+1321 806 1195(
Pages
Archives
- August 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- January 2011
- December 2010
- November 2010
- October 2010
- August 2010
- July 2010
- June 2010
- May 2010
- March 2010
- December 2009
- October 2009
- September 2009
- August 2009
- July 2009
- June 2009
- May 2009
- April 2009
- March 2009
- February 2009
- January 2009
Posts Tagged ‘Florida Property Investment’
In my previous newsletter, I outlined my thoughts on the EU/US crisis and why I felt business in Florida will carry on regardless.
Here are ten reasons why I am still betting on Florida real estate:
1. As of June 2011, there were 10,559 homes available to purchase in Orlando though the multiple listings system (MLS). This is 35% lower than the June 2010 inventory (16,304).
2. If you´re wondering why good deals seem harder to come by this year compared to last year, then look no further than the fact that Orlando condo inventory is down a dramatic 54% year on year. There are only a few hundred available to purchase.
3. The median sales price of a normal (i.e. non-foreclosed) property has increased an incredible 40% year on year, from $112,000 (£68,225) to $158,000 (£96,250). There has been a corresponding drop in the numbers of bank owned properties available in the open market.
4. The current pace of sales is equivalent to just 4.3 months supply, the lowest since 2005. A lot of prospective buyers will say that they are waiting for the bottom of the market. In my view they’ve already missed it.
5. One in five Canadians are interested in US property, according to a new survey by BMO Bank of Montreal. Aside from the Canadian dollar appreciating 18% against the greenback in the past five years, the house prices in the locations they tend to favor (Tampa, Phoenix, Miami) have fallen far faster than the US average.
6. Between March 2010 and March 2011, almost a third of all Florida sales were to foreign buyers, up from 10% in 2007 (NAR). Generally speaking, the USA is still by far and away the largest recipient of foreign direct investment.
7. Orlando´s median home price (which is a good barometer for Florida as a whole) is now $94,950 (£57,850), the lowest level since 1997. Reserve at James Island units are available at this exact price, but I can assure you the quality and location is far above the average.
8. According to a recent report from the Harvey University Center for Housing Studies, 16 million new housing units will be needed to meet population growth and shifting demands. That would mean household formation, currently at 500,000 per year, will need to reverse its recent trend and get back to the 1,000,000+ per year we witnessed in the years previous to the financial crisis.
9. There is going to be a surge in demand for smaller homes, as an estimated 3.8 million baby boomers will be looking to downsize in the next decade. There are an estimated 50 million baby boomers in total and a disproportionate number of these will be attracted to the warm climate, low cost of living and quality of life of Florida. Immigration growth will also continue to stimulate demand.
10. Despite all the turmoil in the markets, there can be few who doubt that Florida is a diverse, wealthy and resilient economy with a safe and secure legal system that has been protecting foreign buyers for decades.
Kind Regards
Colin
The three options facing real estate investors in the Orlando market
Many condo investors, especially those of modest means, are now faced with three options in the Orlando market. The first is that you continue trying to find good value properties in this $60,000 - $100,000 range. As I outlined in issue 38 and issue 39 of our newsletters, this is now extremely difficult due to a lack of supply and oversubscribed demand.
If the first option of purchasing units ranging from $60,000 - $100,000 is very limited, the next obvious option is that you move further up the food chain and purchase higher quality properties located in the best neighborhoods in the $95,000 - $150,000 range.
There is a decent selection of these available to those in the know and they offer very solid cash flow and excellent medium term capital growth. Best of all, they will be the first to provide equity release and resale opportunities when mortgage lending makes its long overdue recovery. This last point is crucial. There is a very strong school of thought that always advocates buying the best properties in the best locations wherever possible.
The third option is you move down the food chain and source properties in lower income neighborhoods in the $35,000 - $50,000 price range. Some of these look like unbelievable bargains compared to what they were selling for in 2005/6. Appearances can be very deceptive with these deals though. Experience and gut instinct tells me that most properties purchased in low income areas towards the end of a recession will generate highly irregular income and will take an unacceptably long time to generate meaningful capital growth.
One of my chief concerns (and gripes) right now is that there are respected companies out there promoting properties for $35,000 - $50,000 in neighborhoods that are just one or two steps up from the ghettos. It´s only a matter of time before a British tabloid publishes an article accusing a big property agent of selling dodgy properties and conning downtrodden families out of their life savings.
Kind Regards
Colin
Top ten tips on purchasing discounted property in Florida
I´ve written this article as a guideline to those considering a purchase in Florida. While property prices are at record lows and incredible bargains are available, it is just as easy to make the wrong purchase decision now as it was during the boom years.
Many of these tips are universal and can be applied to any property market. I would imagine that a lot of our readers would adhere to this criteria automatically but its always useful to present this type of information in an easily digestible format.
Here are my top ten tips:
1. Do your homework on the neighbourhood
2. Visit the property yourself, or have someone you trust do so
3. Check out the rent roll
4. Foreclosures: Make sure the number is manageable
5. HOA Reserves: Make sure they are adequate
6. Budget for repairs and vacancy periods
7.Closing and running costs: Make sure you know what they are
8. Get a decent management company and be aware of all fees
9. Get a referral from the selling agent
10. File your tax returns
1. Do your homework on the neighbourhood
You can look up the average household income and crime statistics for any neighbourhood in a matter of minutes and it could save a small fortune. Imagine that you´ve a choice between one property selling for $50,000 in an area with an average household income of $25,000 and another property selling for $60,000 in an area with an average household income of $40,000. You´d be much better off paying $10,000 extra for a better rental and resale market.
2. Visit the property yourself, or have someone you trust do so
An advert promoting a $30,000 property within 12 minutes of Disney might sound like a no brainer. The thing about Orlando is that nearly every neighbourhood, good and bad, is within a 10-20 minute drive of hotspots like Disney, Universal Studios, Sea World and Restaurant Row.
Like most big cities, great neighborhoods with huge mansions can be less than a mile away from horrible ones with rows of boarded up properties. You need a lot more than Google maps to determine if the location is good or not.
3. Check out the rent roll
If you are buying a pre tenanted property with the aim of earning a regular income, then ask to see an up-to-date copy of the rent roll. This provides invaluable information such as how many units are vacant, what each unit is renting for, when each lease started and when each lease will expire.
4. Foreclosures: Make sure the number is manageable
The more stable a community it is, the better for all home owners. If you are thinking of buying a unit in a community of 300 homes and 80 of them are in foreclosure, you could be in for a rocky ride. These properties will probably be sold for much less than what you´re paying for yours and rented out for less than you can afford to rent yours out for. Try and buy somewhere where less than 10% are in foreclosure.
5. HOA Reserves: Make sure they are adequate
In Florida, all condo home owners have to pay HOA fees which usually range from $200-$300 per month. Your Home Ownership Association (HOA) is responsible for looking after the common areas and facilities of the whole community and insuring the common areas and exterior structures of all buildings (i.e. walls & roofs).
Ask for a copy of the HOA accounts before purchasing a unit. This should tell you how many people are paying their HOA fees and what reserves they have in place. If either of these is inadequate, you could be in big trouble as your fees will be increased dramatically if a) the clubhouse roof needs to be replaced and they have insufficient reserves or b) not enough people are paying their fees to maintain the resort on a monthly basis.
6. Budget for repairs and vacancy periods
All properties, from the very top to the very bottom of the food chain are going to have vacancy periods and repairs that will eat into your income stream. Budget at least one month’s rental income each year being spent on these issues. Older properties, cheaper properties and properties in low income neighborhoods will have much higher vacancy and repair costs than newer properties in middle class and upper middle class areas.
7. Closing and running costs: Make sure you know what they are
For properties priced in the $50,000 - $150,000 range, you should budget approx $2000-$2500 to cover basic legal and title insurance. Running costs include HOA, real estate taxes, property management and home insurance (optional but highly recommended).
8. Get a decent management company and be aware of all its fees
A professional management company that manages your property and your tenants well over a number of years is worth its weight in gold. In almost every scenario, it does not pay to appoint a small inefficient company who undercuts bigger and larger competitors with cheap commissions.
The better your management company is at doing his/her job, the happier the tenant will be and longer he/she will stay. All management companies charge additional fees for placing a new tenant or renewing the lease of an existing tenant, so you should make yourself aware of these and input them into your calculations.
9. Get a referral from the selling agent
If your agent has been in business for a few years, he/she should be happy to put you in touch with a couple of satisfied clients who can verify that they are happy with the service received. This is especially important if you are dealing with overseas agents who are promoting properties in an area where they are not based full time.
10. File your tax returns
All property owners in the USA must file tax returns in the USA every year, even if the property is not earning any income. Overseas residents will need to get a tax number (ITIN) and a non resident social security number. This is a very simple process and filing returns every year shouldn´t cost more than a couple of hundred dollars and there are plenty of specialist companies who can take care of everything for you.
Regards
Colin
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
Put simply, we will source, inspect, purchase, manage and resell highly discounted properties on your behalf using a host of different suppliers, including distressed developers, REOs, Foreclosures, Short Sales , FDIC and other contacts on the ground.
Over the past year, as panic has receded and prices have started to bottom out, the supply of developer owned distressed real estate has tightened considerably. One of the few ways of ensuring a continuous pipeline of product for our investor database is to link up with and leverage the buying power of high net worth individuals and corporations.
The properties purchased will have lower purchase prices, higher net yields and faster exit strategies than those available on the open market. This is not a fund - you would be the direct owner of each individual unit. Additionally, we have access to the lawyers and advisors needed to create and maintain tax efficient holding structures.
To qualify for the program, a minimum of $200,000 must be invested and a proof of funds will be required before full information is provided.
If you would like to learn more just send an email to investments@torcana.com with “Torcana Private Portfolio” in the subject line.
Please include a contact telephone number and a rough indication of what you may wish to invest.
Regards
Colin
“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
During the boom times, I used to attend 15-20 property exhibitions per year. I can´t remember anybody at these shows advocating a buy and hold strategy. It was all about buying offplan and then selling for a big profit shortly after completion. Many a taxi driver, publican and dinner party host could be heard advocating a “buy now before prices go even higher” approach.
In hindsight, that turned out to be a pretty risky way to try and make some money. It was also miles away from the traditional methods advocated by old hands.
Somewhat ironically, it is easier to make money purchasing real estate now even though many might instinctually prefer to wait until the opportunity has passed.
While I´m convinced that making a profit by buying real estate is both easier and safer than it was 5 years ago, it doesn´t happen quickly and it certainly doesn´t involve borrowing lots of money.
There´s no great secret here, the strategy couldn´t be simpler. Here goes: buy a highly discounted property with cash (no interest rate risk), in an established location, earn a nice income, treat your tenants well, and hold onto it for as long as you can. Consider selling only when the statistics and your gut tell you the market is showing signs of another property bubble.
I´ll be the first to admit that this isn´t a particularly exciting plan, but you know what? It works. Very well. Just look at the table below. All I´ve done is illustrate the net income that can be earned from any half decent three bed condo in Florida.
|
Purchase Price 2011 |
$100,000 |
|
|
|
|
Annual Net income (increases by 3% per year) |
|
|
|
|
|
Year 1 |
$8,000 |
|
Years 2-5 |
$34,473 |
|
Years 6-10 |
$49,237 |
|
Years 11-15 |
$57,080 |
|
|
|
|
Total net income |
$148,790 |
Apart from earning 150% of your purchase price, you still own a property outright with no mortgage that you bought for 35 cents on the dollar.
Before any of you young guns reading this dismiss such as strategy as unsuitable, consider what the great American economist Paul Samuelson said, “investing should be more like watching paint dry or watching grass grow. If you want excitement, take $8,000 and go to Las Vegas“.
Let the numbers tell you when to buy and let the numbers tell you when to sell. I know a large bulk of our readers do this instinctually. A high rental yield with no gimmicks is one of the surest signs that a property is well priced.
The opposite is also true - a low rental yield probably means it´s overpriced. If it´s a combination of low rental yields and high capital appreciation - watch out, because you´re probably in the middle of a property bubble.
How do we know when the supply / demand balance is in our favour?
Taking Orlando as an example (because that´s where my company is most active), I think it is reasonable to assume that a good time to buy is when a supply glut has moved towards balance and the local house prices don´t reflect that yet.
Guess what? It´s happening now. According official figures from the Orlando Regional Realtors Association, the supply of available properties is now at a 5 year low. Unlike 2007, 2008 and 2009, average sales prices actually went up in 2010 across Orlando. I wrote a blog about this recently.
It´s a perfect storm (but the forecast says it´ll brighten up soon)
I´ve never seen conditions more perfect for buying real estate in the US. In the areas we sell - prices are reduced by 65-70% compared to what they were 4 years ago - way below construction cost. Supply was extremely high, but it is reducing fast.
Recent figures from the Census Bureau and The Economist (see graph opposite) confirm that homeownership rates have decreased from 70% in 2004 to 66.5% today - that means more renters. In fact, there are more renters now there has been for almost 6 years. When the number of renters is increasing faster than the supply of properties, rents should increase.
According to a Marcus & Millichap report (they´re one of the largest brokerages in the USA), exactly that has happened. The shift from homeownership to leasing should boost the local market’s average apartment asking rent to $864 by year’s end, a 2.2 percent increase. In the best middle class neighbourhoods it will increase by considerably more.
What are you thoughts on the Buy and Hold strategy?
Regards
Colin
I´m a curious person by nature and have always been fascinated by how public opinion changes with the times.
Investors and high flying property developers used to be respected and admired.
Getting a letter from the bank saying insufficient funds used to mean you´d no money left. Now it´s just as likely to mean they´ve no money left.
Politicians who you wouldn´t trust to run a bar in central Dublin suddenly lined up outside radio & tv studios to tell us about bondholder priorities, liquidity ratios and capital injections.
Like many of our readers, my attitudes to the people mentioned above have changed considerably over the past 3 years.
My attitude to property investment hasn´t really changed at all however, and while that might mean I´m in a minority, experience with clients and newsletter readers has convinced me that it is a sizable minority.
Before the recession, I didn´t like the idea of buying property when prices were rising at 20%+ per annum. I was never a fan of buying offplan because I always worried that they wouldn´t get built. I never flipped a property. Never agreed with 100% mortgages. As I don´t take holidays very often, the idea of buying a vacation home and renting it out when I wasn´t using it had little appeal.
During the recession, I thought buying property was a great idea and said so to anyone who would listen. Myself and my business partners identified a profitable market niche at a time when many agents and investors were running for the hills.
We´ve promoted a fairly wide variety of real estate deals in Florida over the past 3 years and I think it´s reasonably fair to say that we´re better than most at sniffing out a bargain. Siesta Lago is one example, Sabal Point is another. If you click on those links and complete the enquiry form, an information pack on each will be sent to you automatically within 10 minutes.
How has your attitude to investing changed over the past few years? I´d love to hear from you.
Regards
Colin
Answer: Florida isn´t a giant property bubble like Dubai.
A property boom didn´t just appear in the Sunshine State out of the blue. The real estate market was tipping along quite nicely based on firm fundamentals between 1990 - 2002 prior to the unprecedented buying binge that occurred worldwide from 2003-2006.
A high quality of life, lots of space, great schools, universities and employment opportunities, a diverse and high tech economy encompassing large multinationals and government agencies of every description, a world class financial and tourism sector - all these played a part in attracting wave after wave of honest-to-goodness professional workers relocating permanently.
Guess what? They´re still here. If you know where these people live, work, play and go to university you are well on your way to making a wise investment decision. These are the locations where our target market of middle class professionals rent and buy their first homes. Siesta Lago is one of them. The people renting and buying here will provide a safe and stable exit strategy.
If you like the idea of purchasing a property that used to cost $200,000 but now sells for $70,000 and rents out at an 8% net yield - you really should start looking now. If you click on this Siesta Lago link and complete a short enquiry form, all information will be sent to you automatically.
In conclusion, prices aren´t falling anymore in the areas we source property - it is the supply that is falling. The window of opportunity to purchase a) in the best areas and b) at the bottom of the market will probably close sooner than a lot of industry commentators think.
Speaking of which, we´d love to hear YOUR views on the market via our blog comment and feedback forms.
Until next time
Colin
