Asking TOTV for expenses is not a complete due diligence exercise:
Whose your target market? Demographics? What's their expectations on spend? What's their repeat buying preference? What's their prefered months, what's their expected max rental rates? Different clientele for high season versus low season,
what's your targeted market repeat seasonal renter and their requirements? Golf cart included makes a huge difference in appeal, when priced in. . . Final make or break number: what's your occupancy assumption and rate for April through Dec off season?
so, real world figures from a rental in an LLC for limited liability this year:
purchased: 2018, closed 2019 about $350K, custom designer
furnishing cost pre pandemic: $15K
internet hardwired outlets 2 in each room, plus whole house wireless
Golf cart cost: $12K
current value @500K
lot purchase number out of 99 lots, somewhere between 10 and 20,
Southern Oaks nearby amenities: no rec center, no food and 1 restaurant, no 18 hole golf, 3 executives with no golf cart access and no bridge access to cross 44. ie, marsh bend was just dirt with Fenney down the road. .
annual occupancy rate from 50% to 80%, varies by year
current expenses basis for a non local owner:
$20,000 - $25,000 per year, depending upon PM percentage, repairs AND INSURANCE (ding ding!)
excluding mortgage, including bond, lawn care, watering, insurance, taxes, cable for any type of renter, heat, and electricity, home watch, repairs, and PM fees.
With 80/20 LTV mortgage, add another $15K at 4.5% commercial loan. RE tax basis increases at 7% per year, insurance increases are currently 5-50% per year, with a non zero probability of cancellation.
cash flow positive after three years, starting year 4. pandemic had a huge impact on travel and renting,
income tax still no taxes paid, and will never had taxes given loss carry forward and depreciation carrying cost.
ROI will NOT be realized from income generated from renting, especially not with a mortgage nor with a PM fee.
ROI will come from the terminal value, ie, disposal or sell value. If you plan to go from slumlord to resident, there is no ROI,
there is only expense offset while not a resident. Without income, a house is only shelter costs and there are NOT ROIs on shelter costs. if you don't understand these points, then be sure you consult with a financial expert so that you have the proper expectations for outcome probabilities.
good luck, but if you don't have a financial model set up to figure out these items, or you think that slumlording is an easy road to instant ROI riches, you might want to re-think that naive assumption.
As far as illiquid asset house flipping goes, the easy money had been made, though you can still make money if you are experienced negotiator, can find estate sales of older homes, and can rent them out with 100% availability, with a for sale sign in the background. . or buying in a brand new development and selling when the developed area has no more land left. However, if you look at the sheer amount of new houses being built, why would someone buying want to buy a used house when new ones are being released constantly and look exactly like yours?
former corporate finance guy,
with lots of investment and modelling experience.
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