Florida Single Family Homes - The Strategy Pt 3

This guide has been written to answer some common questions about the Axis single family homes (SFHs) strategy in Florida. Adding SFHs to your portfolio has a number of excellent benefits which we cover over the next four instalments in this series. In part three we look at why SFHs are such a low risk investment and how to use leverage with this strategy, which includes:

Bespoke property search and selection
80% below peak pricing discounts
Investment property in Florida's highest-growth area
70% finance facility*

If you want to find out more right away, then call our senior portfolio managers, David Ball or Russell Bonner on +(0)1273 447 300 for a no obligation chat about the entire process and how we can help you buy your dream investment property in Florida.

*subject to status and availability

Part 3: Why Low Risk Means High Leverage

Low risk: build and location

In our opinion, investing in good quality SFHs in selected Florida locations is a low risk, potentially high return, strategy.

Firstly, you are purchasing properties which were built in the last 10 years. This means they will be in excellent condition. Secondly, as we considered above, they will also be in desirable residential locations with strong demand for properties of the same type.

Another point of note is this. Desirable locations for SFHs are also typically areas in which there is growing employment within a higher-wage bracket, e.g. Orlando's 'Medical City' in the Lake Nona region. This creates demand for higher value properties and that attracts higher value rentals.

As its name suggests, this is a booming area for employment within the medical profession. Institutions in 'Medical City' include: University of Central Florida's College of Medicine and Health Sciences; Burnham Institute for Medical Research; Orlando VA Medical Centre; M.D. Anderson Orlando Cancer Research Institute; and Nemours Children's Hospital and Research Campus.

We have written an article about the booming economy in Orlando and around the Lake Nona region. Read Orlando Overtaking Miami as Florida's Fastest Growing Metropolis for the full story.

Low risk: finance options

This low risk is further demonstrated by the fact foreign nationals are able to apply for loan finance for the purchase of SFHs.

In fact and as we touched upon earlier, whilst the US banks are still ultra-cautious with their lending criteria, up to 70% loan finance is available to qualifying, foreign national investors wishing to purchase SFHs in good areas. This is unprecedented, especially when we consider how difficult-to-impossible US finance is for non-US citizens.

Why do US banks lend on SFHs? Because the investment is perceived as very low risk!

Leverage and returns

Let's look at a working example of how loan finance can leverage your potential return on a SFH investment.

Assumptions:

We shall assume the 70% loan, which is available with a minimum loan size of $100,000 USD (circa £60,550 GBP). We shall also assume:

You will typically be purchasing property in the current range of $150,000 USD (circa £90,834 GBP) to $200,000 USD (circa £121,088 GBP)
This would require a cash deposit of $45,000 USD (circa £27,239 GBP) to $60,000 USD (circa £36,345 GBP)
For this example we assume your property will double in price over 3 years, from the 'bank-owned foreclosure price' that you will be paying. This is generally accepted as a fair assumption for Florida investment strategies and works out at a typical 100% Return on Investment (ROI) within that timescale. If you wait for a longer timescale, say 5 years, your ROI could be up to 300%

An illustrative example of leverage:

You purchase your property for $150,000 USD (c. £90,834 GBP) and obtain loan finance of $100,000 (circa £60,550 GBP). This means your deposit is just $50,000 USD (£30,230 GBP).

Your property, in say 3 years, is worth $300,000 USD (£181,390 GBP) and you sell. This gives you a profit of $150,000 USD (£90,834 GBP).

Remember your deposit was just $50,000 USD (£30,230 GBP). We divide your profit by your deposit to obtain your ROI.

With leverage, as illustrated in this example, your ROI is 300%.

Without leverage (i.e. if you put down $150,000 USD (£90,834 GBP) of your own money to purchase), your ROI would be 100%. This is still a good return for a relatively short timescale, but you can see how much greater your return is with loan finance.

Investors can expect the cost of servicing the loan to be covered by rental income.

Please note: the USD to GBP conversions were established at the time of writing this report and, due to fluctuations in the exchange rate, the GBP figures may vary from those shown as examples here.

In part four of Florida Single Family Homes we look at yields, investment timescales and dual strategy options. If you have not yet read part two of Florida Single Family Homes you can do so here. If you want to find out more right away, then call our senior portfolio managers, David Ball or Russell Bonner on +(0)1273 447 300 for a no obligation chat about the entire process and how we can help you buy your dream investment property in Florida.

Posted in Property in Florida