To Make a Buck in South Florida Real Estate, Get a Tenant

For best results, find a tenant who pays.
For best results, find a tenant who pays.
Flickr User: Eric Nowels

At least a few real estate investors in South Florida have managed to crawl out of the crater that formed from the housing bubble's burst. They've managed to wring profit from an otherwise lost art: renting.

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.


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