With the turmoil of the Florida market and the glut of inventory in the state, I usually advocate auctions and traditional selling techniques. While that is still true something came across my desk that made so much sense I had to comment.
I had dinner with a buddy of mine who owns a property management company in Virginia that specializes in creating income producing affordable housing portfolios for investors in and around Washington D.C. While we were eating he started telling me of his plan to trade his portfolios for property in Florida. Well of course I had to ask why the heck would you do that?
After a brief explanation of this new global upscale vacation club that will alliance with him (that I didn't understand), he then went on to explain that these portfolios are so well established in the DC area that it creates a win situation for him and the seller in Florida. I asked how is that possible in the worst market in the states? Here's how it works, talk about a creative business approach.
First you must have equity in the house you're trying to trade. If you have equity it works because there are major differences in the tax rules between Virginia and Florida, not to mention the income producing properties cash flow. Northern Virginia is what they call a bedroom community for the DC area and very transient so affordable housing is always in demand, especially in the rental market. My friend focused on hometown heroes (teachers, police, fire rescue, county workers etc) as part of the screening process for the tenants they pursue and they literally have waiting lists. To have a property vacant for more than 30 days is just unheard of so it has been the perfect property portfolios to manage and build for investors.
In a nutshell you can own twice as much property and with the right situation reduce your cash output and show after tax benefits to the tune of six figures a year. The upside is when the market comes back to normal appreciation levels and we all know it will, you get more annual increase which reduces your LTV every year, thus producing more tax benefits.
Actual example:
Let's say you have a condo you know you could sell for $1,000,000 (if you could find a buyer) and you only owe $600k and your total expenses for that unused condo is $8500 per month. If you wanted to convert that property to a rental in today's market you would not be able to cover the mortgage or dues, let alone the other expenses associated with managing a rental income property. But if you're willing to "trade up" you can reduce your exposure and (are you ready for this) increase your cash flow!!
You trade for a $2,000,000 Virginia/DC area portfolio of affordable housing units that are managed and leased by the property management company, which means distance is not an issue. The $400k equity from your condo is used as a down payment on the portfolio and you monthly out put including your management fees in most cases are less than $2000 per month on the entire portfolio, a savings of over $6000 per month compared to your carrying costs of the condo and in some cases you can reduce your monthly debt 100% to the possibility of positive cash flow.
In a market that takes creative thinking to be successful I thought this was a great out of the box idea and was well worth sharing. If you would like more information I was not comfortable releasing his personal information, but would love to take your info and have my friend call you.
As always, thanks for reading!!
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