It’s been a while since I last wrote a blog post so there is much to catch up. I figured I’d start with the sale of our duplexes.
At the beginning of 2020, we had no intend to sale the duplexes. The goal was to refinance from our high interest private loan into a conventional loan and hold them for a while.
After the renovations, the duplexes appraised at $245,000 each. We bought them for $175,000 each. That is an increase in value of $70,000 and we only spent $15,000 in renovations. We had a net increase in equity of $55,000 within a year. We were thrilled and continued on with the refinance.
As with any mortgage, there are loan costs associated with the refinance of a mortgage loan. Points, note taxes, appraisals, administrative fees, underwriting, etc. In our case amounted close to $10,000. In addition to a prepayment penalty.
In a buy and hold strategy, these costs make sense in the long term. Given that we were thinking of holding these investment for at least another 5 years, we went through with the loan and got cash from the refinance in the amount of $28,000 from each duplexes for a total of $56,000.
This cash allowed us to buy our first Georgia investment property, Big Horn which has been so far been our most profitable investment.
Overall, we were happy with how the refinance turned out and selling was not on the table at all.
Then Corona virus came along and other events occurred that led us to begin considering the sale of these duplexes. Let me go over these events to shed some light on how volatile real estate investments can be.
COVID 19 crisis
It is no surprise that Corona virus has affected landlords throughout the country and we were no exception. I wrote a blog on how Rona affected us (read more), but in summary, we had tenant’s behind in rent payments and early lease terminations that were not anticipated. With eviction moratorium our hands were tied and self-managing from long distance posed a greater challenge. While I had my dad helping with the maintenance, the responsibility to collect rent, lease units and handle tenant issues was still mine.
Increase Criminal Activity
One of the most pressing concerns were new criminal activity in the neighborhood that disrupted the peace of our residents. The corner house right across the duplexes was sold to a new investor and the new owner rented to a drug dealer which then brought a lot of conflict to the neighborhood. There was a street shooting involved in which our tenants were affected. Apparently, two drug rivals began shooting out in the open at 3AM and a woman driving by was caught in the middle of it. In order to protect herself, she had to duck which then caused her to crash against our property hitting tenants cars and our property fence. To make matters worst, the window of a car of a guest was shuttered with a shot gun bullet.
My dad lived in a duplex next door so he was able to help mitigate, but of course this was a concern to our tenants and the tenant whose guest car was shot stopped paying rent and moved out. Another tenant followed along leaving us with two vacancies.
Towards the end, the tenant in the corner house was evicted and the new owner sold the place. That is a clear example of how a real estate deal can quickly turn ugly.
Property Taxes Skyrocketed
Property values in Fort Lauderdale have been rapidly appreciating in the last few years, and with all the improvements in the area, someone has to help fund these and who better suited to pay than real estate investors ripping the benefits of increased property values. Our property bill came in October and I almost cried. The property tax billed doubled from $2500 to $5,000. It was quite a disappointment because we had not anticipated such a big jump and of course it affected our numbers. I should have known that the $70,000 value increase came at a cost. However, the properties supported an increase in rent and that was the plan to counter this added expense.
This is something to keep in mind when buying investment properties that appreciate. Property taxes are based on the appraised value given by the county property appraiser and this value is due to increase with property improvements or higher sale price.
The Florida Insurance Issue
It is no secret to anyone from Florida that property insurance in South Florida can be ridiculous and 2020 came in with quite hefty increases. This was not such a surprise to us and thankfully I was able to find a solution and secured reasonably priced insurance. However, after the purchase of the Big Horn in Georgia and only paying $600 for insurance, it began to feel a bit ridiculous to pay the highly inflated Florida insurance cost.
Finally, The real estate craze arrives to Florida.
Despite the previously noted events, we were still on board to keep these investments long term. We knew the opportunity for appreciation was huge and while the properties weren’t providing the most amazing returns, we were still making some money. In the long run, it was going to be worth holding.
However, it came to our attention that there was a ridiculous increase in real estate prices in our area. Below average properties in the same neighborhood were being sold for above market prices and we began to question whether that was cue to make a glorious exit and bring our money to Georgia where the returns seemed more promising and also easier to manage.
And that is what we did.
Our realtor who recommended we start out at listing price of $270,000 each. Honestly, I didn’t really think it would be possible to sell at that price considering the appraisal in June came back at $245,000.
Personally, as an investor looking to buy, I would not have bought the properties at that price, but our strategy is different.
We sold duplex one in December 2020 and the second one in February 2021 at asking price of $270,000 and the crazy thing is that they appraised at that value. We are talking of a $25,000 increase in 6 months. Crazy, huh?!
My dad also sold his duplex at the same time and has also moved his money to Georgia.
In the 18 months that we owned the duplexes, we net out a gain of about $35,000 each. While the after tax profit is only $30,000, it was considerably good for our first investment. This put us in a great financial position increasing our personal net worth and availability of cash to buy investments here in Georgia.
Overall, our first deal was a total success in our books.
I can’t take all the credit for the victory since I feel that a lot of this was luck. If you read my post, How I Jumped Into Real Estate with No Money Down… and Barely Made it… you will realize that we took a huge risk buying these duplexes and some may say it was a bit reckless too.
It is important to note that a lot of the profits were eaten by the high interest loans that we used to acquire these. Then there were the refinance loan costs and prepayment penalties which we could have avoided had we know we were going to sell.
We would have never been able to buy these duplexes without taking out loans, so we do not regret paying any of the high interest loan because we made a decent profit without much of our own money.
While we are not really thrilled about having paid the refinance loan costs, the cash out refinance opened an opportunity for us to buy our first investment in Georgia which led to us questioning our Florida investments. We probably would not have considered selling without getting a feel for the real estate market here, so the refinance was not all bad. These costs were about $10,000-15,000 so it does burn a bit 😣
I do admit that I was a bit hesitant to let go of the duplexes and the selling process alone was a pain in the ass. We had several failed offers and it was just really stressful.
Perhaps in a few years, these duplexes will be worth a lot more and I will miss out on that, but I am quite happy with our decision.
These properties were not a walk in the park, but we did it and gained tremendous education in the process.
Was it easy? No.
Was it worth it? Definitely.
Could it have been a complete nightmare? Yes.
Could we have done it better? Yes.
Do we regret any of it? Absolutely not.
Once I am done with the accounting and final analysis, I would like to share a full disclosure of the numbers of this deal for those of your that like to break down the numbers like we do.
Finally, please leave a ❤️ if you liked my post. It means a lot to me knowing that someone out there is reading.
Until next time!