Florida - changes between 2008 - 2011

When Torcana first entered the market for distressed real estate three years ago, there was a wide selection of properties available in what I would consider the “comfort zone” of most investors. For $60,000 - $100,000 you could purchase a tenanted and well maintained 1, 2 or a 3 bed condo in a decent middle class neighorhood.

We pride ourselves in our ability to sniff out a bargain and we sold a couple of hundred prime units matching the description above in well established communities like Mosaic at Millenia, Arbor Lakes, Sabal Point & Siesta Lago. A mixture of direct competitors, pension funds, specialist property funds and high net worth individuals all snapped up tens of thousands more in (broadly) similar communities and price ranges.

When you combine that substantial investor activity with improved economic conditions generally, you are are left with a severe tightening of this market segment. While some news outlets are still publishing stories about new foreclosures and price falls, today´s facts are a lot more relevant than yesterdays headlines.

The basic truth is that the number of properties being purchased every month far outnumbers the combined total of new foreclosures plus new builds becoming available.

Recent official statistics confirming inventory levels at 7 year lows (4.8 months worth) and vacancy rates at 3 year lows enhance this argument further.

Those with cash are very fortunate right now because they can purchase properties that less liquid people simply don´t have access

to. When financing does become more widely available for both Americans and overseas buyers in Florida - it will be far tougher to find that bargain.

For starters, the price of everything will increase once the supply of people who can purchase it increases. You needed an average of $70,000 in cash to purchase one of the thirty condos we secured in Siesta Lago (now sold out). If banks were willing to offer 70% mortgages, the price would jump up way over $100,000 and you´d be competing with a far bigger group of buyers to secure one.

Fortune Magazine produced a very comprehensive report a couple of weeks ago entitled “Real Estate: It is time to buy again“. This is a very authoritative publication and to me that headline says a lot more than 100 similar ones in a property magazine or real estate association website. They also published a “Top Ten Cities for Home Buyers” index.

Florida had 3 in the top 10, with Orlando ranked number 2 nationwide. That´s a pretty big thumbs up for the Sunshine State in my book.

Colin

If you were so inclined, it would be quite easy to do a Google search on ALL the resorts we sell in Florida and quickly find what looks like a similar property in a similar area for a much cheaper price. Once you find the actual seller, you might even be able to negotiate a slightly better deal for a quick cash sale. In my humble opinion, the chances of making a profit on these deals is probably similar to a rookies chances playing a professional poker player - they might win a couple of hands, but eventually they´ll lose.

I´ll be the first to admit that we are not a one size fits all company. A lot of what we promote won´t be suitable for sizable chunks of our database. We might launch something at $130k when your budget is $90k. The net yield might be 7% when you actually need 9%. It might be in Orlando when you´d prefer Miami. All perfectly understandable.

Whether or not a new launch suits you, you can rest assured that we´ve done our due diligence on it. I will be able to tell you when it was built, what materials it was built with, how many have been sold, who has been buying them, what rents and occupancy levels are being achieved, all the hidden running and closing costs, what the accounts and reserves of the home ownership association look like, the history of the real estate taxes in each unit, its proximity to important schools, offices and attractions, bulk buyers that have previously been involved …. and much else besides.

It is this knowledge that ensures our buyers get a solid deal, not the cash they have in their bank accounts.

Colin

Most of the properties we source are for cash buyers, so obviously you can´t do much without it. However, the more I think about it, the more I realise that cash isn´t king at all. In fact, it never has been king. If anything deserves a royal title, it´s knowledge.

Knowledge will beat cash every time. Negotiating a lower price from a seller by posing as a cash buyer is easy. Almost anybody can do that. To put it bluntly, a bad investment is bad whether you paid cash for it or not.

Over the past 10 years, I´ve had the good fortune to speak with, learn from and sell to hundreds of experienced and successful investors. Some of these guys have truckloads of cash, but that´s generally not what sets them apart.

One of the recurring themes I´ve noticed is the importance professional investors place on solid analysis. Every deal will be researched and analysed carefully to see if it conforms to their particular strategy. If they don´t have time to do it, they´ll pay someone they trust to do it for them.

When you think about it, every single person who buys a property will end up paying for a solid analysis, either before or after they purchase. As anybody who has ever bought the wrong property can attest, it´s a lot cheaper and quicker to do it at the beginning.

Colin

I´ve never been a big fan of using everyday expressions and phrases to describe selling property.

I´ll admit they can be handy tools for getting an affirmative nod from the person listening to you, but I always end up feeling that the salesperson is talking on automatic.

The ones I hear most at exhibitions and conferences include terms like: “you get what you pay for”, “it´s a buyer’s market”, “the clock is ticking” & “it´s a no brainer”.

However I think one of the most used and abused terms of all over the past few years (and I´ve been guilty of using it myself), is the ubiquitous “cash is king”.

How about it folks - any other real estate professionals out there who´ll join me in a pledge to cut down on these outdated buzzwords?

Regards

Colin

A staggering 20 per cent of all Canadians would now consider buying property in the USA, a new survey from BMO Bank of Montreal, conducted by Leger Marketing, shows.

Lower USA property prices and a strengthening Canadian dollar have fuelled greater demand for homes in the States.

Average property prices in the USA have declined by around 30% since the market peak of 2007, but prices in Canadian snowbird destinations, including Florida, have dropped even more.

According to the report, Miami property prices have fallen by 49%, while greater property price declines have been recorded in Phoenix (-54%) and Las Vegas (-57%).

“Now, with the American economy and employment gaining strength, home sales should pick up and put a floor under soft prices,” said Sal Guatieri, senior economist, BMO Bank of Montreal. “We expect prices to rise over time as the overhang of unsold homes eases.”

Guatieri projects that the U.S. dollar will strengthen in the next few months, which would add to the investment potential for Canadians who buy property in the USA now, as they would realise larger returns, should they choose to sell their USA property and repatriate funds back to Canada.

Overall international demand for homes in the USA is growing among property investors across many parts of the world, which could eventually help push property prices higher.

“The price of copper has increased by 50% in the last 9 months“ probably isn´t something you´re likely to hear in your local pub on a Friday night.

You would if you were stuck with a nerd like me, but as far as investments are concerned, people are much more likely to be talking about the price the house around the corner was sold for and the estimated loss/profit that the seller made.

Property is unique in many respects, and the fact that people gossip about it more than any other investment is just one of them. It is also unusual in that prices are set by local transactions - one absurd bid on a house can push up the value of every other property on the same street.

Culture also has a major influence (Germans like renting, Americans like owning), as do property taxes (very high in Spain, reasonably low in Britain). The lax property laws and politics of Ireland´s outgoing government made a hefty contribution to the recent boom (and was a major reason the incumbent Fianna Fail party were hammered in recent elections).

Less obvious factors like demography (a steadily increasing population has always underpinned US housing investment from institutional buyers) and geography (limited space in Hong Kong, lots of space in Phoenix) can also have dramatic impacts over time.

You can push, but you can´t direct it (Bono)
Efforts to control the property market can often have unintended side effects. Spanish first time buyers have always had to deal with very strict mortgage lending laws, and yet the same banks that were required to ask for 25% deposits were given free rein to finance rampant speculation on behalf of developers. On the other hand, German banks who couldn´t lend to local developers invested in subprime mortgage bonds in America instead.

Go figure.

Regards

Colin