tallahassee).
Joe,
Can you do a subdivision workup for Bull Run?
Thanks.
Have you factored in the risk that with all the excess inventory out there lying empty, the supply of rental properties will increase and drive down monthly rent prices? Maybe this is what the seller of the 118K home has in mind when he sells the property for such a “good deal” (i.e., 94x monthly rent instead of 110x monthly rent) instead of simply renting out the property himself and make a 20% ROI.
Great question Greg. Most of the good buys are properties by people I know who work professionally to restore them and want a quick flip or are at an age where they want to get out of ownership.