During my last trip to Miami, one thing that really surprised me is how real estate had bounced back during the past two years. You see construction projects being launched, and as a short term renter, it is really hard to find a place at the last minute if you are on a tight budget. That indicates a strong rental market, with most properties being rented months in advance.
As a real estate investor, I started doing a little research about real estate in South Florida, and my idea was to find a 3 bedroom with two bathroom to rent by the week to national and international visitors.
Being out of the country myself, I found out that taxes were higher to own real estate than if you actually were a resident of Florida, but other than this the yields were pretty strong and made the investment attractive. Here are a few things you should look for before you decide to take the plunge:
Inquire about the neighborhood
You know the drill, location, location, location. Ideally, you should visit the property you are interested in several times before you commit to buy. Go by day, go by night, go during the weekend… The crowd, and the general impression, may change.
For example, some neighborhoods in a business district can be desolated and even dangerous at night, when they look lively during the day. On the other hand an empty residential neighborhood can liven up during weekends. I recommend you to visit this real estate agency they have an excellent portfolio of properties for sale in the best neighborhoods of South Florida.
Realtors know that and will try to have you visit when the surroundings are at their best, but go back there a few times on your own. Look for reviews of local businesses, and get as much information from current residents about what they like and dislike about living there.
Put yourself in your renter’s shoes
As a real estate investor, you are not buying a property for yourself, you are buying a property that must be attractive to potential tenants. For example, if you are buying a property right on the beach to rent to tourists, the need for a parking spot is less than if you buy a four bedroom with only two parking spaces.
Think about who is going to live there. A small unit will probably be rented to students. Is there public transportation nearby? Can you walk to the grocery store? Buying a place targeted towards older couples brings a new problematic. Is the room on the ground floor? How safe is the bathroom?
You want to be able to ask for top dollar when you put your rental on the market. And it will only be possible if you have carefully thought about all those details and bought the perfect property for your target tenants.
Don’t forget the extra costs
When crushing the numbers about how profitable a real estate investment will be, it is crucial that you don’t forget about any of the costs involved with buying, managing and maintaining your property.
As I was saying before, you pay higher property taxes in Florida if you are non-resident. As a resident, you are also guaranteed your taxes won’t increase more than 3% a year, whereas during the boom, they increased more than that for out of state owners. Closing costs can add up fast, between the inspections, and the little repairs you hadn’t noticed at first sight.
All this will eat into your profits and you need to allow for unplanned matters in your calculations to make sure the operation will be in the green as soon as possible. If you rent short term, a quick online search will give you an average occupancy rate, but during the first year, it is unlikely you will manage those levels of occupancy, so you also need to be prepared for that.
A higher deposit on the property, if you can afford it, will mean a lower monthly mortgage, and a lower probability to default. You should also keep a cash cushion for repairs and unexpected expenses.