One of our main goals here at Graystone Investment Group is to maximize profits for our investor clients.
We’ve already done all the leg work through the process of trial and error. We’ve identified specific areas and property types which produce the maximum returns on single family homes.
Some of these areas are Historic Ybor City, Seminole Heights, Town-N-Country, West Tampa and Claire Mel to name a few. The reason these particular areas are more profitable than others is because of the lower purchase price.
Property types are the Single Family Home with three bedrooms – these tend to attract the highest quality tenant and hold them for longer durations, which translates to higher occupancy rates and bigger profits.
According to a NewGeography.com article from last year, more people prefer to live in a detached single family-style home, than be attached to their neighbors. The statistics show 58.4% prefer detached homes while 4.6% prefer attached with 25.7% favoring the multi-family – but keep in mind that small multi-family are being grouped together with large multi-family (100+ units, many of which have a pool, clubhouse, and a gym), so when considering the smaller multi-family, this preference would be even lower than 25%.
One of the early stages in our sales cycle is qualifying or disqualifying prospective clients. In many cases, we get people from other states where different strategies produce different results. What works in Manhattan may not necessarily work in Baltimore and what works in Cleveland, may not work in Chicago. Same goes for Tampa. As a property management company, we’re on the streets and in the trenches every single day – we know exactly which properties will rent well, and which properties will not.
With all our experience, knowledge and expertise, we still get some folks that insist on losing money – whether we like it or not. Sometimes it would be easier if we could use the “Jedi Mind Trick” to help people make better decisions.
You can go about your business…
A perfect example was a prospective client from up North. He started the process correctly by filling out the Investor Profile Sheet, but the problems began when we found it impossible to reach him by phone.
Several voicemail messages were left on both his mobile phone as well as his office number, but we received no return calls – severely limiting our ability to serve the client in any respect.
Eventually, this person took a trip to Tampa to buy some property. Without contacting us, he went ahead and picked up three small multi-unit properties in an area called Sulpher Springs – which we advise all our clients to avoid.
Sulphur Springs is considered a ‘high-crime’ area. The small multi-unit properties like duplexes, tri-plexes, and four-plexes attract the worst possible tenants in Tampa and become a management nightmare. That particular neighborhood happens to have a abundance of these small multi-family properties and is one of the worst neighborhoods in town.
A few months later we received a call from this fellow, asking us if we were interested in “liquidating” the properties for him, but by this time it was too late. We will not manage those properties, nor will we sell them any of our clients. This is not the way we do business.
Move along…
Higher-end properties always appear more attractive to new investors for obvious reasons – they look great. Some of them are very large with 4 bedrooms or more, swimming pools, gated communities, and so on and so forth. The most important factors to pay attention to are the higher purchase price and higher property taxes – which ultimately increase the monthly operating expenses, so the higher rent may not necessarily make up for it – not even mentioning HOA fees and the long process of getting board approval of new tenants.
As a property management company, we’ve learned through experience that the neighborhoods we work, and the types of properties we specialize in, offer the highest returns on investment.
The chart below demonstrates the difference of returns between a pretty house in a mid to upper income neighborhood and an average house in a lower income neighborhood.
| Purchase Price | Financing | Down Payment | Rent | Operating Expenses | Monthly Cashflow | Rate of Return | Recuperate Investment | |||||||
| $135,000 | Cash | $135,000 | $1,400 | $612 | $788 | 7% | 14 Years | |||||||
| $135,000 | 60% | $54,000 | $1,400 | $1,590 | -$190 | -1.69% | Never | |||||||
| $135,000 | 80% | $27,000 | $1,400 | $1,917 | -$517 | -4.59% | Never | |||||||
| $35,000 | Cash | $35,000 | $1,100 | $138 | $765 | 26.21% | 46 Months | |||||||
| $35,000 | 60% | $14,000 | $1,100 | $589 | $511 | 17.51% | 27 Months | |||||||
| $35,000 | 80% | $7,000 | $1,100 | $674 | $426 | 14.61% | 16 Months | |||||||
These numbers do not lie, my friends.
In the ‘best case’ scenario of the higher-end property above, the all-cash purchase got a measly 7% return with $788 in monthly cashflow, while waiting 14 years to recuperate the initial $135,000 investment. For an investor to leverage that exact same amount of money into lower-end properties with hard money loans, they can get almost 10 houses with a NET cashflow of about $5,000 a month. After the loans are paid off, that cashflow should double.
Don’t want what you do not want.
These are not the properties you’re looking for. You can go about your business. Move along.
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