To Make a Buck in South Florida Real Estate, Get a Tenant
|Flickr User: Eric Nowels|
|For best results, find a tenant who pays.|
An article in next month's Forbes magazine names Hollywood and West Palm Beach as two of the top ten markets for turning a profit on rental property.
Here's how the numbers might work for a small building financed with a mortgage. You pay $500,000 for a structure with four apartments that generate $1,200 each in monthly rent, which comes to an annual total of $57,600. Take away a 5 percent allowance for vacancies and eviction costs and 10 percent for property management fees. That leaves $49,000. Put in property taxes at 0.8 percent, or $4,000, and capital improvements and ongoing maintenance of $7,200 ($1,800 per unit per year, according to Goldfarb). That leaves you $37,800 before debt service. If you put down 20 percent, or $100,000, and take out a 30-year mortgage at 6 percent, principal and interest come to $28,800 a year. Subtracting the debt service leaves $9,000, or a 9 percent cash-on-cash return on the $100,000 down payment.It's a particularly ironic revelation for Hollywood, which has been desperate to recruit condo developers downtown, only to see the Hollywood Station and Radius turn into glossy rentals. I wonder if Forbes' calculations factored in the handsome incentives that Hollywood's commission has bestowed on developers.