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Monday, June 26, 2006
Going to Jax for positive cash flow
North Palm Beach real estate investor David Sprague offers a case study in why Palm Beach County sales volumes have cratered: Investors, who were driving the local real estate market in 2004 and 2005, are out of the picture.
Now, after five years of home prices rising far faster than rents, it’s nearly impossible for an investor to find a home where the monthly rent covers the mortgage, insurance and property taxes.
“I look at properties all day long, and I can’t find positive cash flow in Palm Beach County,” Sprague says.
So he has looked north to Jacksonville, where he has bought five homes in recent months. Median home price in Jax in April was $199,600, about half Palm Beach County’s $386,500, according to the Florida Association of Realtors.
“It’s very possible to get positive cash flow in Jacksonville,” he says.
Sprague allows that an investor can find positive cash flow in Palm Beach County, but only with a negative-amortization loan, in which the borrower trades a low monthly payment for a balance that grows. As plunging sales volumes show, most investors don’t feel comfortable with “neg-am” mortgages.
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