We sold three of our real estate properties in the last year, just so we could have a more liquid and balanced portfolio. Yet, we recently closed on a new purchase – a studio apartment in Jacksonville, FL with a view of downtown.
We had been looking at units in this particular downtown building for a couple of years now. We even bid on a penthouse studio late last year but lost out to someone else. When this unit came on the market, we weren’t looking to buy, but we are always open to buying for the right deal.
The right deal is a mix of personal and investment preferences
We knew we liked this building, which has onsite gym, laundry, game room, extra storage and a building manager – attractive amenities for a renter. Personally, we wanted to own something with a city view. Having a view is more a personal preference than a specific investment consideration. However, with more people working at home, I do think a nicer view will help differentiate a property among other rentals. I also think it will help with future appreciation, though this is obviously not guaranteed. We are bullish on downtown Jacksonville which has major infrastructure, real estate and beautification projects under development. If anything, the view will get nicer over time.
In addition to the view, this studio gives us some interesting personal options. We could use it as an office if we ever decided we didn’t want to work from home. Carrying costs for this studio are not much more than it would be for a co-working space. If either (or both) of our kids decided to move to Jacksonville, this studio would make a nice first place. If we finally get to travel abroad extensively, we may not want to carry our three-bedroom condo while we’re gone. We could rent out the bigger condo and use the smaller studio as our crash pad, storage hub and tax address.
The timing of what’s available isn’t within our control
We were thinking of waiting out the next year or two to see if the high inflation and softening job market would decrease real estate prices. There are reports of a cooling housing market. However, Jacksonville is a low-cost city with strong population growth. While Florida overall is considered an overvalued market, the probability of lower prices in Jacksonville specifically is rated “very low”, between 0-20% (see how your city fares in this nifty graphic in Fortune).
There aren’t a lot of residential options to choose from in downtown Jacksonville. There are converted spaces that are too much space for what we need. Many are low-rises so wouldn’t give us a view. The prices are geared to people who want to live there, not investors, so the numbers don’t make sense for rental investment. This building met very specific criteria, and not every unit has a view. Units in the building go fast, so when this unit came on the market, we jumped now rather than risk missing out
The numbers make sense only in addition to our other personal criteria
We had to pay cash for the unit because there are too many renters in the building for banks to finance purchases there. This decreases the cash-on-cash return considerably. After HOA, taxes, insurance and property management fees, we should clear between 5-6% annually. This is less than what a paper investment should earn long-term, so one could argue we should have just added to our paper assets rather than buy this property. However, there were other reasons than straight profit that we were interested in the unit (see above), and in this bear market, paper assets are doing terribly anyway.
Our next real estate investment will be very different
We don’t have immediate plans to buy additional property. However, we’re always looking. Our current real estate portfolio is a nice mix across four geographies, some houses and some condos, with all properties having a competitive advantage that will help them hold their value over time (e.g., good school district, emerging location, accessibility or a view!).
I don’t think there is strong upside in continuing to focus on single-family homes or condos. Additional purchases would grow our portfolio slowly and add little diversification, unless we pick a new geography which has challenges of its own. We have made some real-estate related alternative investments in farmland and private loans to other real estate investors, but these are more akin to paper assets since they are not deeded, physical property.
We’re currently looking at bigger properties – a building v. single condo, a portfolio of houses or commercial real estate. This would be a significant change for us, but I’m feeling more and more comfortable thinking bigger.
We’ll keep you posted. Perhaps I’ll break down a deal we’re considering. What would you like to see in future real estate blog posts?
We are Scott and Caroline, 50-somethings who spent the first 20+ years of our adult lives in New York City, working traditional careers and raising 2 kids. We left full-time work in our mid-40’s for location-independent, part-time consulting projects and real estate investing, in order to create a more flexible and travel-centric lifestyle. 
Financial independence and early retirement is not something we originally focused on, but over time realized it was possible. Our free report, 
