In a previous blog post, I gave a quick overview of the real estate market in West Palm Beach. In today’s blog post, I will be giving a hypothetical scenario, using some of the aggregated numbers to show how you could make huge profits in West Palm Beach.
Although we previously spoke about how the median numbers don’t give the best picture of what is going on, because of 2 neighborhoods pulling up the prices, we can still use those numbers in our example.
For today, we are going to talk about how much money you could be making in this market if you were to buy a house and rent it out. The median home value in this area is $175,000, so we’ll work with similar numbers. Lets say you were to buy a duplex for $185,000 with $55,000 and a $130,000 loan.
Outside of the closing costs and paying the monthly mortgage, we have to take into to account some of the operating costs like property tax and rental insurance. Property tax in this area is no more than 2%, which means for a house bought at the median, it is going to be around $3,200. Insurance will also be around $3,000 and if you take into account projected repairs/maintenance, then your annual operating costs are going to be around $7,500.
Running through all the calculations, the return on your investment just from collected the rent minus all of the expenses comes out to around 11% in the first year. Since rents go up, while your costs are basically fixed, this 11% will go up and by year 10, it will reach over 20%. By year 2, you will be collecting almost $7,000 a year after taxes in passive income.
These numbers by themselves are enticing enough to garner interest in West Palm Beach, but we should take into account 2 things. First, that 11-20% is actually higher, because the price of your home will also go up, which means your returns are much higher. Also, there is no obligation to buy anything at the median, which means the sale price will differ as well.
Matter of fact to optimize your return, you would need to buy distressed homes, which go for well under market value, rehab them, and then rent them out. Overall, it is clear that West Palm Beach has a lot of profitable opportunities for real estate investors.
