The Market for New Construction Rentals in Southwest Florida

You may have been thinking about your real estate investment and wondering, with the state of the economy, where you should look to purchase next.

The past two years have seen unprecedented migration from all areas of the United States into Florida, with the southwest Gulf Coast leading that trend. Many economic and lifestyle changes—personal freedoms, tremendous weather, jobs, and the low cost of real estate—are driving the migration and will continue to do so for the near future. (This makes Tampa—the largest metro area and heartbeat of the region—the perfect setting for Think Realty’s next conference and expo on July 21-22, 2022!)

There are many reasons southwest Florida is an area where there are immense investment opportunities. The question is: How do we find them and determine whether they are worth our time, energy, and money? Further, when we find these strong performing assets, how do we most efficiently fund them?

Start with the Fundamentals

Stick with the fundamentals that resulted in your current successes—the reasons you selected the properties in other areas where you already own. Strong in-migration of renters, jobs, a desirable place to live, and affordably priced rental homes to buy are likely some of those reasons.

Southwest Florida, whether you live locally or not, checks all the boxes for incredible opportunity in rental properties. Are you looking for strong rent performance that keeps up with inflation? Florida has that. Are you looking for an area that provides a low overall cost of living and low-income taxes (meaning tenants will be more equipped to afford their rent)? Many Florida locations have that too, especially in southwest and central Florida. The state is poised to continue a growth pattern in many desirable coastal areas and still has incredible affordability compared to much of the nation.

Build-to Rent Opportunities

If Florida is affordable and offers tenants a reasonable cost of living, what else should you consider when purchasing property there?

You could buy a turnkey rental property, but another approach that has become more popular in recent years is build to rent. New construction offers the wise investor the ability to make a smart, long-term investment decision with low short-term maintenance risk. When you buy new construction with the intent of renting it immediately, you get all new things like appliances, air conditioning, lighting, water heaters, etc. On top of that, you automatically have a builder warranty on the property covering much of the initial repair work that may occur. By investing in new construction, you are making a wise decision to reduce your risk of unforeseen costs.

Financing Options

Let’s say you’ve decided to invest in southwest Florida and you know you want to buy new construction. Well, what about financing?

Does it still make sense to take a fixed-rate 30-year mortgage with rates rising as they recently have? As of the writing of this article, rates sit near 6% on investment properties, and inflation in the U.S. is above 8%. Simply put, this means that every fixed rate mortgage you take right now at 6% is still a losing deal for the lender. You are essentially shorting the U.S. dollar that is being paid to hold this property as its value rises faster than the rate needed to finance it. And don’t forget, the ever-increasing demand in Florida for rentals is pushing rents upward.

This situation has continued to ensure that even with rising rates, you realize positive cash flow on new construction properties. And this discussion is simply the starting point. Many investors and others who are building in desirable coastal areas are using the properties as short-term rentals, not annual rentals, driving the revenue to multiples for an already positively cash-flowing asset.

You likely have often heard the term OPM, or other people’s money. Prudently using other people’s money to fund your investment real estate in the right location will dramatically increase the property’s performance. Leverage allows you to expand the use of every dollar. By using the bank’s money to purchase property, you can buy more properties, creating more long-term wealth potential.

The only funding that still comes out of your pocket is the down payment and closing costs. When that goes into the property, it creates something known as “dead equity.” Dead equity in properties is expensive. What is it earning for you? Nothing! It is dead capital that cannot do a thing for you while it sits in your property. Imagine if your best friend lent you their money at 0% interest for the down payment. In that case, you could use your funds in another investment to make money. Similarly, your down payment earns you 0%—it is dead equity.

What if you could also fund the down payment using OPM? You can!

A private (personal) banking approach has been in use for more than 150 years in the U.S. by wealthy investors. You may know it as “infinite banking.” By using uniquely designed whole life insurance, infinite banking essentially allows you to become your own family bank. Your dollars earn uninterrupted compound interest in a private, tax-advantaged account achieving several times current bank rates while serving as collateral for a line of credit like HELOCs—but it’s safer and more efficient. You’re able to use a life insurance company’s or a traditional bank’s money as a loan with terms and payback schedules you dictate.

Infinite banking is simply storing cash in a life insurance policy rather than in a bank or the rental property so that it earns at a high rate while not being taxed. It is an approach that provides historically proven protection, growth, and tax benefits for your dollars. Once your money is stored there, you can borrow against your savings bucket to fund your down payments on high-performing properties in southwest Florida—or anything else for that matter! This means you are funding your properties using 100% OPM.

Southwest Florida is poised to provide substantial returns for rental property owners for years to come, especially for those using 100% OPM. Moving here in 2020 and refocusing my portfolio to the region has been incredible. In my assessment, this trend is only getting started.

I’m excited to share more with you at the Tampa Think Realty conference and expo in July. Whether you’re operating short-term rentals or with annual leases, this region has a very bright future. The compelling product in the 2022 seller’s market with very tight inventory and a national housing shortage is build to rent. New construction properties in Florida incorporate the latest hurricane standards and reduced maintenance costs that boost net returns. Do your independent research and due diligence. Reach out to me if you’d like for more detail on where I’m building. I’ll see you in Tampa!