Tampa Real Estate Investment for Canadians

Tampa Sales Surge 21% in October

2014-11-20T09:26:00.000-08:00

October market statistics released today show continued strengthening in sales activity with prices now starting to follow suit. Sales volume was up 21.5% over the same period last year while new pending sales were also up over 13% in the same period. Average and median price were up 6.6% and 7% on the year respectively for single family. Townhomes and condos showed massive gains of 15% and 17% on the median and average price. . The October figures continue the trend that we noted in September where there was a sharp increase in sales.

October 2014 Sales Report Single Family - Florida Realtors

October 2014 Sales Report - Townhome and Condo - Florida Realtors

The historical bar graphs on the report lend further relevance: After being one of the hardest hit markets in the U.S. Tampa saw double digit price increases in 2013. For the most part 2014 saw marginal gains in sales and prices over the record pace of the year before. One trend that did emerge was sharply lower cash sales as a more “normalized” market took over from one dominated by investors.

In September of 2014 however we noted a sharp increase in sales while prices remained flat. October brings a massive increase in sales volume and prices also starting to move higher. We will see if this trend continues to form a true “second wind”.

Tampa Sales Surge in Sept 2014

2014-11-08T08:52:00.000-08:00

While I have not written anything for awhile here there has been little to write about.

After the huge price increases the year before sales and prices held flat over the majority of the spring and summer of 2013. Another trend that seemed particularly prevalent was the reduced number of cash sales (normally attributed to investors). However even with double digit declines in this group the overall sales volume held firm.

September 2014 Florida Realtors Report

https://drive.google.com/file/d/0BzW3hG2_efV-ZzJGbUduMUtnRm8/view?usp=sharing

Of note in the September report is the sharp increase in sales volumes. Sales are up more than 10% over the previous year and new pending sales are up more than 11%. Even the cash sales are up 6.5% due largely to an increase in REO sales clearing through the system.

Meanwhile both the workforce and employment numbers continue to set new records.

http://data.bls.gov/timeseries/LAUMT124530000000005?data_tool=XGtable

Tampa Employment Reaches Record High

2013-10-22T06:01:00.002-07:00

After considerable delay due to the government shutdown jobs report was released today showing 148,000 jobs created nationally in September and falling short of analyst estimates of 180,000. In addition a substantial amount of the increase was due to seasonal government hiring including school teachers and staff.

Tampa Reaches New High in August 2013

While the Tampa numbers for September have yet to be released the numbers for August numbers have just been made available: Employment reached a new high at 1,264,590. The previous high of 1,262,967 was reached in July 2007. In addition the unemployment rate dropped to 7.0% from the 7.3% recorded in July. Tampa unemployment follows a seasonal trend with August marking the beginning of the winter cycle. From July 2012 to April 2013 the unemployment rate fell from 9.3% to 6.7% before rebounding back to the 7.3% in the summer

Graph of uneployment showing consistent mid-year seasonal spike.

The September numbers are still to come and should be unaffected by the shutdown. Thereafter it is unclear how the numbers will be affected moving forward. We do note however that government employment has been trending down in Tampa generally and that the recent gains are entirely due to the private-sector.

Source: Bureau of Labor Statistics

Tampa Home Prices Remain Affordable

2013-10-16T11:30:00.002-07:00

Despite a strong recovery Tampa home prices remain affordable to the majority of middle-class buyers according to a new study byTrulia. The study sites affordability concerns in several markets as a result of recent price increases. In Tampa however 73% of middle-class families can afford an average price home costing a maximum of $216,000.

Among the locations where homes are most affordable Tampa also stands out as one of the most desirable places to live. Consider that in Miami for example, only 51% of families can afford to own a home and West Palm Beach where the percentage is 58%. Of major Florida centres Orlando seems the closest competitor where 69% of families can afford an average home of $222,000.

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Tampa also shows relative strength among affordable markets in terms of economic development. We recently compared the Toronto to Tampa market in terms of a number of benchmarks including average price to average household income. In Tampa it took the average family earning $58,000 approximately 3.58 years to save for the average detached house costing approximately $204,000. In Toronto by contrast it would take the average family making $68,000 some 9.3 years to purchase an average home costing 635,000.

Flood Insurance Increases Pose New Opportnities

2013-10-14T13:23:00.001-07:00

On October 1, 2013 changes to FEMA flood insurance program took place which are expected to have dramatic effect on real estate values in Florida and other States where there are a number of flood zones.

This writing summarizes the effect of the changes, it's effect on the current portfolio, and identification of opportunities moving forward.

Identification of issue.

Email administers a mandatory national insurance program for properties in high-risk flood areas. This is accompanied by a complex series of flood maps and surveying elevations for any given area which dictate the amount of risk. When building new homes in the flood area it is possible to simply adhere to the FEMA guidelines and thereby reduce the amount of risk and has the rate of insurance payable. Below is a picture of a stem-wall upon which new home is to be built in the flood area.

The system has only been implemented however since the mid-1970s and continued through the 1980s. Living by the water has always been popular and many of the homes in flood risk areas were constructed well before that time. The map view below shows new houses built on a stem-wall on the one side of the street with older houses built at road level on the other (see height of door/entrance).

View Tampa Port Land Lots in a larger map

As can be seen the stem-wall is almost as high as the first floor of the house without one so that the older house would be almost underwater before the newer one were even affected. On a purely risk-adjusted basis the market rate of insurance for the older house would be in excess of $10,000 per year. To compensate for this a series of subsidies has been put in place for older homes to normalize insurance rates. However as a result of several recent natural disasters which severely depleted the fund the subsidies were legislated to be phased out effective October 1, 2013. The phaseout is gradual for most homeowners except in cases where the homes have been recently sold. Nevertheless even homeowners who remain in their homes have complained of rates doubling wild new purchasers (of older homes) have seen rates increase up to 3000%.

The obvious effect of this is to diminish the economic value of these older homes as the flood insurance premium alone would be sufficient to otherwise carry a much newer or larger property. As a result there have been several political initiatives by governors of affected states including Florida to cause amendments or reversal of these policies. It seems unlikely however that they would be entirely reversed as a result of funding constraints.

Effect on Current Portfolio

The units in the rental portfolio were all newly constructed so as to avoid the subsidized premiums. Other than normal rate increases they should not be affected.

New Opportunities

Assuming that the increased rates remain in force, they also present some unique opportunities: many of the properties affected by the increased rates are in desirable waterfront areas where there is a lot of new construction activity. The factors outlined in this paper may be responsible for causing yet more transformative change as old properties are replaced with new.

A further opportunity lies in the exemption from the mandatory insurance for properties which are owned free and clear. This would include properties which are purchased with funds borrowed from another country provided that there is no US mortgage registered against the property. The majority of rental investments are financed in this manner as limited other options exist.

As the properties can be purchased for a nominal premium over the cost of comparable vacant land and are in good areas, they produce excellent income during the hold. At the same time this income gives the investor far more flexibility than with the raw land.

As with many strategies the trick is not just identifying the opportunity but also having the resources to implement. Check out our websites and blog for information on our rental management and construction activities.

Left: Picture of one of our current new builds showing height of stem wall.

Tampa Prices, Sales Continue Strong Growth

2013-09-21T12:07:00.001-07:00

Tampa home prices continued to show strong growth in August 2013 with the median price of 23.1% over August 2012. The average price was up 15% and close sales improved 10% over the previous year. At 4.4 months supply inventories are starting to creep back into the system but still down 22.5% from the almost 6 months of inventory in August 2012.

These statistics are particularly positive as they come in three months after major interest rate increases. There was further good news on the interest rate front this week as the Fed indicated no intention to clawback its bond and mortgage-backed securities buying.

One of the major underlying reasons for the strong real estate recovery in Tampa has been employment. After seeing rates peak of over 12 1/2% in 2012, Tampa has staged a remarkable recovery. Unemployment has returned to national average rates and was under 7% for most of the spring and summer of 2013. Well the August unemployment rate has not been published the total nonfarm employment is the highest it has been in a six-month period After a brief pullback in June and July. Construction activity has also been a strong performer recently where it had been virtually non-existent after the housing crash. Tampa is the 16th most active new construction market in the United States in 2013.

Construction Underway at Port Tampa Beach Homes

2013-08-17T09:44:00.004-07:00

Construction is underway at our new development of beach homes in the Port of Tampa where we have joined and number of premiere local and national builders in developing this exiting downtown area less than 2 miles from the beach.

Stem wall picture July 2013

Our own designs follow the "coastal vernacular" style that has recently gained popularity elsewhere in Florida. The main theme combines traditional design elements with the latest in construction materials and technology.The model home depicted above is located at 7220 Mascotte St. and should be completed by year end.

For further information on this or our other models please contact me.

Tampa # 16 in U.S. for New Home Construction

2013-08-07T22:53:00.000-07:00

When we first went to Tampa in 2010 to buy foreclosures I recall saying to one of my partners who was with me that it seemed like a long time before they would be building again. I would never have thought that by this time construction would be booming again (Forbes: Summer 2013 from McGraw Hill Study).

Actually it makes perfect sense: Nothing has been built since the market crashed in 2008 and the population has continued to grow. The unemployment rate reached as low as 6.7% over the summer and is still well below the national average so the prospects for continued migration are good. Improving economic prospects nationally should also boost the influx of vacationers and retirees.

We are proud to have teamed up with a construction manager previously from one of the country's largest builders for our own project: A collection of Key West Style Beach Homes in South Tampa less than 2 miles from the beach. You can view 3D Models of the development with the latest version of Google Earth here and then downloading this KMZ file of the models.

Tampa Employment Surges Back

2013-02-06T05:30:00.000-08:00

Since July 2012 the unemployment rate in Tampa has fallen from 9.4% to 7.9% in December and is now in line with national averages. Having come back from a high of 12.5% in 2011, the area carries impressive momentum into the new year.

A better measure of economic activity is the simple employment number, cut adrift of the percentage of people looking for work. The graph below shows Tampa employment through the entire cycle from 2002 to present. After being literally decimated in 2010 employment has recovered impressively. More people are employed in Tampa now than during the majority of the “bubble” up to ’06. Only during the height of employment in ’07 were things any better and the current number is rapidly approaching those levels. The rate of employment growth coming out of the trough is also superior.

Contrast the median house price from 2000 to present below. Prices started to come off at the same time as employment but took longer to find bottom in early 2011. Since that time they have steadily recovered to early 2003 levels. The employment chart reveals that there are a lot more people working in Tampa then there were in 2003 (or 2004, 2005 or most of 2006). Mortgages, although cheaper are harder to qualify for, but many people also are forced or prefer to rent, still feeling the effects of the crash.

It is also noteworthy that this revival in employment has occurred almost entirely without the construction sector which continues to suffer. While we saw a surprising amount of new homes being built in November of 2012, the sector employment data below paints a different picture (Construction Sector Tampa Employment: Bureau of Labour Statistics).

Construction is a significant sector of the economy. Even with the building activity we saw, Tampa has not yet returned to the “virtuous cycle” in which construction activity itself contributes to employment and house price growth. The sharply declining inventories of available homes however bode well for an imminent return.

If the economy has been growing as it has without the construction industry, one can only imagine what happens when it kicks in.

November Tampa Prices Up 21.7% vs. 2011

2012-12-23T11:15:00.000-08:00

Tampa prices showed strong improvement in November with the median price of single-family homes up 21.7% over November 2011. While condos were up only 6.9% in the same period, This follows an October price that was fully 22% above October 2011. Average prices for single-family homes and condos were up a more moderate 16% and 18% respectively.

Click for full statistics report

Looking at the long-term price charts shows a definite bottom in the market at January 2011. Prices in 2011 showed considerable gains prior to being eroded by the seasonal retreat at the end of the year. At the end January 2012 showed only a 2.8% improvement for homes and 6.3% for condos over January 2011. Since that time however the numbers have been far more impressive in many cases posting double-digit year-over-year gains. The market has also shown surprising strength in the final months of the year giving up very little if any of its earlier gains and providing a strong foundation For the price growth that typically takes hold in the spring.

The numbers in relation to some insular examples are even more impressive. Take for example our most popular building the Quarter atYBOR. In Spring 2011 we commenced buying 600 square-foot one-bedroom units for approximately $40,000 in foreclosure sales. By fall 2012 similar units sold for an excess of $74,000 in foreclosure sales. Still they are a fraction of their 2007 peak price of over $180,000.

One point that sticks out from the November statistics appears on the last page or the lender mediated overview. This charts the number of distressed sales of the percentage of the global market and shows a marked decrease in the latter half of 2012. Yet still in November lender-mediated or distressed sales accounted for 36.7% of the global market. While the volume of foreclosure sales was up almost 35% over November 2011 short sales showed only a 13% increase. At the end of December 2012 provisions will expire and forgiven debt will become taxable as income again. It remains unclear what if any effect this will have on the distressed market.

On a more subjective level, a recent trip to Tampa revealed some interesting developments, most notably the amount of construction activity. Similar to Toronto there is a increasing trend towards urbanization and redevelopment of areas in proximity to the downtown core. Unlike Toronto however there is very little high-rise development. Instead areas of older homes are being demolished and replaced with larger, newer models. The older homes that remain seem poised for appreciation and in any case make excellent rentals as they have very low cost attached to them. In many cases we saw older properties with rentable structures for less than the cost of serviced lots.

The building activity did not end in the city. On a trip to Brandon, about 15 minutes southeast of Tampa we noted a lot of construction at site of townhomes being built by Lennar. We went to the sales office and found that the remaining examples were selling briskly in the $100-$110 per square foot range. We then drove around those parts of the complex that were already built and true to the representations made, the units appeared to be all occupied. Well we were somewhat surprised that they were able to build them so inexpensively, we nonetheless continued across the street to inspect the units that had just been purchased for $65 per square foot, built in 2006.

If buying at these discounts seems too good to be true, in fact there are several catches involved with it: Firstly, it is extremely competitive, so be prepared for multiple offers on almost everything and having very little choice in which property you end up with. And cash only please. No need to consider offers which are conditional on financing that may or may not happen. The result has been to create a bifurcated market, The typical market for new homes driven by access to credit and the investor (distressed) market which is driven by all cash transactions.

Closing the books on 2012, it is been a strong year for our Tampa portfolio, growing to in excess of 50 properties. All indications are for even stronger price growth into 2013http://www.realequity.ca/florida/stats/Nov2012.pdf

Why to Invest in Florida July 2012

2012-07-02T07:18:00.002-07:00

Why Florida ?

While Florida has always been a popular vacation and retirement destination, a number of far more practical reasons exist to invest there:

Record Low Prices – Florida real estate was extremely hard-hit by the 2008 meltdown. Properties were off over 50% - 70% from peak value vs 30% in the broader US market. Newer properties are available well below replacement (construction) cost.

Cash Flow – Our rentals produce between 6-9% cash-on-cash return after expenses in addition to any capital appreciation on the property.

Solid Recent Price Increases – The Florida market charts show a bottom in January of 2011. Since the beginning of 2012 the median condo price in Tampa has shown double-digit year over year gains.

Declining Inventories – Active listings and months of supply are down between 30%- 40% from May 2011. (see May 2012 Tampa Statistics From above link – Price Increases.

Active Distressed Market – Even though things are now improving, the prevalence of mortgage defaults is still working its way through the system, providing a good supply of distressed properties at below market price for the foreseeable future.

Rapidly Improving Economy / Fundamentals – Florida’s economy in one of the fastest improving in the U.S. and has recovered from one of the worst unemployment rates in the country to come in line with national averages as of late

Strong net migration – Florida has always experiences strong net migration and is regarded as one of the most desirable places to work and live as well as vacation and retire.

High rental demand – The effects of the crash on credit and public sentiment towards homeownership make renting either a necessity or the preferred choice of many Floridians. Rental demand is high.

Tax benefits – Real estate benefits from favourable tax treatment both here and in the US. Redeveloping foreclosures is particularly attractive as most of the development costs are immediately deductible.

Why RealEquity ?

We Act for You –We are not agents acting for developers trying to offload product in Canada. We represent our investors to find the best deals that suit their criteria.

Fully managed Investment - RealEquity clients enjoy all the benefits of a fully managed investment while retaining individual title to the properties for ultimate liquidity and control. While most clients will travel to Florida to see their portfolio, the entire process goes on without the clients ever having to leave Ontario.

Experience – RealEquity has been acting for Canadian investors in Florida for over a 18 months. We have successfully redeveloped dozens of distressed properties for clients, turning them into top performing rental investments or in some cases selling them for substantial profit.

Specialization – Acting for clients in Canada, Asia and South America, we are specifically focussed on issues applicable to non-resident investors. We offer basic information on tax and cross border issues as well as referrals to qualified professional advisors.

Proven Results – While past performance does not guarantee future results it remains one of the better indicators.

View some of our recent projects

Tampa may Condo prices up 14%. Employment strong.

2012-06-22T05:17:00.001-07:00

May closed sales for the Tampa area continued to show strong growth with the median condo price up 14.0% from May 2011, Single family median price up 8% and sales up 14.4% from a year previous. Inventories continue to trend down with a 30.7% reduction in homes for sale. Click for full report

One economic driver behind the recent price increases has been employment: Florida is adding private sector jobs. While the US economy produced only 69,000 jobs in April, 16,800 or 24% of them were in Florida. Florida represents only 6.1% of the US population. Since December 2011 the Florida economy has produced an average of 17,320 jobs per month notwithstanding a reduction in government jobs and the continued battering of construction and related sectors. Statewide unemployment was 8.6% in May, down from 8.7% in April and a steady decline from the 9.9% recorded in December, 2011.

From our perspective the historical rates are most relevant as Florida has suffered some of the highest unemployment rates in the Country since 2009. Poor employment prospects were but one factor leading to the wholesale reduction in Florida housing values: While house prices are off some 30% nationally we are still buying in some areas for 60% off peak price.

While employment is but one indicator of economic health is seems a fairly logical predictor of real estate values as people tend to live near economic opportunity. It seems equally logical that real estate values would lag employment as it takes time for persons to migrate, establish themselves in a new area and ultimately decide to buy a home.

While Florida was “overbuilt” it continues to experience strong population growth. Inventories of homes are now returning to more balanced levels and much of the existing inventory is still priced well below replacement cost. The improved employment outlook is but one factor that will continue to fuel the real estate recovery which is well underway.

Florida Employment Rebounds, Leading Indicators Strong

2012-06-09T09:24:00.001-07:00

While the latest US Jobs data paints a bleak picture for the broader economy, local employment in Florida has been flourishing: Having experienced some of the highest unemployment rates in the country since 2008, Florida is now in line with national average. In April 2012 the unemployment rate was 8.3%, down from 8.6% in March and 10.2% a year earlier.

While the employment outlook is in line with national rates, housing has only just started to recover from the effects of the previous malaise. While the average home price is down some 30% nationally from peak, we are still buying properties for 30% of their peak value in prime locations. The housing market lags employment as it takes time for people to migrate to new areas, settle in and ultimately decide to buy a home.

Another good leading indicator for housing comes from the equities markets where US Homebuilders have posted some of the strongest sector gains this year. People are ordering and building new homes again for the first time since pre 2008 and many builders are seeing a return to profitability.

Prices in the underlying real estate have also started to move solidly off their January 2011 lows with the median price for Tampa condos up 13% over April 2011. Unlike the stocks which pay no dividends, single family rentals yield between 6-8% cash on cash in addition significant upside potential. Distressed sales offer an opportunity to buy at discount with short sales selling an average of 21% below the price of non-distressed properties.

One of the characteristics of real estate market is that it is slow to respond. It takes time for people to devise and implement real estate decisions. Hence while the market may lag these indicators it seems destined to predictably follow them.

US Real Estate Turnaround Takes Hold

2012-05-26T12:21:00.001-07:00

For those following the US Real estate Market the news has taken a dramatic turnaround as of late: This week markets surged as April sales released by the National Association of Realtors showed a dramatic 10% increase in year over year prices, the strongest gains since pre-crisis. Shares of US Homebuilders have seen dramatic gains over recent months on reports showing increased orders. Most call for a moderate price increase in 2012 followed by strong price increases in 2013.

In Tampa the statistics are even more encouraging as the median condo sales price was up 13% over April, 2011. Median single family homes price is up 8% and inventories are 41% lower than April last year both in condos and singles. Tampa has posted solid year / year price gains in the last 4 months with the charts showing a bottom to the market in January 2011.

With the market heavily influenced by foreclosures, how and where you buy the units is critical. Trading distressed sales in select complexes it is possible to easily outperform the broader market: Some downtown complexes are selling for 140% of what we paid last year. In one case we sold a unit for 140% of what we had paid for it within 2 months. While the downtown market continues to post impressive gains the lack of inventory has become an issue.

Meanwhile in newer complexes outside the core the supply of foreclosures remains strong and the prices continue to be adversely affected. Relatively new properties can be bought far below replacement (construction) cost. When the inventory of distressed properties is absorbed the prices should rise in the same manner as it has done downtown. Longer term, prices will have to exceed construction cost before it becomes economical to build again.

ABC News May 22^nd, 2012 : U.S. April resale housing numbers released by NAR show 10% jump in median price over April 2011. Markets surge on optimistic outlook for US housing.

Washington Post May 15^th: Homebuilder confidence at 5 year high. Building permit applications highest in 3 ½ years.

Time Business, May 15^th, 2012: Housing recovery has officially begun. Investors play crucial role in first stage of recovery.

Florida Properties “Off the Shelf”

2012-04-07T09:32:00.001-07:00

Canadians are by far the largest purchases of Florida real estate, accounting for 38% of the 25% of all Florida homes sold to non-residents.

Still one of the largest barriers to investing is the uncertainty of investing at a distance. Another is coming up with the right team to pull your project together: Converting distressed sales to top performing investments takes a whole team of professionals, from Realtors to contractors, rental agents and managers and tax professionals.

We have been privileged to have built portfolios in a number of properties in Tampa representing a mix of everything from student housing to luxury homes. In the majority of cases we have purchased from banks and fully renovated the units prior to renting them (Such as this 1 bedroom unit below)

This allows Clients to buy similar deals “Off the Shelf” with a greater degree of certainty as to the results they will obtain, not only in terms of the property and rents, but also the performance of contractors and other professionals involved in the deal

Any agent can tell you what they think it will cost to renovate a unit or what they believe it might rent for or how long it will take. If they are not responsible for the whole project or have never done one before, how would they really know ?

In providing project management we are accountable for the entire process from acquisition to rental. The whole process flows seamlessly and efficiently, providing excellent times from acquisition to occupancy.

Here is the same unit which had basic renovations and which secured a leading rent of $ 975. within a month of acquisition.

Florida Rents Show Steady Growth

2012-01-04T14:35:00.000-08:00

While Florida real estate prices have been something of a roller coaster, rents tell a different story and show consistent growth over time.

Take for example this graph of Tampa “Fair Market Rents” used for the purpose of calculating housing allowance from 1983 to present (Link to base data)

Analysis of the base data shows more consistent growth than the chart: The apparent “fall off” in 2006 is not due to decreasing rents but to changing the basis for the calculation (from the 50^th to the 40^th percentile).

While HUD projects a drop of over 3% in 2012 our experience has been the opposite with the same units renting for 5% more today than they did just last summer. One explanation is that the units we are renting are considerably more expensive than the 40th percentile rents represented by the chart.

In running credit checks on prospective tenants we have noted that a large number of residents could well afford to buy the units they are living in. The demand for higher end rentals is extremely strong, particularly in the larger units.

This luxury TH rented for $1,650 on the day we closed: December 29th, 2011.

Reducing the Risk of Buying Foreclosures

2011-12-31T11:25:00.000-08:00

Many investors have heard that some of the best deals in Florida are foreclosures.

How Good are the Deals ?

According to RealtyTrac foreclosed properties sell at 38% below regular non-distressed sales.

In October a client bought one of these condo for $ 110,000. The developer sold 2 identical for $ 175,610

Aren`t Foreclosures Risky

Buying foreclosed properties carry some additional risks.

Many of the same questions apply to buying properties that you are unfamiliar with generally:

· Do the units tend to have certain repair issues ?

· How much do they rent for ? Are they easy to rent ?

· Is the HOA (Condo Corp) financially sound ?

· Are there special assessments or leasing restrictions ?

In foreclosures there is usually less information available to work with and tighter time constraints in the deal.

Template Deals

One solution to reduce uncertainty is to do the same deals in the same buildings over and over again.

In buildings where we actively trade we are aware of all of the above points before an offer ever goes in. This cuts down the live issues to the physical inspection of the unit itself and particulars of the individual deal.

Experience also comes into play in evaluating the unit. If you have replaced the flooring or kitchen in a similar unit it is easy to come up with a relative accurate assessment of work and cost.

Likewise the best way to know about the rental market in a building is to be actively managing rentals. In that case you can know how long it took your agent to rent the last one and how much they got for rent before you buy.

Returns From Florida Condos

2011-12-28T20:27:00.000-08:00

The first question that comes to mind when considering any investment is what type of return the investor can expect to make. Advertisers consistently make claims of 15 %-20% cash returns on everything from vacation rentals to trailer parks.

Of course it all depends on how you calculate the returns. We recently received a proposal for tenanted condos at 10% where the return was arrived at simply by multiplying the rent by 12 and dividing by the price. No condo fees. No taxes. No vacancy. No repairs. No management or leasing costs of any kind.

Another online ad boasted 15% -20% but had no particulars at all

If comparing properties try separating the cash flow from any potential for appreciation. You can then compare both on an even footing.

Standardizing Cash Flow

There are standard “rules of thumb” that can be used when comparing different properties. One is static cash flow during a typical month including all known variables:

While this will not take into account vacancy and debt loss and extraordinary expenditures it is useful for comparative purposes between properties of similar class or different classes of properties for that matter.

Potential for Appreciation

Perhaps the best indication of the future comes from both present and past.

Present value

The definitive source for pricing information is MLS data and municipal tax records. When comparing comparable sales, it is important to note not only the prices but also how the properties were sold and by whom. Distressed sales for example will generally be at lower prices and bulk asset sales for even less still. These atypical sales often skew automated valuations and similar online tools.

In the case of distressed sales there is an immediate increase in value realized as a result of the discount from similar market sales. This initial “kick start” will not be repeated on an annual basis however but will be factored into the overall gain during the hold period.

Conversely many structured investments sell at a premium as compared to local market MLS sales. In these circumstances the property must be held for a sufficient time to “recapture” the premium.

Past value - 50% off

Isn’t it amazing that you can buy a nice property for 50% of what it cost only 3-4 years ago ?

It is more amazing that you can actually buy one for 30% of former value depending on how you buy it.

Prices that properties used to sell for in a more balanced market seem useful for comparative purposes.

Barring any extraordinary factors, it is reasonable to assume that a property that previously peaked at $200,000 will maintain approximately double the value of one that peaked at $ 100,000 given similar characteristics.

If there is an extraordinary variance compared to similar properties there is generally an extraordinary circumstance to be avoided or taken advantage of. Determining which is which is the secret to catching the best deals.

11 Months of Price Growth – Is the Worst Behind ?

2011-12-27T20:28:00.000-08:00

Florida Realtors released the November 2011 median condo sales prices today showing consistent and solid growth on the year to date major Florida markets.

In Tampa where most of out business is concentrated the November median price was $ 82,300, up from $ 66,100 in January 2011 for a gain of 24.51%

Onlando also showed string growthin recent months finishing at $ 59,700, up 19% from the $ 50,000 recorded in January.

Ft. Lauderdale backed off slightly in November to $ 75,700, still up 9.8% since January’s $ 68,900.

Miami has been less stable but is up 37% from January to November, $ 91,200 to $ 125,000.

Boca Raton however is up only 4% to $ 79,100 from 76,100 in January.

Complete data sets and graph of historical sales prices since 2007

Commentary

With 11 months of solid growth, the worst seems to be behind the major urban centres (Miami, Tampa & Orlando). The more vacation oriented areas and south Florida while still up on the year are giving up earlier gains.

In Tampa there was a shortage of available investment grade product in the summer and fall of 2011. We have just started to see some attractive listings and foreclosed product come back.

2012 is supposed to be the start of the comeback according to the Chase Report and a number of other forecasts. For condos according to the statistics it might have already started.

Do Canadians Pay Higher Property Tax on Florida Properties ?

2011-12-23T16:40:00.000-08:00

There is a common belief that Canadians pay higher rate of property tax than their US counterparts.

In truth it is investors who pay a higher rate. Only homeowners who live in their Florida homes as a primary residence are eligible for a “homestead exemption” in the form of a discount off the assessed value for tax purposes.

If the property is not a primary residence however the taxes are the same regardless of the investor’s country of origin.

The investor who owns this 1 bedroom unit downtown for example paid $ 648.10 for 2011.

Florida Bulk Purchases Pose Unique Investment Opportunities

2011-12-22T20:36:00.000-08:00

Before the market crashed in Florida it was booming with new developments.

Recall all of the stories about partially completed or new condo buildings that were basically empty ?

What do you think ultimately happened to them ?

In many cases the units were rented, either by the developer, the bank that took over the developer, or the receiver that took over bank. In some cases entire newer (2007 vintage) luxury buildings were converted to rentals.

Neither the developers nor the receivers intended to be landlords. Many are happy to exit from the rental market.

One of the biggest markets for these complexes are non-resident investors. An organization will generally buy the units in bulk and then market them at seminars abroad, adding substantial premiums. While the units offer investors a turn-key solution they are generally sold at considerably higher prices that the same units sell for locally. The investor must wait a considerable period to recapture the premium from increased values.

We are happy to offer investors the alternative of subscribing to the bulk purchases directly so as to bring them the lowest possible price: After we select a complex using strict criteria, we solicit for a group of investors to purchase the individual units. We then act for the investor group to acquire the units as aggressively as possible.

How do you know if you are paying too much ?

The same as in your local market: Look at the comparable MLS sales.

In Florida you can look not only at the regular sale prices but also the foreclosure and short sale prices on MLS.

On our subscriptions we can show prices not only below the local MLS prices but in some cases approaching or below foreclosure sales ! All for premium units in superior locations.

Oct 7, 2011 MLS Sale $ 225,000. Bulk price $ 160,000.

Nov 4, 2011 REO/Bank sale $ 195,000 Bulk Price $ 174,000

Typically, bulk sales will be prices slightly higher than distessed sales but well (20% +) below MLS non-distressed sales to locals.

To find out about any upcoming subscriptions I invite you to call or email.

Canadians Financing Florida Properties

2011-12-12T10:39:00.001-08:00

Financing is a key challenge for non-residents investing in Florida.

For Canadians however the prospects are better: Currently there are several bank lenders who will lend on vacation properties and second homes at favourable rates and to 65%-80% LTV depending on lender and applicant. With some if the investor owns a single property and rents it these seems to be no objection.

However the search for bank lenders that will finance non-resident investors continues, condos posing a further challenge. So for those who own multiple units (as most clients do) or where the properties are clearly rentals financing remains an issue. We continue to check with various sources on a regular basis.

Of course there are private lenders who will lend at 9-13% however most find other alternatives.

Regardless of the availability of US financing, Canadian financing remains an attractive and low rate alternative. It is currently possible to borrow at some 3%-3.5% against Canadian real estate while at the same time earning 7% + cash return in the US. The investor pays the Canadian mortgage from the rents, keeps the spread (about the same as the mortgage payment) and owns the property so as to have the benefit of any gain.

Actual example: Recent Tampa harbourfront Condo

Cost investor: $ 90,000 USD

Net monthly revenue $ 611.75 USD after expenses.

To borrow $ 90,000 at 3.5% $ 450.56 CDN (and some of that is going to principal)

In some cases clients have bought foreclosures and resold them at substantial profit within a very short time. In these cases it is almost certainly better to finance the purchase in Canada. Even if US financing were available the fees of having to place and discharge a mortgage on the U.S. property would have been substantial. Short term money is also less expensive here.

Check out today’s rates from our in-house mortgage brokerage

As with many issues surrounding buying US property, there are special benefits applicable to Canadian investors and an equal number of pitfalls to avoid.

To speak to a Canadian Realtor with proven experience investing and managing properties in the US please contact me by phone or email.

Canadian Investment in Florida Surges

2011-12-11T04:53:00.001-08:00

Thinking of investing in Florida ? You are not alone. According to the National Association of Realtors fully 25% of all Florida Real Estate sold in the 12 months ended June 2011 was sold to non-residents of the U.S. Non-resident sales totalled $ USD 12.7 Billon. Of these Canadians comprise the largest portion and account for 39% of the non-resident market.

Among Canadians cash is king. While Canadians have a distinct advantage over nationals of other countries in obtaining financing, a higher percentage (91%) of sales were all cash vs. sales to other non U.S. nationals (87% all cash).

While vacation home users still account for the largest share (40%) of the market, down from 50% the year before. Investors are taking an increasing prevalence however and now account for 23% of the market. An article by Florida Realtors on Oct 17^th of 2011 however cites increasing rents and other factors in estimating the investor market as high as 40% of all home sales.

Experience bears out the strength of the rental market: In some condos rents are up 10% over August,2011 for the identical unit. Look for well over 1% of purchase price for monthly rent in quality downtown buildings. 1.5 % is not unusual.

Another factor favouring investment is solid price gains through the first half of 2011 after what appears to be a bottom at the turn of the new year. Since that time median condo price is up 21% in each of Tampa and Orlando and 27% in Miami. The suburban markets we monitor have latterly however given up most of their earlier gains.

Statistically non-resident sales are typically at higher prices than those to U.S. residents. While the report attributes this to the type of property being purchased it is also possible that non-residents tend to pay more for the same properties. Many non-residents are reticent to participate in the distressed sale market which is seen as more labour and risk intensive. According to RealtyTrac however, in 2011 to date the average bank sale sold at a price 38% below comparable properties (presumably absent distress). Short sales pose equal opportunity for those with experience and the proper strategy.

Whether for investment or vacation however, many believe we have past the bottom. Canadian ownership in Florida has never been stronger. For a copy of the NAR or other reports referred to please contact the writer.

Source: Profile of International Home Buyers in Florida, National Association of Realtors Research Division, August 2011

Foreclosures vs Short Sales

2011-12-10T14:05:00.000-08:00

In dealing with Florida distressed sales the most common question (other than “isn’t that risky”) relates to the different types of sales and circumstances under which properties are sold. Actually, a basic understanding of the fundamentals goes a long way to resolving the question about risk:

Of MLS listed properties distressed sales fall into two basic categories:

Bank Sales or “REO”s (Real Estate Owned) in which the homeowner has been evicted and the bank owns the property. The homes have usually been vacant for some time and may have been neglected by a defaulting homeowner for a substantial period before that. They almost always need at least cosmetic and minor mechanical repairs.

REOs are well publicized as the best deals, selling an average of 38% below comparable properties according to RealtyTrac. In demand locations however the statistics do not tell the whole story: In addition to being lower priced, REOs are a fast and sure closing for the successful bidder, often within 30 days. Because of this attractively priced bank sales often generate multiple offers and regularly sell over asking.

The biggest challenge in buying a good REO is often getting the deal. Once you have crossed that hurdle, the successful bidder is notified of acceptance and is given a period (usually 10 days) to do whatever inspections they deem advisable. During this period the buyer can generally elect to terminate the contract without penalty.

“Short sales” are the other form of distressed sale that are prevalent. In these cases the seller still owns the home but owes more money to the bank(s) than the property is worth. As a result the proceeds will be “short”. The bank(s) have to agree to discharge the loans at less than full value and pay any liens necessary to give clear title

Once an offer on a short sale is accepted by the seller it is forwarded to the banks and interested parties of which there may be several. The various affected parties then start negotiating to apportion the losses, a process that can take months. Once the bank accepts the offer however the buyer is given the same 10 day period as in a bank sale to inspect the property and terminate the contract in its discretion.

Because short sales take a long time and are uncertain many investors avoid them making them some of the best deals. Better yet while the negotiations are ongoing the property comes off MLS and the buyer has control of the contract. The escrow is as little as $ 1,000 and is fully refundable. A prudent buyer can open any number of contracts in a given area and simply pick and choose depending on who comes to the table with the best deal first.

Short sales are usually still occupied by the seller or in some cases come with tenants in place. Because they are being actively lived in they are usually in better repair than comparable bank sale properties. If you can afford to wait and play the numbers short sales can produce some of the best deals.