Why did we buy this property?

After buying two properties in Lakeland we decided to start looking into Orlando as a way to diversify our exposure. Almost immediately our agent found us this one-bedroom apartment in a gated community, with a fantastic location. Besides the location, another thing that caught our attention were the amenities. The neighborhood had a tennis court, pool, gym, and many other things. Needless to say, you have to pay for those amenities through the monthly HOA fee. The property was offered at $110,000. We sent an offer for $94,000 as the property needed a few repairs. The seller came back saying our offer was too low, but that he would be willing to settle for $97,000. We countered at $94,500 and he accepted.        

Lessons learned

• Buying a property in a condominium can be challenging. It can be tricky to get a loan for a property that is in a condominium, and in Florida many of them tend to be owned by a few investors. Sometimes the GSE (Government Sponsored Entities) require a higher down payment (+20%) or simply do not underwrite loans when more than 50% of the properties are owned by investors. This was almost the case with this property. When we bought our second property in this neighborhood, we had to give 30% down payment to close on the deal. 
• The property’s appreciation potential can matter more than the cashflow. In three years this property has appreciated over $35,000, on a cash investment of $25,000! If you put 20% as a down payment, you will be levered 5x. Let me explain, if the property appreciates 5%, your return on investment would 25%. Why? Let’s take an example. You buy a $100,000 house and put $20,000 as a down payment. If the house appreciates 5% in the first year, you would have made $5,000 in gains, with a cash investment of only $20,000.