Our Diversified Real Estate Portfolio

Real Estate Portfolio. Sounds impressive, huh? (click to tweet)

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Sunrise over the bay, sadly this is not our canal lot as lots with this view are about $1MM+, not $84K

Anyhow, for those of you that have been living under a rock the past few years, the real estate market in the US has been completely tipped on its head, especially here in sunny Florida, where we live. While that sucked for a lot of people, it was the opportunity of a lifetime for Mr. PoP and me to buy some real estate to hold onto for a while.

 

What Did We Look For When Buying Real Estate?

  • Properties that were hard to valueproperties 1,2, and 3 were all unusual properties for one circumstance or another in terms of pricing
  • A place to live without breaking the bank – property 1 takes care of this
  • Cash flow from income producing property – property 2 gets us this
  • Likelihood of appreciating in value for profit at sale – property 3 is where we’re speculating a on appreciation, but we think the chances are good property 1 and 2 are also appreciating even though we have no plans to sell them so we’re not underwater on any of them ever

 

What Properties Did We Buy?

1. The PoP Homestead was our first buy.It’s our home, where we live, and we bought it shortly after we got married in 2009. We bought it for about a little under $140K, and also got the $8K first time homebuyers tax credit that was available at the time, so the “net price” to us was actually closer to $130K. BTW – thank you fellow US taxpayers for the tax credit!

The PoP homestead is one of the smallest houses in a cute suburban neighborhood with no HOA (homeowner’s association). It’s got an excellent view of a little lake, a good sized pool, and (a necessity for me) is within jogging distance to the beach. Plus, the mortgage payments (especially after our refinance to 3.25%) are below the market rent for the area. We’re not planning a move anytime soon, but even if we do, we feel like this is a great long-term hold property.

On our street, we pretty much hit the bottom of the market price-wise when we bought. A couple months after we bought our house, one other house a few doors down went for the same price (just found out they’re now listing it for sale for $269K… crazy!), but since then prices have been steadily rising in the neighborhood as all of the foreclosures have worked their way through the system in our neighborhood for the most part.

2. A foreclosed duplex was our second purchase. We learned enough home improvement skills fixing up our place, that we knew we could do the work ourselves and turn a profit on an investment duplex. But, we actually had to borrow money from Mr. PoP’s parents to make this one happen, since in the fall of 2010 cash was the name of the game. We were competing with contractors and investors who flip houses for a living, and cash was the only way we were going to have a competitive bid.

Just getting our offer accepted was a nightmare because that was when there were so many questions about the details of the foreclosure process and lawsuits, that banks actually pulled properties off the market for a little while. It took a long time and a lot of work to get the deal closed, but we ended up scooping a relatively good one up for about $50K. (We got close to the bottom of prices in this neighborhood on this purchase, but it’s hard to say exactly. A handful of properties sold for less than ours in the same area of town, but from what we saw were in substantially worse shape than ours – i.e. fire damage, termites, etc.)

The duplex is a 2-unit property where each unit is about 900 sqft and has 2 beds/2 baths, a full kitchen, and laundry. It’s in a pretty good area of town about 20-25 minutes from the PoP homestead, and about 15 minutes from the local university.

Immediately after the purchase, we put about $7K and 6 months worth of sweat equity into it to get it rentable, and since then we’ve put another $5K or so into it. (Most of that was the AC system that died a few months ago.) When it’s fully rented, it throws off $1,500 in rental income per month. So far we’ve had about a 90% occupancy rate, but I think that should go up now that our contracts match up better with the start of the semesters at the university.

We would have loved a repeat of the duplex, but didn’t feel comfortable borrowing more from Mr. PoP’s parents, so we had to wait a little while to accumulate money for the next property. We took out a HELOC (home equity line of credit) against the duplex for $38K, and saved up the rest in cash to buy our third property…

 

3. Our third property is an empty residential lot. While we would have loved to buy another duplex, by the time we had the money, the prices had risen dramatically. (Ironically, the rise in prices was one of the reasons we could take as big a HELOC out on the duplex as we did – it appraised 50% higher than our purchase price ~6 months after we bought it.) At the inflated prices, the rents just weren’t throwing enough off to justify the work and risk of renting out a duplex for us, so we figured at that point the investor would just be hoping the property would appreciate for a profit on the sale. We love the duplex for cash-flow, but we just didn’t see it appreciating in a huge way because of the nature of the neighborhood, and the downward pressure that new construction will put on rents as the local university puts up new housing.

We started looking around for something different and ended up settling on a residential lot that sits on a canal in a great suburban “boater’s paradise” type of neighborhood where the canal provides quick access to open water. We’ve been told by the neighbors it’s less than 10 minutes to be out of the back bays and fishing in open water, which is a huge luxury if you’re an avid boater.

We paid $84K in 2011, and our lot came with a concrete seawall and a small dock. We knew that one block over a short sale had been attempted on a lot of a similar size, but with a smaller canal, no seawall, and no dock. The lot was listed on the market for 1 day at $70K and had multiple offers at and above that. So we’re pretty confident that our lot is worth at least that since we’ve been told putting in a seawall like ours could cost up to $20K or more.

We don’t have a specific timeline on when we think the lot will increase in value, but don’t expect to hold it much more than 5-10 years. In the boom, our lot sold for more $500K, and while I’m not convinced that valuation will be back during our time horizon, we think that the property is unique enough that when building starts to pick up again (as we see is starting to happen) an avid boater is going to be looking for a place to build his dream house.

This last one is definitely our most speculative purchase, but we feel like we know what the floor for its liquidation value would be (the $70K price from that short sale), so that’s what we tend to set its value at.

So that’s one property per calendar year in 2009, 2010, and 2011. Are we going to buy anything in 2012? Ha. No. Seriously… no.

(Mr. Pop here-my wife says if this posts gets 5 comments then I can buy that last foreclosure I’ve had my eye on for 6 months now…comment away guys!)

What do you think? Is our “real estate portfolio” diversified enough? What types of real estate have you (or would you like to) buy?

 

25 comments to Our Diversified Real Estate Portfolio

  • Thanks so much for commenting on my blog today! Haha I LOVE your pic!! And, sometimes I do wish it was Florida, lol! You have lots of things there that I don’t…. like Target 😉 haha. Thanks also for the great info. I hope to own some property some day as well. Of course, I have to get off the island first. 😉

    • Haha, too true – I love Target. But we also really admire the type of minimalist life you guys are living in Grenada now. It’s totally something we can see ourselves doing someday.

  • […] Our Diversified Real Estate Portfolio […]

  • […] PoP @ Planting Our Pennies writes Our Diversified Real Estate Portfolio – How we turned the biggest RE bust of the past 30 years into the biggest buying opportunity […]

  • […] PoP @ Planting Our Pennies writes Our Diversified Real Estate Portfolio – How we turned the biggest RE bust of the past 30 years into the biggest buying opportunity […]

  • […] we were both working full time jobs, and then putting in 15-20 hours each of manual labor fixing up the duplex every weekend. I was pooped. Emotionally, physically, you name […]

  • “Mr. Pop here-my wife says if this posts gets 5 comments then I can buy that last foreclosure I’ve had my eye on for 6 months now” — here’s my comment! Buy something! :-)

    • haha – I told him that was a limited time offer and it’s expired now =)

      Hopefully we’ll buy more someday, but prices have changed A LOT in the last two years around here. The payback on investment won’t be nearly as quick, so it’s a bit of a riskier proposition – plus we have plenty of debt to pay off in the next two years.

  • […] very different if that sale had gone through – probably no $50K duplex or the rest of our real estate “portfolio”, but we would be growing a business and building equity there – how can we really say which […]

  • […] I’m sure we’ve never mentioned the undeveloped lot that we own that makes up the rest of our real estate portfolio. […]

  • […] tree, debt and wealth creation can have a pretty symbiotic relationship. In order to buy all of our real estate portfolio over the last three years, we took on a good chunk of debt. Without that debt, we wouldn’t […]

  • […] one of the smallest houses in the neighborhood at a fire sale price in the middle of the great […]

  • […] the year (for these Floridians at least) when property tax bills get mailed out. And since we have three properties now… we get three bills, so it’s kindof a big event around here. This guy even has his […]

  • […] it became pretty clear that over the last twenty years or so, B had developed his own quite diversified real estate portfolio (much bigger than ours!) and Mr. PoP had no idea. Luckily Mr. PoP was in need of a trim so he went […]

  • […] little over three years ago, we bought our first home. It was a modest home, purchased out of foreclosure during the depths of the real estate crisis, […]

  • […] to hire a Real Estate Lawyer to write up a formal contractual agreement with the neighbors of our empty lot.  Right now, we’ve got a handshake agreement whereby they mow the lawn in exchange for […]

  • […] duplex via a HELOC that we used to fund half (we saved up cash for the rest) of the purchase of another investment property, a residential lot. And now we’ve managed to kill the HELOC. *Whew* It’s been a busy […]

  • Great post, we’re from NY and thinking of investing in Florida. Will appreciate any tips for the area we’re interesting in. Please contact me.

  • Jonathan

    Regarding the residential lot, is there something you can do with the lot in the interim to have it earn a small income? For example, could you allow neighbors to park their boats there for storage? Could you put a trailer or mobile home on the property and rent it out? Could you rent out use of the dock? I don’t doubt you’ve made a good purchase, but if you can offset your property taxes or even pull in a bit of income, the waiting would be even easier.

    • The neighbor does currently store his boat on the lot in exchange for maintaining the property. He mows, trims trees, etc. It’s saving us either $50 or $60 per month, or a $20 in gas + a few hours of our time.

      We’ve talked about putting a trailer on it in the past, and we came up with a list of questions that we’d need to answer and then.. well, we stopped there. Your comment is definitely a kick in the butt that we need to follow through and finish investigating that because we need to consider:
      – zoning (some areas are not zoned for trailers)
      – flood/elevation certificates – permanent homes built on the site need to be 17ft above sea level (standard for new flood certified construction in the area), but we’re not sure how this applies to trailers
      – electric/water hookup costs (we already pay $41/month for the water/sewer lines to go past the lot, but they aren’t connected to anything)
      – insurance (we’d need to carry insurance on the property if someone is living on it)
      – timing… On optimistic days, I feel like the lot might sell by 2015, so would we recoup the investment in a trailer by then? But if we hold it for 8-10 years… that’s another story.

      The start of a new fiscal quarter seems like a good time for us to drill down and find some answers to these questions.

      Have you ever put a trailer on an empty lot or anything like that?

  • Jonathan

    My wife’s family has done this. Assuming it’s zoned to allow a trailer (or even two! You could build a park, “PoP Trailer Heaven!”), here’s what I would consider:

    1) Buy an old trailer or two for $5,000 each or less, rent it/them out (in CA, trailer rent can be $400-500 a month or more, and these are not waterfront places we’re talking about. You’d definitely want to find out what a reasonable monthly rent rate is in your area)

    2) Allow someone to move their own trailer onto your land.

    #2 can be more risky because it’s hard to evict someone from their own home (at least in California) even though it’s on your land. So definitely take a look at the local laws on that, because it could become an issue when you’re ready to sell.

    Also, to do either thing you may have to pour concrete pads for the trailer, a driveway, there’d be your utility hookups, who knows what else.

    But definitely consider ways the property could start pulling its weight prior to sale, especially for a speculative investment. That’s actually the reason my wife’s family has trailer parks – 25 years ago they were speculative plays for future development sites. They’re still not worth too much for development, but they’ve brought in tons of income over the years and could be sold for far more than their original purchase prices (though not enough to make it worth giving up the income they generate).

    • PoP Trailer Heaven! Has a nice ring, but I do know that the lot is definitely not zoned multi-family. There’s actually a small (but nice-ish) trailer park near to our lot where some of the streets have canals that open in the same area as our canal. It’s a 55+ community of double-wides that have been there for ages, so I imagine that we’d be able to figure out comparable rents there pretty easily.

      Looks like you just moved this further up on the “projects” list. And Mr. PoP is not complaining!

  • I’ve really enjoyed reading about your real estate adventures. I’m not in a position to buy yet but I definitely plan on it soon. I saw that you mentioned that you live in Fl. I live in Central FL and some of our real estate prices are crazy low. What part of FL do you guys live in that the market has already turned around so quickly?

    Thank!
    Ney @ ShopaholicSavers.com recently posted..4-22-13 Recent Free In The MailMy Profile

  • I would love to do a duplex development in Florida, investment, luxury living and maybe bay views if I could afford it, one day …
    DL Architects recently posted..Art consultancy as part of interior designMy Profile

  • […] a big part of what makes our marriage strong is working together on a regular basis. So after we bought as much real estate as we could during the great recession, Mr PoP wanted to try developing some virtual real estate as well. And […]