People predicted dire consequences for the dollar during the height of the recession, most of which never materialized. Then again, history has taught us several times not to underestimate the incredible strength and resilience of the US economy.  

 

 
Over the past two years the €/$ rate has varied from $1.24 - $1.59, with an average of $1.41. It is now $1.27, more or less the same as it was in Oct-Nov 2009 and in Feb-March 2010.  
 
Despite the unpredictability of all this,  our feeling is that the euro will continue to weaken against the dollar for some time. It´s difficult to think about how this can be used to your advantage in the abstract so let´s use a Mosaic property costing $75,000, which is priced 65% lower than its peak.
 
Three months ago it would have cost you €55,000 to purchase $75,000. Now it would cost €59,000. It´s tempting to think that you´ve missed the boat as the price has “gone up” by €4,000 and/or that you´re not getting a 65% discount anymore.  Both are misleading.
 
Look at it the other way. You pay the €59,000 and in a few months time the US/EU exchange rate moves from $1.27 to $1.17 (very possible). If you convert your $75,000 back to euro you´ll get €64,000. Have you lost €4000 or gained €5000?
 
Put your money to work
 
There´s also the rental income you can earn (good luck getting 10% in an EU country from a €60,000 property), the capital appreciation potential (prices have still plenty of room to fall in most EU countries) and above all, the fact that  your money is working  hard in an appreciating asset in a recovering economy rather than languishing in a bank in a slow economy generating 1-2% interest.  Isn´t it better to read positive news about the US economy when you have assets there?
 
Florida property provides a lower cost asset, at a higher yield and significantly better capital appreciation potential than anything comparable in Europe.
 
More importantly, it is vital that investors start thinking about diversifying away from euro assets and into income generating assets in other currencies. You do not want to have all your money in euros when the US market is thriving and the euro currency outlook is weak and uncertain due to rogue member states.

 

Kind Regards

 

Colin Murphy

Torcana.com

At Torcana we always do our best to bring a genuinely open and honest assessment of the investment environment and we position our product range accordingly.  In that spirit, I´d like to briefly address an elephant in the corner that most real estate companies would rather avoid speaking about - the affect the current turmoil in Greece could have on the rest of the EU and on our currency, the euro. 

Greece is a relatively small and peripheral EU economy that nonetheless faces an economic and political crisis that may have severe repercussions for the EU. Lots of countries have large debts and deficits, but none are as poorly placed as Greece to dig their way out of it. A lack of export prowess, entrenched corruption and tax evasion, an inability to devalue currency and a very hostile public response to necessary cuts in wages and services have all combined to bring this country the brink of default. 

Where this will end and how it will affect the Euro exchange rate with other major currencies is anybody’s guess. The worst case scenarios are too difficult to imagine, and the best case scenario is that money being sent from the EU and IMF buys enough time to reschedule Greek debt and proceed with orderly and overdue structural reforms. Several other EU countries (especially Portugal & Spain) also need to convince the markets that they have the ability and determination to implement similar reforms. 

 

Kind Regards

 

Colin Murphy

Torcana.com

What if Mr. Buffett´s prediction is right?

Let´s assume for a moment that his prediction of a US housing recovery sometime in 2011 is correct and let´s also bear in mind that people who have betted against him in the past haven´t done so well.  

Is it better to wait until 2011 and start investing in property once prices start recovering? Or might it be worth using some money sitting in a (very) low interest savings account to purchase well priced high quality properties while they are still available?  

It´s been a crazy 18 months in the real estate business, but as the Sage of Omaha himself said “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it”.  

Translation: These fluctuations caused a flood of motivated sellers to appear. They won´t stay so motivated indefinately.

 

Kind Regards

 

Colin Murphy

www.torcana.com

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

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

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

As Dusty Springfield famously sang, “the world goes round without even a sound, and it looks like summer is over”.

 

Dusty was spot on regarding the second part of that lyric but the property and financial worlds were making plenty of noise over the past few months.

 

Growing confidence in the markets

Stockmarkets have rebounded, as have equities and commodities. Investors have regained their appetites for debt and the interest rates at which banks lend to each other has fallen back to near pre-crisis levels. Ben Bernanke, the Fed Reserve chief, has announced that the worst recession since 1929 was “very likely over at this point“. The Sage of Omaha himself (aka Warren Buffett), told CNBC yesterday that “the US housing crisis was over“.  

 

Confidence is also growing rapidly amongst large investors. I’m not just talking about hedge funds starting to actually buy shares again rather than short them, but also about pension funds and private equity groups buying huge amounts of distressed property in places like Florida.

 

Twice in the last 4 weeks I’ve seen developments with 100-300 units for sale taken off the market because single groups have purchased them outright, swiping the rug out from under the feet of those who were considering purchasing one or two units.

 

Kind Regards

 

Colin Murphy

Torcana.com

- We either locate buildings with tenants in place (most of Florida product) or we collaborate with local management companies to source new ones quickly (most of UK product).  

- We advise on purchase strategies and negotiate bulk discounts on behalf of high net worth investors

- We liaise with accountancy experts to ensure returns are filed properly and with title and insurance companies to ensure contracts are processed quickly and efficiently

- We help you obtain financing (where applicable), open bank accounts and obtain tax numbers.

In short, we are a very research and service orientated company.

For more information, please see www.torcana.com.

Kind Regards

Colin Murphy

Director

Torcana Ltd

In the USA, the changes are even more dramatic than in the UK. Economic output in the manufacturing sector expanded in August, following 18 months of contraction, which is highly significant.  

The S&P/Case-Shiller index, which tracks home prices in 20 cities, ticked up slightly in May, its first gain in 34 months (see chart below left hand side). New construction of single-family homes rose in July for the fifth straight month.

Sales of existing homes are expected to show their fourth consecutive month of gains when latest numbers are released (see chart below right hand side).
 
Within the State of Florida, sales of existing homes have risen year on year for the past ten months in a row! Sales of existing condos in Florida are up 39% year on year.

In the more depressed regions of Europe and USA, it’s very difficult to grasp just how fast property markets in places like Florida can move. But I can assure you that it is very intense and the landscape changes every day.

For more information, please see www.torcana.com.

Kind Regards

Colin Murphy

Director

Torcana Ltd

 

In complete contrast to Ireland, our cousins in the UK and USA had the ability to pump enormous amounts of liquidity into their financial systems to help kick start their economies. While these countries have huge public debt as a consequence - the ripple effects of this liquidity on their housing markets has been dramatic. Anybody following international business news (or indeed the modest Torcana News Section) will surely have noticed this.  

In the UK for example, every single region in England and in Wales recorded a monthly rise in house prices between June-July 2009. The average monthly increase was 1.7% - the biggest in five years.   

Mortgage approvals are now at a 17 month high and 77% more mortgages were approved in July 2009 compared to July 2008. The number of transactions is also increasing steadily, as illustrated in the graph below. 

For more information, please see www.torcana.com.

Kind Regards

Colin Murphy

Director

Torcana Ltd