Throughout my career, I have advised on hundreds of investment properties for buyers of all ages and income levels. Today I’m going to share with you my top tips for buying a sound investment property in Florida, that will help you pick the right property, measure your ROI and plan your exit strategy for resale.
This is the essential list for how to evaluate, purchase, and invest in the right investment property:
Always buy multi-family, never single family when you’re looking for a great investment property. Why buy a multi-family investment property? The more units you have on your property, the more opportunities you have to increase your cash flow. Say you have a single family unit, and you put in the time to research and find one tenant, and then that tenant is unable to pay their rent. Now you have to hire an attorney to evict the tenant, pay eviction fees, and then hire a real estate agent to find a new qualified tenant. This process will leave your property without income for months. A multi-family unit hedges your bets, you can use the rent from some units to pay for upgrades in unoccupied units, which will gradually increase the property value over time.
Always get an inspection. This is one of the most essential steps of the process. Once you’ve found a multi-unit property that has good potential for return on investment, have the property inspected by a trustworthy team to look for any major structural issues with the property. Plumbing, air conditioning, electric, foundation issues can spell disaster with your investment property, so at FL360, we always do a thorough inspection with our team before we recommend moving forward with any property.
Evaluate any updates that need to be done on the property, from surface aesthetics to long term improvement plans. In order to have cash flowing into the property right away, are there any barriers to putting your units up for rent? Are there existing tenants that want to stay in the property? What will be the overall cost of these updates, and is this something you can invest in right now? This should all be taken into account when evaluating your return on investment, which is step 4.
Evaluate your ROI, and determine your capitalization rate. Capitalization rate, or “cap rate” can be found with this simple equation:
First find the yearly gross income: total amount of income per month x 12
Subtract operating costs from the gross yearly income, which includes property management, maintenance contracts, upgrades, landscaping, any outgoing expenses. The yearly gross income, minus the yearly operating costs, will give you the net income of the property.
Last, divide the net income by the initial investment made for this property.
The national average cap rate right now is 5%, so if you’re looking at a property above 5%, that will be a good measure of how quickly you can begin receiving cash flow in this property.
Cap rate isn’t the only measure of success for a property, and having an exit strategy for when you’d like to capitalize on the market to sell your property at the highest possible value is also extremely important to the process. Always look for a property in a great location, so that if you decide to sell, you’ll likely make money on the sale. In South Florida, I recommend buying as close to the beach as possible. Though the markets dip and recover over time, properties near the water are always going to be more in demand than properties farther west.
Navigating this process requires patience, and have a reliable, trustworthy team in place to help you spot and avoid pitfalls that can cost you thousands of dollars. At Florida 360, we’ll be with you every step of the way from finding the perfect property all the way to reselling. When it comes time to sell your investment property, we’ll make sure you find the perfect buyer within 30 days or we’ll BUY it from you ourselves.
We would like to hear from you! If you have any questions, please do not hesitate to contact us. We are always looking forward to hearing from you! We will do our best to reply to you within 24 hours !