A very positive article on the Florida Tampa Bay coast was published earlier this afternoon in the USA Today. Please see main extract below.

 

Florida is a huge second-home destination. It seems to have something for everyone: secluded beaches and urban buzz, golf communities and marinas, high-rises and bungalows at prices from ultra-luxury to shockingly affordable. It’s also diverse. The mansions of Palm Beach are far removed from the beach towns of the Panhandle and theme parks of Orlando.

But if everything that Florida offers came together in one place, it would be on the coast of Pinellas County. This includes Clearwater and St. Petersburg, just outside Tampa. It’s known by other names, including the Tampa Bay Area.

“We call it the ‘Nature Coast,’ ” says Debra Nobile of Innisbrook Real Estate Services. “The east coast (of Florida) is all big buildings and parking lots. Here, everything is nestled among the trees. There’s more beach. It’s more laid-back.”
Anthony Jaquinto, a longtime Realtor with Re/Max Realtec Group, says the area has great appeal to part-timers.

“The second-home market is big, about half my business,” he says. “It’s because of the beaches and the country clubs and all the other amenities.

“The Tampa Bay Area has an enormous amount to offer. There’s a really terrific airport, and within 35 minutes, you can be at towns up and down the coast or in premier golf communities. We have professional football, baseball, hockey, a big downtown and lots of cultural happenings.

“It’s much more cosmopolitan than Jacksonville or the Panhandle but much more affordable than Naples or Palm Beach, and a lot more natural than the entire East Coast. There are so many choices and amenities, and it’s all very user-friendly.”
It even has major theme parks: Busch Gardens and Adventure Island.

In much of Florida, only the deepest pockets can afford waterfront. But Pinellas County — the strip of coast from St. Petersburg north to Clearwater and beyond — invites a wide range of buyers.

“There are more or less luxurious communities, gated or non-gated, condos, single-family homes and townhomes,” Jaquinto says. “The price range allows almost anyone access to the Gulf. I can show you a smaller two-bedroom condo right across the street from the water for $150,000 or penthouse apartments on Sand Key for $2 million. Whatever your purchase price, we can probably accommodate you.”

That’s more apparent since the BP oil spill in April caused jitters on Florida’s west coast, and prices for some listings dropped 5%.

Condos along the water begin around $150,000, and single-family houses, even those with boat docks, can be found in the low to mid-$300,000s. Inland property is even less. Condos in the area’s premier golf communities begin at just $100,000, Nobile says.

The combination of low prices, beaches and urban amenities attracts buyers largely from the Northeast and Midwest. Jaquinto says many properties are used just for spring break and winter holidays. Thanks in part to affordability, they are often rented out at other times.

For people that purchased property in the USA between 2003-2007 it´s been a pretty disastrous 3 years. Don´t think anybody will disagree with that.
 
What about the people that bought in 1980 or 1990 or 2000? As the chart below illustrates, they are looking just fine. The red line is property prices adjusted for inflation every year and the blue line is average property prices in each of those years.

 

 
 
 
What about the people purchasing today at the 2001 prices? Where will they be in 10, 20 or 30 years?
 
Buying at historical lows means the rental yields will be high and once financing becomes available the supply of buyers (and property prices) will increase dramatically. If you purchase in 2010 at 2001 prices and sell in 2015 at 2005 prices, you´ve more than doubled your money.
 
However, the longer term view will depend a lot on interest rates and inflation too.
 
Unlike the Greeks, the US government can inflate its way out of trouble. Whatever your opinion is of the US debt (53% of GDP by the way), it´s ability to borrow is greater than any other country on the planet thanks to the unique status of the dollar.
 
Borrowing levels will have to stabilise though, and although there are lots of ways of doing that (some painful, others problematic) inflation is going to be a side effect. 
 
If inflation does take hold in the US, that means interest rates will go up, which means higher mortgage payments for people. That´s not good if you have a mortgage.

Historically, that has also lead to higher rents.

It has also led to higher property prices. 

So where will that leave the proud owners of distressed Florida properties with no mortgages in solid locations with steady renters?
 
Laughing probably, all the way to the bank.

 

Kind Regards

Colin Murphy

Harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is still causing much suffering to others 3 years after the credit crunch began.

One of these ways, which Torcana identified more than two years ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return and minimise the risk of these types of properties, they must be purchased
 
- in wealthy, democratic economies
- with a history of renewal and recovery from recessions
- in fundamentally sound cities and neighbourhoods
- where locals rent long term
- where locals have and are currently purchasing these properties

Apart from that, the properties must be fully completed, cashflow positive and in well located and well run buildings or communities.
 
I´m sure there are plenty of other types of properties that can make you a healthy profit, but these are the ones we´ve identified with the best risk/reward ratio. It´s difficult to see how these kinds of properties will give any serious problems over the next 5 years and the potential benefits are huge.

So our criteria is very strict, but we´ve found plenty of properties that tick all these boxes and the latest is Arbor Lakes in Orlando. Here you can buy for 30 cents on the dollar in a beautiful and pre tenanted condo with 7-9% net rental yields.
 
If you haven´t received an information pack, please send an email to investments@torcana.com and request one.

 

Kind Regards

Colin Murphy

“Too much” is a very vague term. It would be more accurate to say “What happens when people don´t want to lend to governments anymore”.  Nonetheless, if a debt or a deficit is perceived to be too high, a country needs to borrow less, spend less and/or grow more. These are very difficult options.
 
For Ireland this meant higher income taxes, higher VAT, lower public salaries, higher retirement ages, lower capital spending and less state support for the elderly and children. Tough medicine to be sure, but I´m proud to say we had the stomach for it, unlike lots of other (mostly Mediterranean) countries that should be taking similar measures.

France is a good example. There was a massive public uproar recently when the retirement age was increased … to 63 years ….in small increments between now and 2018. They´re getting no sympathy from me!   
 
Germany, on the other hand didn´t need to do anything nearly as extreme as the Irish because they are a conservative and prudent economy with low wages and high productivity. Between 2001-2006 they were drinking diet cokes while the Irish, French, British and Spanish were downing straight whiskies and margaritas. Their finances were fine and thanks to their awesome economy they can grow their way out of a recession a lot quicker than everybody else.
 
These are among the reasons we´ve started promoting multi tenanted German properties in key locations. 
 
Feel free to call or email me (investments@torcana.com) if you´d like to learn more.   

Kind Regards

Colin Murphy

A government’s debt is simply the total amount a country owes to its borrowers and the total amount owed is often expressed as a percentage of GDP (the size of its economy).
 
Governments usually borrow money by issuing a bond, which are mostly bought and traded by banks and investment funds.  If it is a 10 year bond, the country pays a fixed interest rate to the bond holders every six months and then pays back the principle after 10 years.
 
For example, let´s say a 10 year old country with a €100 million economy has been borrowing €10 million every year. It´s total debt will be €100 million, which is 100% of its GDP.
 
Greece has been making headlines lately because its debt has reached 113% of GDP, which is one of the highest in the world and almost double the 60% limit imposed (in theory!) by the EU.
 
Government Deficit & EU Crisis
You could be forgiven for thinking a government deficit is something weird and complicated, but it´s not at all. It is simply the difference between what a country earns and what it spends in a fiscal year.
 
For example, let´s say Country A earns €100 million in 2009 from taxes collected and profits on government funds. During that year it also spends €110 million in health, education, defence and other public services. Its deficit is €10 million or 10% of its GDP that year.
 
The fact that pretty much all countries in the EU not just broke but tore up their own rules regarding debt limits (60% of GDP) and deficit limits (3% of GDP) has caused all manner of jitters in the financial markets this year.
 
Greece was the worst offender overall in 2009 (debt 113% and deficit 13.6%) although countries like Italy had a higher debt ratio (115%) and Ireland had a higher deficit ratio (14.6%). 
 
So there are 16 countries in the eurozone all using the same currency, but they have very different levels of debts, deficits, unemployment levels and recovery measures. That worries people.
 
The same could be said for the USA (Texas is quite healthy, California is certainly not). Of course, this overlooks the fact that the USA is a single political entity whereas the EU is anything but.
 
A US President is quite restricted in domestic and economic policy though. Republicans don´t want to increase taxes and Democrats don´t want to decrease services.
 
Messy compromises in both Brussels and Washington then! 

 

Kind Regards

Colin Murphy

Like many of our readers, I’m the type of person who tunes in regularly to radio chat shows, current affairs programs, newspaper reports and financial magazines. 
 
I do my best to keep on top of how the global turbulence is affecting our governments, our house prices, our labour markets, our stock markets and our changing consumption habits.  

There are lots of commentators out there who seem very qualified and sound like they know what they’re talking about when discussing concepts like recapitalisation, debts, deficits & credit ratings and yet, with a few notable exceptions, when I’ve finished listening to them, I’ve usually forgotten what the question they were supposed to be answering was. 

Sound familiar? 

The BBC website has a great “jargon dictionary” for laymen. It can be viewed here if anybody would like to have a look.

 

Kind Regards

Colin Murphy

CONFUSED BY THE Government’s latest extension to its deposit guarantee scheme? Don’t worry, you’re not alone. In fact, all the comings and goings have left many readers in the dark as to how well their savings are protected.

When the scheme was first launched at the height of the credit crisis in September 2008, the guarantee, which covers all deposits with certain named institutions, was due to last until the end of September of this year.

Then, last December, the Eligible Liabilities Guarantee Scheme, covering term deposits in qualifying institutions in full for up to five years was rolled out.

Now, following approval from the European Commission, the initial scheme has been extended until the end of December 2010. But what does the latest extension actually mean for savers and should they be worried about the security of their cash?

 

WHAT PROTECTION DO I HAVE ON DEPOSITS OF LESS THAN €100,000?

If you have money on deposit of less than €100,000, then the amendments to the guarantee scheme won’t affect you. Instead, you will be covered on amounts up to this figure by the Deposit Guarantee Scheme (DGS), which applies per person, per institution and has no end date.

So, if you have €50,000 deposited in three separate institutions, you would, if the worst came to the worst and all three banks collapsed, be covered for the full €150,000.

The scheme applies to: current accounts; demand deposit accounts; term deposit accounts; share accounts and deposit accounts with building societies; and share accounts and deposit accounts with credit unions.

Its reach extends to 16 deposit taking institutions in Ireland, or shortly 14, as both Postbank and Halifax are on their way out.

 

WHAT ABOUT DEMAND DEPOSITS OF MORE THAN €100,000?

While the first €100,000 of your money is covered as normal under the DGS, the latest extension to the guarantee scheme means that any balance in excess of €100,000 is also covered until the end of this December. 

Read the remainder of this excellent Irish Times article here. 

 

Kind Regards

Colin

I read an interesting little article today on realtytrac, which is very similar to the philosophy Torcana have been following in Florida these past 2 years.  I´ve summarised the main points below.

“Buy low. Rent smart. Sell high.” It should be every real estate investor’s mantra in today’s market. It is for investor, author and educator Andy Heller.

“I think the entire country right now is for sale,” said Heller, who recently founded the newly launched social networking website RealtyJoin. “A few areas are marginally better because they experienced greater falloff, so they have greater growth potential.”

To Heller’s way of thinking, the best strategy for investing in real estate today comes down to three ingredients: buying at a significant discount, buying the right type of property to attract the types of tenants you want to rent to, and lastly…location.

“To me, for investors the bigger issue – as opposed to what parts of the country are better than others – is all parts of the country are great so long as you can buy low enough,” added Heller. “ Today the investor should be buying property between 30 and 60 percent off.”

Based on data from RealtyTrac, National Association of Realtors (NAR) and Bureau of Labor Statistics (BLS), all of the metro areas on the list below had an average discount of at least 35 percent on foreclosure purchases, positive year-over-year growth in median home prices and relatively low unemployment rates.

 

If you´d like to see how to apply these principles to our newest investments, please get in touch with us today.

 

Kind Regards

 

Colin

I´ve had a few clients ask me about the new Irish government bonds recently and what the pro´s and con´s are for these versus a real estate investment.

Whilst these bonds guarantee a standard rate of return, in reality, they are not offering anything new, with some of these incentives already achievable through various savings schemes already in place. The main points are –

1. Interest Rates are fixed at 1% per annum, and DIRT is payable on the interest earned.

2. Bonuses are the only part of the scheme which are not taxable and you must leave your money in for a minimum of 5 years to receive any bonus (10%), 7 years to receive a 22% bonus, and 10 years to receive a 40% bonus.

3. After 10 years, the net return after DIRT would be equal to 3.96% return per annum – which certainly isn´t enough to get me to part with my cash for 10 years.

Additionally, these figures do not allow for any inflationary indexing. In other words, as the value of products and services go up, the value of your investment remains fixed, and there remains the very real potential that any interest and bonuses earned will be dramatically wiped out due to rising inflation.

Further information available here

 

Compare this to the “bricks and mortar” test in Florida –

 

1. You will achieve an annual rate of return on your investment at a minimum of 7 to 8% net of all costs. Due to the allowances and deductions which exist, you should never reach the tax thresholds in the States where you are have an income tax liability on the net rental income achieved.

2. The rental leases are signed on an annual basis and you can expect them to increase year on year in line with inflation, thus protecting your net rental return from any significant inflationary increases. The bond scheme offers no such protection.

3. The capital appreciation potential in these severely discounted properties is very real in the medium term and would certainly have the potential to outstrip any potential bonus offered  under the government scheme (bear in mind you only receive a 10% bonus after 5 years, expect your condo to increase in value by more than this during the same period).

4. If you hold the property in Florida for the full 10 year government bond investment period, at a minimum you can expect a 7 to 8% annual rate of return on your investment every single year (a much higher rate of return than the bond scheme), and you will also benefit from significant capital appreciation after 10 years.

5. Your rental return will be in dollars, a very safe and strong currency at the moment, and certainly a lot less volatile than the “eurozone”. If the euro weakens any further against the dollar your rental returns will increase significantly in euro terms, as will the value of your investment.

6. Our Florida based investments are available for are approx 70% less than previous verifiable sales prices, and cost around 50 to 60% less than it would take to build the condos today.

7. Florida is an area of the States with excellent infrastructure, year round sunshine and lots of economic diversification. It is much better positioned to recover from the “bust” cycle than Ireland is at the moment.

 

Kevin Cross,  Torcana