Tampa Bay is one of the best metros to flip properties in the U.S., partially because it’s one of the most desirable places to live and buy a home.
So in this video, Jorge and Rafi discuss the process of flipping a rental, and explain why it’s a great time to invest in Tampa Bay flips.
00:00 Rafi: So let’s do it. Again, my name is Rafi and I’m Chief Operating Officer of Graystone Investment Group.
00:06 Jorge Vasquez: My name is Jorge Vasquez, CEO of Graystone Investment Group.
00:09 Rafi: And where can they find us?
00:11 JV: They can always find us, Rafi, at homes4income.com. That is homes, the number four, income dot com.
00:19 Rafi: Excellent, excellent. So again, like I was saying, the topic today is one that is very relevant, there was actually an article in the Tampa Bay Times recently about it. Tampa Bay rents are soaring, between 13% to 15%. Someone like Jason Figgs that just joined us from [00:39] ____ Real Estate can tell you the rents are going high. You know that we are very high proponents of building a long term cash flow, cash flow and portfolio, but then we should flip when Tampa rents are soaring? What do you mean by that Jorge?
00:58 JV: Well, that’s a good question, Rafi, and I think what we’re talking about here is really diversification, Rafi.
01:06 Rafi: Got it, got it.
01:07 JV: Yeah, not so much pushing you one way or the other, saying, do nothing but rentals, do nothing but flips. I think that there’s an opportunity in both scenarios, so diversifying within.
01:20 Rafi: Again, like I said, if you’re watching this video you are not just a beginner investor, you’re someone that is interested in learning more. This is an advanced move, where basically you’re looking at your rental portfolio and you’re saying, “Okay, rents are going up. My cap rates, if I bought two, three years ago, my cap rates are pretty good.” But this is the time to analyze your portfolio and go, “Okay, which properties make sense now to maybe rehab and sell as a flip, where you already got some of the expenses paid by the rents, but now you can take advantage of this [02:02] ____ market.” Is that right?
02:04 JV: Absolutely, absolutely. You got ahead of me. I think one of the strategies that we do as a company, Rafi, is flipping a rental. So that’s like merging both strategies.
02:15 Rafi: Flipping a rental, should we do like a hashtag?
02:18 JV: That’s a good idea.
02:20 Rafi: #flippingarental. Hey Stephanie, can you put that in the comments? Just put #flippingarental. We’re gonna make that trend.
02:29 JV: Let’s do it.
02:29 Rafi: But what do you mean by flipping a rental?
02:31 JV: So we can rewind a little bit back to what’s going on in the Tampa Bay area, specifically. Right now I was looking through some stats that showed that Tampa ownership back in 2006 was 70% and now it’s at 60%, so that’s 10% of the population right there. And that number can mean thousands of people, if not hundreds of thousands of people, that are not in the market right now. So the potential of renting properties are still there. The potential of those people being your potential buyers of your flip are there. And some of the other data that are we looking at, you have the baby boomers wanting to downsize, you have the baby boomers. Generation X recently lost a lot of equity back in 2006 and some of the, right here, some of the baby boomers too, as well. Some of the retirement accounts went down. And I think there’s a trend for renting, but I believe that trend, as rents go up, is gonna be, is gonna convert to buying eventually.
03:48 Rafi: Right, at one point the affordability question is gonna flip to owning because, for example, in St. Pete right now, in St. Petersburg an average 2/2, you know, two bedroom, two bathroom is renting for $1,500 and mortgage rates are so low that we are at that tipping point where, you know what, it makes sense to maybe save for a house and get a house. You can probably get a nice house, nice 3/2 in St. Petersburg where you maybe are paying the same amount, maybe a little bit more, $1,600 maybe if you have good credit, versus paying $1,500 for a rent. As an investor, remember, we have to think as investors. We cannot be thinking as home owners or anything like that. As investors, you go, “That’s an opportunity.” That’s an opportunity right there where, yes, you keep continue building that rental portfolio. Which, by the way, can you explain a little bit how cap rates get impacted by rising prices, because a cap rate on a house that you bought for $100,000 is very different than a cap rate that you buy for $150,000. So, what is that relationship between prices and cap rate?
05:04 JV: Well, obviously there’s a reason why we try to buy under 100, Rafi, because typically the numbers only work on properties under 100, meaning that you’re able to… Because it’s all about how much you put in, right, that’s gonna determine what your cap rate is. So, what you put in versus what you’re getting out on a monthly basis. So it’s a combination of affordability. So you enter into an affordable housing and at the same time getting the highest rent possible. So anytime you buy a property, as prices go up, obviously your capital investment’s gonna be higher, therefore your cap rate is gonna be lower. In rents, as of right now, they’re not keeping up with the increasing…
05:55 Rafi: Absolutely not. Rents are going…
05:57 JV: They’re going up fast.
05:58 Rafi: They’re gonna go fast.
06:00 JV: But they’re not as fast…
06:00 Rafi: But the prices are going faster.
06:02 JV: Absolutely.
06:02 Rafi: Yeah, yeah. And what happens is again, that $100,000 house that you bought three years ago is giving you a cap rate of 10%. If you buy that same house for $125,000, now your cap rate is 6%,7%, 8%. So definitely, it’s having the impacts. But again, as an advanced investor, and those of you watching this are trying to get to that level, you need to take advantage of the opportunities. So… Go ahead.
06:30 JV: Going back to that strategy, you never answered that question. The strategy about flipping the rental. One of the things I like about it is that…
06:36 Rafi: #flippingarental. All together.
06:40 JV: Is the taxation because any time you go from ordinary income tax, like let’s say you’re selling the property… You bought the property today. You sell it tomorrow, within the first four months you’re just gonna pay ordinary income tax. If you hold the property beyond 12 months, your capital gains could be zero, could be 15%, or 20% which is the max right now. So that’s the strategy. So you look at…
07:06 Rafi: And before you keep going, very important. Check with your CPA.
07:09 JV: Yes. Check with your CPA.
07:10 Rafi: This guy has, he knows a lot, but he’s not a CPA. He’s not a CPA, so check with your CPA for that. But again, in most of the circumstances…
07:19 JV: In most occasions, yeah, you gotta check with your CPA expert…
07:21 Rafi: You’re correct.
07:22 JV: But holding it, nine times out of 10, holding it beyond that 12 months one day…
07:28 Rafi: Makes it longer.
07:29 JV: Tax wise, it’s gonna be better for you. And at the same time, you already tested the property as a rental, so you know the ins and outs of it. And then if there’s an opportunity to sell it at that point because you have enough equity, you have the opportunity to sell it. You don’t have to be put on the spot or how you say that, you don’t have to be pressured.
07:53 Rafi: Pressured, yeah.
07:54 JV: Pressured to sell it because you rented it in the meantime. So you’re getting that cash flow. So if you get a buyer lowballing you or something, you’re not gonna be feeling the pressure because you have that asset that you’re renting right now.
08:07 Rafi: Right, right. And I think the strategy, to put it into perspective, you need to look at your rentals and go, “Okay. How much I bought them a couple years ago? How much are they worth today?”
08:20 JV: Absolutely. Absolutely.
08:22 Rafi: How much are they performing? Because maybe your target was 10%, but this one had more repairs, or had issues with vacancies, stuff like that, and compare those cap rates and go, “Okay. Which property is underperforming but the equity has gone up?” So if I have a property that’s underperforming. Let’s say okay, instead of the 10% I’m getting 8%, I’m getting 7%, but I see that the equity has gone up 20%, 30%. That may be a good candidate…
08:50 JV: Absolutely.
08:51 Rafi: To say, “You know what? When the tenant goes out… “, or you can get to a point where you’re gonna give the tenant some notice, you may put some additional funds into it and then flip it. Because again, the affordability ratio is tipping right now, and it’s at that point that renting and buying, they’re pretty much there, maybe even more on the other side.
09:13 JV: But just to say a little more about that, that’s why I like the option of renting your flip, because it gives you options. It gives you options. It’s not one option. You have two, three or four different options that Rafi was saying. There’s a low performer, or by the way, there’s a property that you didn’t mean to buy for the purpose of building equity, but it turns out that it has 100,000 in equity. You just got lucky. Maybe you wanna buy two…
09:41 Rafi: Absolutely.
09:41 JV: Instead of keeping that one. So that’s another strategy there.
09:45 Rafi: Exactly. Exactly. I wanna say hi to Paco Mata and [09:49] ____ and also Carlos Origas over there. So thank you very much for joining and don’t forget to share these video in your timelines. Now again, we’re not saying stop buying rentals. No, no, no. It’s a matter of now you have to have the right team to make sure that you maximize the acquisition discount on properties because the prices are going up. So in that regards, you have to make sure that you get the best price possible upfront. So this is something that you really have to say, “Okay. How can I make sure that I have the right team to get the best prices possible?” Because that’s where you’re gonna maximize. But at the same time, you have to make some concessions in terms of that cap rate. Those 15% cap rates of two years ago are not there, right?
10:43 JV: Right, they’re not there. They’re not there, and you brought up a good point. That’s what we’re gonna start doing to our clients. We’re gonna give market updates on a quarterly basis to kind of put it in perspective. Hey, we don’t want you guys to lose opportunity when the cap rate goes from 10 to nine, because it might still work for you. But we wanna let you know, we don’t want you to think, “Okay, I don’t want this property,” and it’s really more tied to the market. There’s nothing you can do about it, so.
11:11 Rafi: So a couple of things that I want everyone to leave with. One thing we haven’t talked about is, rents are going up in general in the market. Are your rents going up? Have you talked to your property manager and said, “Hey. When… ” Are you having that monthly call? Remember, you need to have that monthly call with your property manager to discuss your properties and discussing, “Hey. This one’s ending next month. I wanna bump it $50, $75, $100.” You need to have those conversations with your property manager so you can maximize that increase in rents in the market, right?
11:46 JV: Yeah. If you look at it, Rafi, just like the properties we were looking for for Juan Nunez, the opportunity to push the limits is there more than ever. Because people are seeking to stay within the city limits. Tampa is going through a big transformation right now, so people are looking. The same with your apartments, the same with your rentals. I’ll bet you anything, if you put a little extra in your rentals and you tried that out, you might get an extra $50 maybe, you might get an extra $100. But you’re gonna have to have a property manager that’s active and looking out for that.
12:22 Rafi: Absolutely. Absolutely. Absolutely. And by the way, you know that I’m a huge proponent of property management so that you can have peace of mind, but you need to manage the property manager. So again, you need to have that monthly call where you discuss the properties. Alex Martinez is here, best title company out there.
12:40 JV: Hello, Alex, how are you?
12:41 Rafi: Hi, Alex.
12:41 JV: One of our partners.
12:43 Rafi: But, again, you need to have that meeting with the property managers, that way you discuss these things. Because right now, for example, we had our meeting, and we know there’s a couple of properties that their lease expires April, May, and we’re ready. We already told the tenant, “Hey, there will be an increase.” So we actually are… Again, you wanna be the best landlord possible. We already told the tenants, “Hey, there’s an increase coming. Get ready.” So they have time to budget because you wanna be a good landlord. You don’t wanna be that one guy that everyone hates to rent from. But at the same time, it’s a business, guys. It’s a business and you have to maximize.
13:22 JV: That’s the word. It’s a business. You gotta treat it as a business. What’s the business plan? You have a business plan for your full rentals. Right, Rafi, shouldn’t they have a business plan?
13:32 Rafi: Absolutely, with an exit strategy. You always need to have an exit strategy. Either, hey, it’s five years and I re-fi so I can get more rentals, or in five years I take my equity and move on. So definitely you have to have that [13:47] ____.
13:47 JV: I think that a lot of people got in trouble in 2006 ’cause I bet you anything, most people didn’t have a business strategy.
13:53 Rafi: Don’t remind me.
13:54 JV: Business plan, you now.
13:55 Rafi: No, don’t remind me.
13:58 Rafi: I was one of those.
14:00 JV: Yeah.
14:00 Rafi: I was one of those.
14:00 JV: Myself. Myself with all the experience that I have, I fell for it myself, and it’s just about diversification right now.
14:08 Rafi: Absolutely, absolutely. So again, number one, maximize your rents. In Tampa, rents are soring. Are your rents going up as well?
14:16 JV: Absolutely.
14:17 Rafi: Analyze your portfolio, look for those properties that are underperforming in terms of cap rate but that are over-performing in terms of equity, and this might be the time to say, “You know what, let me put a couple of thousand, get it ready for flipping and move on.” And then number three, the most important word, diversify. Most people that got burned in 2006, 2008, they were not diversified. They put everything on flips or they put everything in rentals.
14:47 JV: Right.
14:49 Rafi: And you have to find a way of diversifying. And our motto is 80/20. It’s the famous 80/20. We suggest that 80% of your portfolio is rental, 20% flips. That way you have the security of that monthly income from the cash-flowing properties but that gives you the ability to go for the properties, like our partner Juan Nunez, the big home run swing and stuff like that.
15:18 JV: Same for your rentals. You don’t wanna owe 100% of what it’s worth. You wanna be at 75/100 or 75/25, I’m sorry. You wanna have a spread just in case the market’s a correction. You’re still there.
15:33 Rafi: Absolutely.
15:34 JV: And like you always say, Rafi, “Treat every flip as a potential rental.” It’s probably not gonna be your best rental, but if this flip is my worst rental, can I still swallow it? And that’s gonna be important.
15:48 Rafi: Absolutely.
15:49 JV: A lot of people didn’t do that.
15:52 Rafi: Absolutely. Again, we get this all the time. “Oh, you guys don’t do that many flips.” Well, the reason is that we are very conservative with them. We have an exit strategy if things go well and we have an exit strategy if things don’t go well. So from that perspective, make sure that you have that. Before I forget, I saw that Aldo joined. Happy Birthday, Aldo.
16:12 JV: Happy Birthday.
16:13 Rafi: I think he’s like 55… 56 tomorrow, so you can now go to retirement in the retirement communities.
16:20 Rafi: So we’ll see you tomorrow, Saturday, over there, the whole thing.
16:27 Rafi: We actually have for him an AARP membership. So that’s my gift, so you don’t have to pay the $25 annual membership for AARP.
16:36 JV: And if you can’t drive, we’ll drop it off.
16:39 Rafi: That’s okay. That’s okay. No Uber because he doesn’t know how to do Uber, so we have to call a taxi. So that’s okay. That’s okay, Aldo. No problem. And let me say hi and thanks to Francisco Cruz for joining the timeline.
16:54 JV: Any questions? Any last minute questions? Come on.
16:57 Rafi: Any last minute questions? Again, if you’re in Tampa, rent, diversify, analyze your portfolio. Okay? Analyze your portfolio and make sure that under-performing assets, those are the ones that you really need to be looking at and saying, “Okay, what happens with them? Do I put a little bit investment, flip them?”
17:15 JV: Reserves.
17:16 Rafi: And then, by the way, take those profits, reinvest them into increasing your rent portfolio, because, again, you wanna do both.
17:25 JV: And have some reserves, always have some reserves. Cash. Cash reserves. You never know.
17:30 Rafi: Excellent. Basically, this is it for today. We will be back next Friday with a very special Facebook Live session because one of us will be in Puerto Rico vacationing, so we’re gonna do the Facebook Live from…
17:49 JV: So it’s really not gonna matter too much ’cause the better half is gonna be here. [laughter]
17:53 Rafi: I will be actually. We’re gonna do it where… We’re gonna do the split thing and I’m gonna do it from there.
17:58 JV: Awesome, awesome, awesome.
17:58 Rafi: I’m gonna be there.
18:00 JV: Maybe by the beach or…
18:00 Rafi: Now, if I’m at the beach or something like that, don’t get jealous.
18:04 JV: No, no.
18:04 Rafi: That’s life. What’s the whole thing? Don’t live to work, work to live. That’s my motto, “Work to live”.
18:12 JV: Well, that’s the beauty about real estate, and real estate investing.
18:14 Rafi: Absolutely. Passive income.
18:16 JV: Absolutely.
18:17 Rafi: Passive income. We should do one, we should do it. Facebook Live about passive income. I have a great friend, Pat Flynn. Hey, Pat. Then maybe we can see if he can join us and explain a little bit about passive income. We’ll get to that, we’ll get to that. Joan Walker, thank you for joining, please share this video, great agent of Graystone Real Estate. And to leave it, where can they find us?
18:43 JV: They could always find us, Rafi, at homes4income.com. That is homes, the number four, income.com. Actually, we got rental4income.com, also realestate4investing.com. So we got a whole bunch of websites out there.
18:57 Rafi: So we can just say rental…
19:00 JV: 4…
19:00 Rafi: Income, and then real estate…
19:02 JV: 4…
19:03 Rafi: Investing.
19:03 JV: .com.
19:05 Rafi: And then homes…
19:07 JV: 4…
19:08 Rafi: Income.com. We like the four analogy there. So Stephanie, thank you.
19:16 Stephanie: You’re welcome.
19:17 Rafi: There you go, Stephanie. All this happens, because Stephanie’s in the background typing and doing those things, whatever and all that kind of stuff. So thank you, Stephanie. When’s your birthday, Stephanie?
19:27 Stephanie: At the end of this month, the 29th.
19:31 Rafi: We have to do something for Stephanie.
19:33 JV: Yes, sure.
19:34 Rafi: We’ll do that. So again, Sam joined, Sam Allie joined just before we finished this.
19:40 JV: Let’s get out of here now.
19:41 Rafi: Just before we’re finishing, our great partner Sam from HIS Capital Group join. We need to come up with… Hey Sam, where are our videos? We have to look for the videos. But again, thank you very much for joining Graystone Investment Group Brown Bag sessions. I am Rafi.
20:01 JV: I’m Jorge Vasquez.
20:02 Rafi: And see you next Friday. I’ll be in Puerto Rico. See you later guys.
20:11 JV: See you.
Graystone Investment Group
Graystone Investment Group is an experienced real estate wholesaler in Tampa Bay. We serve clients who flip homes in as little as 30 days, as well as clients who hold high cash flowing rental properties.
Unlike other wholesaling groups, we provide clients with a turnkey process at no extra charge. We find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years.