Pensacola Realty Masters Blog
Realty Masters is happy to present the following Pensacola area community and Pensacola real estate information!
Pam Keen, Pensacola Real Estate Broker and fellow investor, discusses considerations for investors looking to purchase multifamily investment properties in the Pensacola area!
We manage a lot of small multifamily properties including duplexes, triplexes, quadraplexes, and even small apartment buildings up to 16 units. With managing so many Pensacola area apartments, we have a lot of experience in what makes a good multifamily investment. Here's a few major considerations:
- Most small multifamily buildings are located in areas with other multifamily buildings, rather than in single-family neighborhoods. It's imperative to pay attention to how the other building owners are maintaining their units. This is imperative in attracting quality tenants and maximizing your rents.
- Look for better school districts. Many renters in these properties have school aged children.
- Consider area crime rates as your tenants surely will. Safety is among the top concern for tenants, and it is often a reason we see people vacate their lease early
- Consider the age of the property. This is important not only for maintenance but for insurance costs.
- Check the flood zone for the property. We've seen several small apartments that repeatedly flood. This will surely affect your ability to make a profit with your investment building. Keep in mind in Pensacola, your property does not have to be in a flood zone to be at risk of flooding. We recommend purchasing a flood policy regardless of whether it's required by your lender or suggested due to a higher risk flood zone. Flooding can occur from poor drainage, creeks, streams, drainage ponds, or even excessive amounts of rain in a short period of time.
Pam Keen, broker/owner of Realty Masters and author of The Real Estate Rulebook discusses What Makes a Good Pensacola Rental Property.
Start by picking an investment strategy. We have a market for both short-term rentals and long-term. What your ultimate plan for the property is im important when choosing a property. Listen as Pam discusses some of the criteria she uses when evaluating properties to purchase as investment properties.
- She prefers properties near employers, the colleges, and the military bases.
- She prefers properties that would appeal to families and are in good school districts.
- She prefers brick homes built after 1978 so you don't have to worry about things like lead based paint and aluminum wiring.
Of course, there are a lot of factors that go into considering a property, but these are some of the basics that make a solid investment in Pensacola. Of course, the rate of return and market rent are among top factors when choosing an investment property.
Pam is a long time Florida Real Estate Investor who has bought, sold, and rented hundreds of her personal properties over the last 30 years. She uses her experience as a Pensacola Real Estate broker and investor to help investors buy and sell real estate in Escambia and Santa Rosa Counties. Whether you are looking for a single family or multi-family property, Pensacola Beach condo or luxury home, Pam can assist you by discussing tools for investors.
Are you looking to invest in Pensacola Real Estate and take advantage of the active rental market? Would you be interested in increasing your monthly revenue? If your goal is to buy properties and rent them for cash flow, here is some information you should consider when purchasing an income-producing property in the Pensacola area.
There are different ways you can invest in property in the Pensacola area. Because of our beautiful, white sand beaches and rich history, Pensacola has a large population of seasonal tourists looking to lease daily or weekly. These type of short-term rentals are leased fully furnished with all utilities included and deemed vacation rentals. They require a different strategy and more expenses than the typical long-term buy and hold single-family real estate investment.
In order to decide on a good strategy for you, you should consider your long term investment goals for the property. Is your goal to build equity, create a positive monthly cash flow? Or is it to rent it out for a time then sell later at a profit? Do you want to own a property you can come vacation and visit? You should also keep in mind things like how much time you have to take care of and manage your property.
Single-family homes come with monthly expenses like trash removal, power and water bills, and yard maintenance which can be passed along to a long term tenant. If you own a condo, you pay a monthly maintenance fee, regardless of whether someone is living in the unit. Most include exterior maintenance, trash and the insurance for the building, some do and some do not include water inside the units.
Something else to take into consideration is what types of properties appeal to different types of renters. Condos, townhomes and apartments are great for college students and other singles. Single-family homes can accommodate singles but also appeal to married couples with or without children.
I personally like to rent single-family homes unfurnished and with long-term leases. I get a signed 12-month lease and make the tenants responsible for all the utilities, yard maintenance, pest control and some minor maintenance. Consistency and continuity are two benefits of investing in this type of rentals, and it takes the least amount of time and effort. Tenants often stay and renew their lease beyond the first year. The average length of time tenants stay in the same place is about 2-3 years in Pensacola, Florida.
We have a large number of military renters from both Pensacola Naval Air Station in Southwest Pensacola and NAS Whiting Field in Milton. We have two main types of military renters in the Pensacola area. Students attending the flight training program or another school tend to stay one year or less. Military families typically get their orders for three to four years in one location and if they like the home they are living in they will stay the entire time.
We also have several colleges including Pensacola State College, Pensacola Christian College, and the University of West Florida. Student housing is another rental niche that is very viable in areas located near a college or university. If you are considering investing in student housing, take the time to visit the housing offices on local college or university campuses and ask what's currently available and what students are looking for in terms of housing. Undergraduates typically share housing so be prepared for the unexpected, but you can charge more and therefore it can produce a higher return. Again these students typically will find a place and renew their lease if they are happy with the landlord and the accommodations, so there is the potential for a four-year rental.
For more info on investing and my personal strategies, you can purchase my book, "The Real Estate Rulebook: Everything you need to know to build wealth and create passive income." Reach out to me if you are looking to purchase Pensacola Investment Property!
10 Mistakes New Investors Make When Purchasing Pensacola, FL Investment Properties
Investing in property has the potential to be a great source of income. However, you want to be smart about your real estate investment. There are many factors to consider when making this important purchase. Below are the top 10 mistakes that investors make when purchasing a Pensacola investment property.
1. Paying Too Much. Use a trusted Pensacola Realtor© that is experienced with investment properties including single family and small multi-family properties. A Realtor© will be able to provide you with information regarding comparable properties in the area, potential rent, and can help guide you with finding a suitable investment property without exceeding your budget.
2. Skipping the Home Inspection. Surprises are not always fun! Be sure to have a thorough home inspection completed even if the property appears to be in good shape. You want to know what you are taking on and ruling out any costly repairs in the beginning can help save you time and money.
3. Being Unrealistic About Rent Amounts in the Pensacola Area. When house hunting for your investment property with your Realtor©, be realistic about the potential rent. Asking too much for rent will end up costing you more money in the long run. If you price your rental too high, it is likely to sit on the market for a longer amount of time than it would if it were initially listed at a reasonable rent amount. As vacancy costs can be your largest expense, it is best to price the property to rent as quickly as possible.
We are seeing investors seeking short-term rental and calculating huge ROI’s based off “potential” rents. We caution investors to purchase properties using this formula. Not all properties make a good AirBnB and many factors can derail these plans, such as government regulation, homeowners’ associations, and unknown factors like COVID. Thus, we recommend that your purchase make financial sense as a long term rental also, in case it does not work out as a short-term rental.
4. Not Hiring a Pensacola Property Manager. Once they’ve purchased a property, some investors underestimate the advantage of securing a property manager to deal with the day to day details of managing a rental. This includes processes such as screening applicants, receiving maintenance requests, performing regular property evaluations, posting notices, and coordinating leases renewals, for example. Having someone to communicate directly with your tenants on your behalf will alleviate a lot of the work that can come along with owning investment properties.
5. Not Being Familiar with Florida Landlord Tenant Law. Another one of the perks of having a property manager is that we are familiar with Florida Landlord Tenant law. You don’t want to rely on Google or Reddit to find answers about situations that may arise throughout your tenant’s lease term. Having a trusted Pensacola property management company by your side to help you navigate those waters will help reduce stress. However, it is a great idea to review these laws so you know what to expect if certain situations arise, such as unauthorized occupants or evictions, and what your legal obligations are under the law.
6. Not Considering Local Environmental Factors. Here in Pensacola, FL, we are susceptible to hurricanes and other severe weather conditions including extreme temperatures. As many properties are located near the water, be aware of flood zones and be prepared should the worst case scenario happen. Flood insurance is always a worthy investment, and you should factor flood insurance in as a yearly expense. Pensacola also has termites in the area and if these go unnoticed and/or untreated, they can cause extensive damage to your property as well as potentially hazardous conditions such as a damaged subfloor. A termite bond can be a wise investment or necessity, especially if you have a wood sided or off grade property. During summer, the temperature and the heat index get extremely high. If you notice the HVAC system is older, plan to replace that in the near future instead of making Band-Aid repairs every few months.
7. Not Taking Into Consideration the Area That You Are Purchasing In. Be sure to pay attention to the area surrounding the property you are purchasing because prospective tenants certainly will! Are there schools or parks nearby? Is there a road with heavy traffic and many businesses? Does the property meet the real estate value principle of conformity? This is important for future resale.
Evaluate the condition of the houses or apartments that are nearby and if they’re in good or bad condition. Search crime maps for crime statistics to get a good feel of the safety and security offered in the area.. Ask yourself if you would be comfortable living in the area you are considering purchasing in because that will be among the top concerns of your renters.
8. Not Considering Expenses for Repairs and Reserves. Be prepared to incur some expenses not only getting the property ready to rent, but also once it’s occupied. Plan for routine maintenance expenses and costly capital improvements over time. Tenants are only responsible for damage caused by accident, carelessness, recklessness or abuse and are not responsible for ordinary wear and tear on a property or extensive upkeep. Take into consideration the cost of future expenses for big ticket items such as the roof, plumbing, or major appliances like water heaters and HVAC units. It is important to know the condition of these items before you purchase your investment property and that is why the home inspection comes in handy!
9. Not Planning for Possible Vacancies. The rental market can be unpredictable at times, as can tenants. Are you prepared if a tenant breaks a lease and moves out early? The sudden loss of rental income can be scary. Properties are renting fast right now, but we recommend factoring in 5% vacancy costs yearly when planning your budget for your investment property to take into account potential vacancy and turnover.
10. Skimping on Materials and Fixtures. Once you purchase a property, consider making some upgrades. Beware that cheaper is not always better. Lower-grade materials have shorter lifespans and can make you feel as if you are constantly making repairs. Consider higher-grade materials and fixtures. Not only can this help you get a higher rent, it may also attract better quality tenants. For example, if your Pensacola area investment property has the old original pink countertops in the kitchen or bathroom, consider upgrading them with granite. Not only is it much more attractive, it is practically bulletproof and can withstand greater wear and tear. If faucets or doorknobs are brass, try replacing them with nickel-brushed fixtures, is a more inexpensive way to improve the look of the property. Additionally, updating old appliances will appeal to tenants when leasing and save you routine maintenance expenses later.
Remember to keep these in mind during your search for an investment property in Pensacola. Be realistic, practical, and run realistic numbers to calculate your ROI. If you are entering the Pensacola market as a new investor, it is a good idea to speak with other local investors to pick their brains and discuss their personal experiences. This is a big purchase and you want to make a wise decision.
Our broker and fellow real estate investor recently appeared on The Rental Income Podcast! Listen to her 20 minute episode "The Formula for Buying the Perfect Rental with Pam" as she discusses real estate investments.
Pam discusses her preferences for real estate investments in Northwest Florida, preferably newer, lower maintenance single-family homes.
If you are interested in purchasing a Pensacola area rental property or real estate investment, reach out to our sales team. For additional real estate investment information, head on over to our Real Estate Investors page.
As a landlord, you may sometimes find yourself in undesirable positions. An example of when this can happen is when it’s time to renew a tenant’s lease, and you are unsure if you should raise the rent. It may have been hard getting a qualified tenant in the home and you want to avoid a vacancy, especially if they have been properly maintaining the home. You may also hesitate to raise the rent because you don’t want to risk losing your tenants. But there are many factors that come into play when making this decision. For example, if the maintenance expenses, taxes, or insurance for the investment property have increased you may need to make this raise. Additionally, the rental market has been strong and rents have been rising. It is important to remember that although you want to do well by the tenants and keep your good relationship, you are technically running a business and you need to make a wise decision so you are not losing money and they are not overpaying. So, what do you do?
The way a landlord or property manager delivers the news of a rental increase can have a significant impact on the tenant’s reaction. We suggest you begin by making some positive comments and maybe mention how well they have kept the home up. Then you can move on to explain if there has been an increase in your expenses which will need to result in an increase in rent. You must be sure that you allow them enough notice for them to consider the renewal offer and decide whether or not they want to stay and pay the increased rent or vacate at lease expiration. If your expenses haven’t really increased and you have great tenants, you may want to keep the rent the same for the renewal and then consider raising it the next time around.
Below are some tips on incentives to help make an increase less scary for your tenants:
1.Offer a small rent reduction for the first month after they renew. This will allow them a little break to help adjust to the new rental rate the next month.
2.Buy them something for their home. As you review the evaluation pictures, you will notice the décor so you can pick something out that they may like- a cute welcome mat, for example. This will offer a nice personal touch.
3.Ask them if there are any suggestions they may have for updates around the house. (this may be a more reasonable offer after they’ve occupied the property for a couple of years)
4.Send them a thank you note along with a gift card. This will be a big hit because the tenant will be able to buy whatever they like.
5.You can offer a one-time service like lawn clean up, carpet cleaning, or pressure washing.
Please be sure to communicate well with your tenants so everyone has ample time to prepare for the next step, whatever the decision may be. Remember, if your tenant decides to move and you need a quality property management company to help you rent the property, we are here to help, so don’t hesitate to contact Realty Masters of FL. You can find more information about our Pensacola property management services here and information for real estate investors here.
With any measurement based on a future predictions or hypotheticals, we know that many parameters, and events can change the results,but that shouldn't stop us from doing our due diligence on the front end of investment properties.
Let's take a look at the kinds of properties I focus on, which are single family homes that are easy to finance with 20% down for investors.
Below is an example of a home purchased for $100,000 with a $20,000 down payment and an $80,000 mortgage at 5% interest. I used a 2% property appreciation rate and 2% annual increase for rents and expenses, and a 10 year holding period.
Annual Rental Income: $1000 per month rents less 2% vacancy = $980 * 12 = $11,760 per year.
Basic view: Invested $20,000 (down payment) for 10 years and then cashed out.
See the chart that shows the growth. (Chart is courtesy of Chris Bird with CRS and came from his investment analysis course which I attended).
Feel free to utilize this formula and information when analyzing your own real estate investments. Reach out if you have any questions about analyzing real estate investments in the Pensacola area.
- Tenant Education
- Pensacola Real Estate
- Owner Education
- Pensacola Community
- Real Estate Market
- Military PCS Move to Pensacola
- New Construction Builders in Pensacola
- Considerations when Purchasing a Pensacola Multifamily investment
- What Makes a Good Pensacola Investment Property
- Buy and Hold Investment Strategy
- Nicole St. Aubin
- Pam Keen
- Nicole St Aubin
- Erica Parker
- Mike Hamby
- David Keen
- Realty Masters
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