Investors and property agents were jumping for joy last week when billionaire Warren Buffett said the U.S. residential real estate slump will end by about 2011. 

According to Buffet’s latest annual shareholder Letter, “the industry is in shambles for two reasons, the first of which must be lived with if the U.S. economy is to recover. This reason concerns U.S. housing starts (including apartment units). In 2009, starts were 554,000, by far the lowest number in the 50 years for which we have data.

Paradoxically, this is good news. People thought it was good news a few years back when housing starts – the supply side of the picture – were running about two million annually. But household formations – the demand side – only amounted to about 1.2 million. After a few years of such imbalances, the country unsurprisingly ended up with far too many houses.” 

Jokingly, Buffet offered three ways to adjust the imbalance:

1. Blow up a lot of houses, a tactic similar to the destruction of autos that occurred with the “cash-for-clunkers” program.

2. Speed up household formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.

3. Reduce new housing starts to a number far below the rate of household formations. 

“Our country has wisely selected the third option, which means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious,” he said. “Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst.”

 

Kind Regards

David Shaw

Sales & US Sourcing Manager

After England rugby’s desperately poor recent form in this year’s 6 Nations cup, we are all wondering where glimmers of hope and better sporting days will come from to lift our spirits. Who knows, with Rooney’s current electrifying form, that day may be here sooner than we think against Egypt, (the Africa Nations cup champions) on Wednesday evening. However, in the meantime, some bright lights of hope (no more green shoots please) appear to be starting to shine again on the UK commercial property sector this year. 

2010, and in particular the last 4 weeks, has seen a quite remarkable welcome return of not only confidence but also the buyers and investors to the UK commercial property market ……..and plenty of them!  In  fact, our strong network of  sourcing partners, developers and financial institutions have never been busier and continue to locate and put forward off-market deals to meet this growing demand for strong yielding, commercial property. What a difference a year makes, I hear you say!

So what commercial investments are in greatest demand from these buyers and investors?

Put simply, ‘anything and everything’ that can deliver strong yields, has a solid anchor tenant on a long lease and is in ‘prime’ central London or the surrounding area. Tenanted offices and retail outlets in central London and logistical sites along the M4 corridor seem to be the most common requests.

In fact, the ideal is the following; we recently sourced and sold a 10,000 sq ft tenanted office property on Sackville Street in the heart of Mayfair. The property had a strong anchor tenant, (HQ for a large firm of European tax consultants), on a 10 year+ lease yielding over 6.0%.  The deal exchanged and completed within 28 days which is every consultants dream. Safe to say both our buyer and seller were extremely happy too. Mind you by the time of exchange my colleagues had been approached by more than a couple of dozen other buyers wanting to view and bid for the same property.

We continue to try to source this holy grail of similar ‘off market’ London commercial investment opportunities.

Next week I will take a closer look at whether the same can be said for the UK residential investment market. Is the buyer confidence returning here as fast? Where is the current interest? Which UK locations offer the same value and how is it measured?

Well, until next week, good luck Rooney, keep smiling Martin Johnson and here’s to the continued growth in investor confidence and activity in the UK commercial property market.  

All comments welcome

 

Best Regards

Andy Kiwanuka
Torcana UK Ltd

Following my recent extensive trip covering the four corners of Florida looking for the best property investments I felt it would be useful to take some time to give you an update of the property market from the ground. This will be the first of three blog posts concerning Florida.

Firstly there are many amazing investment and lifestyle opportunities in the State of Florida, it is the 4th most populous US state, with an incredible infrastructure, hugely diverse economy and an abundance of natural beauty, unspoiled beaches and wildlife. The people are very proud of their state and I can see why.

There has been a lot of contradictory media attention about the US housing market, one day you might hear property prices are rising, the next that they are falling.

The reality is that just like the UK or Ireland, the property market in Florida is local and should be looked at on a micro level rather than taking investment decisions on a macro, state wide information.

Torcana work in the distressed market, which is quite distinct from the regular market. Within this market we concentrate on taking advantage of distressed sellers and developers who have relatively small amounts of unsold properties within very well run and well built resorts. These properties can be purchased for less than their construction cost. It is a very active and aggressive market and this type of distressed inventory is down nearly 50% year on year.

Kind Regards

David Shaw

Torcana Sales Manager

I hear this question daily, all that shines is not gold so please let me outline my view of the Florida property market.

A new build 900 sq ft 1 bedroom sea view condo in Miami cannot be measured against a 15 year old timber frame 550 sq ft  1 bedroom/studio in Ft Myers. It is essential to measure apples against apples. 

It seems obvious when phrased like that, but it isn’t stopping both amateur and professional investors of falling into the trap. Whether property prices are increasing, stagnant or falling – you still tend to get what you pay for.

Picture the town / city / village where you currently live and imagine there are many distressed sellers. Would your first reaction be to hunt down the very cheapest property available just because it is cheap and tenanted?  I’d imagine the answer for most of you is no, and that many would prefer to pay a little extra to get a discounted property in a nicer part of town, where the tenants are solid and a resale market can be clearly visualized.  This is how we feel about Florida.

Not everybody takes this approach. Over the last few months I have seen UK and Irish agents engage in what I can only describe as a “race to the bottom”. There is real pressure in this business to source the very cheapest distressed deals possible with scant regard to the ABC’s of smart investing.

It’s a pretty risky strategy for an agent to engage in, and it is not one that would be of interest to Torcana. No doubt the commission will come rolling in for a few months, but these agents will quickly reach a point where they either have to ignore large numbers of client complaints or they will have to dedicate ruinous amounts of company resources to solving messy aftersales issues.

It is our view that investors should not be satisfied with an agent who just sources property. A good agent is an essential service for a non professional as they help him/her (a) find the smartest long term investments available, (b) ensure the pitfalls of buying in a distressed market are avoided and (c) assist with a smooth transfer of ownership. 

Looking forward to your thoughts.

Kind Regards

David Shaw

Torcana Sales Manager

 

What type of properties do American tenants want to rent?

Is it easy to tenant a property?

How do I find out if a resort contains a lot of untenanted properties?

Calculating your net rental income / yield

Which developments are eligable for financing?

How do I know which developments are affected by foreclosures?

What is Home Ownership Association?

What are Property Taxes?

How do I know if the property is in a popular location?

 

 

 
 

What type of properties do American tenants want to rent?
Americans want to rent and buy large condos with 1 beds starting at 900 Sq FT, 2 beds 1050 Sq FT, 3 beds 1350 Sq ft, with good aspect, tall ceilings, new stainless steel appliances, new kitchen cabinetry, new carpeting and new tiling. They prefer relatively new concrete build apartments with 24 hr security in crime free areas. If your property does not display most of these attributes look closely at what is being offered. Do not look for immediate proximity to industry or job centres as Florida does not have many traffic jams and locals do not mind a 25 minute commute to work. The best rental and residential neighborhoods are not generally known or frequented by tourists.

Is it easy to tenant a property?
Do not believe an agent who tells you that a property can easily be re-tenanted should your tenant skip town. Finding tenants is hard work, and for some properties it can take a long time.  It is true that some well known developments are 100% occupied with a waiting list for vacancies. However these properties cannot be purchased for less than $ 70,000.

How do I find out if a resort contains a lot of untenanted properties?
I often see a situation where unwitting buyers are left to re tenant their single property while the developer has 100 vacant properties with a rental agency in the clubhouse of the development – talk about David vs Goliath. Always ask your agent how many untenanted properties are there in the community and verify this information independently by using the lettings section of craigslist.com or ask an independent local letting agent for this information. In the US, this information is available to the general public.

Calculating your net rental income / yield

To calculate net rental yields and income effectively please make sure you take the following into account and verify it with the letting agent:

Price: Both contract price and closing costs

Rental Income:  The actual monthly rental figure taking into account any incentives offered. Let’s say an agent tells you that the property is tenanted at $900 per month – sounds good. It’s not so good if the rental agent gave 3 months for free to the tenant to secure a quick letting - giving 15 months’ rent for the price of 12 =  $ 720 per month .

Running costs: These costs are unavoidable in the state of Florida, please make sure you always factor them all in to your yield:

1. HOA (home ownership association) – costs of maintaining the communal facilities and reserves
2. Property Taxes: every building in the USA has to pay them
3. Condo Insurance : allow min $ 50 per month
4. Rental management: fees are generally 10% of total monthly rent.
5. IRS reporting: You are legally obliged to make an IRS (tax) return. My accountant charges $ 200 per year to do this.

Gross rental income – Running Costs
    ———————————                             =   Net Rental Yield
Purchase price + closing costs

  Financing: In certain developments, getting finance for Americans is a lot easier than it is for foreign investors. Local buyers can receive an $8000 federal first time buyers grant and a 97%  FHA mortgage (Federal Housing Authority) underwritten by the big two federal mortgage lenders Freddie Mac and Fannie Mae.

Fannie and Freddie have rating guidelines for lending. If your community does not have FHA mortgage approval this will usually indicate that there are some hidden issues in the development. These issues need to be discussed as they can have a dramatic affect on your resale market.

If there is no FHA Approval for your community some or all of the following criteria will not have been met: 

• At least 51% of the total units in the project must be owner occupied.
• At least 90% of the total units in the project have been sold.
  
• No single entity owns more than 10% of the total units in the project.
  
• The project, including common areas, is complete with no special assessments and no legal actions pending.
  
• The owners association has a reserve plan and a reserve fund, separate from the operating account and adequate to prevent deferred maintenance
  

Foreclosures: Some developments have very high rates of foreclosures or short sales.  All developments will have a few but some are devastated by them and the effect on the development can be felt in many ways:  the running costs of your property could increase and the quality of the communities occupants can deteriorate. An American owner occupier will avoid buying in a very distressed development.  

Home Owners Association (HOA) dues. A local buyer looking to purchase your property will look at the HOA cost. This payment is for the upkeep and maintenance of the community facilities, buildings, security and insurance. Some communities that were largely sold to investors with no money down, adjustable rate mortgages and a host of developer incentives are now in big financial difficulty.

When there are a large number of foreclosures and when owners are not paying their HOA dues, this can lead to a gradual downgrading of the services, amenities and rental potential.

In order to survive, the community will often levy a “special assessment” on the remaining owners, which could lead to HOA dues doubling from $200 pm to $ 400 overnight and destroying your rental yield in the process.

It is always prudent therefore to verify if there has been a special assessment in the past or if any are likely to be seen in the future.  This question should always be put to the HOA directly, they are legally obliged to tell you the truth on this matter - ask your agent for the number of the HOA and call them.

Sometimes, when a great looking property is being sold at a low price it is because the developer needs to sell his remaining units before the resort collapses – a bit like a chief executive dumping shares in his company a few weeks before bad results are announced.

If you do spot a unit you really like, you can reserve it and make use of a Florida law giving you a 15 day right of rescission. This allows you to do your due diligence and review all the condo docs and the HOA / Condo Budget.

Property Taxes:  Always verify the property taxes on the property you are buying. This can be done by finding what local county your property is located in and going to the County Property Tax Appraisers website and running a search on your exact property.  It will give you all previous sales history and a lot of useful information on your property. This information is public and easily assessed.

Location: Do not look for immediate proximity to industry or job centers as in general Floridians have very little traffic jams and do not mind a 25 minute commute to work. Middle class Americans look to purchase in areas with very low crime rates near good schools, sporting facilities, universities, parks, recreation facilities, low key village/town centres.

There are many more things to consider when looking at purchasing in Florida so please feel free to contact us before you make the decision.  These are just some of the questions Torcana ask and research heavily prior to bringing our clients the finished product.

Please feel free to email me directly on david.shaw@torcana.com to discuss further.

Kind Regards

David Shaw

Torcana Sales Manager

I’ve been making quite a big effort over the past six months to emphasize the speed at which the Florida market has been recovering from the credit crunch and property slowdown. Yesterday morning I received two graphs from one of my main contacts on the ground that will illustrate this far more clearly than my words have ever done. 

Graph 1: Supply in Florida has been falling dramatically for almost a year. This is because developers are not starting new construction projects and prices of existing stock have been slashed by up to 75%, thereby boosting consumer and investor demand (with a little help from US subsidies for first time buyers).

 

 

 

Graph 2: The market bottomed out in December 2007 and it took another 15 months before activity reverted back to late 2006 levels. Over the past six months, it has been quite frantic, which huge volumes of new contracts being issued to a wide variety of buyers.

 

 

 

Breaking through the pain barrier 

In short - developers, banks, agents, investors and homeowners all had to go through a world of pain between September 2006 and September 2009. Their counterparts in Ireland, Britain and mainland Europe have had it easy in comparison. 

Prices are still low, but they are not going lower, of that I am quite sure. There will always be good deals out there for the shrewd and well connected buyer, but the days of snapping up a high quality unit for $50-60k that used to cost $200-$230k are numbered.

The Villas at LaCita is one such untapped gem, and we’ve only 20 units to sell. They are tenanted, they are cash flow positive and they are in a great location. Some have very high rental yields and some have modest rental yields. 

If you want to take your pick of the very best, please visit http://tinyurl.com/torcana-lacita  and contact our offices for further information. 

Kind Regards

Colin Murphy

Torcana.com

With the pound and euro continuing to strengthen relative to the dollar, your hard earned cash can now stretch very far indeed. If you wanted $60,000 in late May it would have cost you around €45,000/£40,000. Now it will cost €40,000/£36,500. That’s quite a difference.

 So a weak dollar is great news for those seeking to purchase US property from abroad, but as many of our readers working in the financial industry will know, the prospect of a consistently weak dollar is of real concern to finance ministers, company bosses and traders around the world.

If one were to listen to the US authorities the message is pretty much the same every week, “it is very important for the US to have a strong dollar“. They haven’t been taking much action to backup that message though.

As any first year economics student will tell you, a weak currency boosts exports and restricts demand for imports, thus improving the economy and lowering the trade deficit. This might suit the US in the short term but it certainly doesn’t suit the EU or Asia, both of whom want to sell their goods and services to the US as cheaply as possible to kick start their own economies. 

The other big worry revolves around the strategies big countries like the US, Britain, Germany, Japan and China will pursue to withdraw the massive assistance they’ve been providing to prop up their economies. That’s a story for another blog though.

Kind Regards

Colin Murphy

Torcana.com

Good afternoon all

We are very excited to be launching a brand new project on Florida’s Space Coast.  

 The development is called Villas at LaCita: the location is stunning, the prices are terrific (from $53,000) and the rental yields on the best units are a rock solid 7-8%.

 Like our previous Madison, Tradewinds, Waterside and Flora Ridge developments, these are high quality tenanted units with long term leases in place & available to investors at up to 75% below previous sales prices. You’ll find full details by visiting http://tinyurl.com/torcana-lacita  

Kind Regards

Colin Murphy

Torcana.com

We’re now in the final quarter of 2009, traditionally one of the busiest times of the year for businesses.  This year is radically different to most of course, because we’re still trying to get out of a severe recession. Others might call it a slowdown, but I’m not particularly fond of that description - recessions tend to shake things up rather than slow them down.

A recession will expose weak business models, destroy bloated companies and create unemployment – this has been well documented. For stronger and healthier individuals and organizations, a recession will reveal hidden strengths, create new opportunities and release pent up energy. Companies can hire top class people on the cheap. Talented executives in large corporations will find their bosses’ much more willing to listen to ideas for developing new businesses and revenue streams.

Most importantly, at least from my narrow point of view, a recession means that distressed assets can be bought for absolute song.

Kind Regards

Colin Murphy

Director

Torcana.com

The bad news is that opportunities for easily purchasing a property at the very bottom of the US market are gone. This isn’t necessarily making front page news in The Times but statisticians and reporters tend to print yesterdays news.

There are two fundamental market forces at play. There is the “real market” which comprises 90% of existing US residential property. This stock may have lost significant value in the last few years but it is neither distressed nor foreclosed and the vast majority of it is not for sale.

The other, temporary market is the “distressed market” which completely undermines all efforts of the real market to sell surplus stock. This is because the “distressed market” as you will guess, is comprised of foreclosed and distressed property from banks and developers.

This market is the only show in town as far as bargain hunters are concerned, and it is our knowledge of the main players in this market and the process by which we help clients purchase, tenant, maintain and resell these assets that makes Torcana.com stand out from the crowd.

 

Kind Regards

David Shaw

Sales & US Sourcing Manager

Torcana.com