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

 

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

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

I watched a great documentary last night about the famous Frost / Nixon interviews of the late 1970s, and after it finished, I couldn’t help but indulge myself by drawing a few interesting parallels between the character arc of David Frost and that of the average property investor over the last couple of years.

 

David Frost used to be a somewhat confident, adventurous and carefree man who achieved easy fame through a variety of lightweight and rather wacky tv shows. He then came up with a brainwave involving an exclusive interview with Richard Nixon. Against all the odds he pulled it off and syndicated a series of groundbreaking interviews with the highly controversial ex President worldwide.

 

During the first three programmes Frost was alternately cautious, fearful and overawed by his subject; but by the fourth programme, a much more focused and aggressive interviewer had emerged. He went onto receive immense critical acclaim for the incredible responses and emotions he drew from the famously shrewd and taciturn Nixon.

 

Confident, adventurous and carefree are also adjectives that could easily describe the mindsets of many property investors purchasing during the high flying years of 2002-2007. Cautious, fearful and overawed would also be an accurate depiction of how most felt towards the end of 2008.

 

It’s all changing now though. Today’s buyers are, if you’ll permit me to finish the narrative, much more focused and aggressive than those who preceded them.  The Irish and the British are still buying properties, but they are much less inclined to purchase for a quick return and are instead carefully analysing distressed properties in US, Spain and Florida. They are also negotiating hard with sellers to achieve a high rental yield and are very focused on timely delivery.

There’s no doubt that it’s still very stormy out there, but as indicated in Issue 2 and in the Orlando Sentinel today, there are many clues out there that suggest we could be in the process of turning a very important corner.

 

Kind Regards

Colin Murphy

Director

www.torcana.com