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