The first thing you should all know is that the Florida Real Estate market is in a transition. The market today is different from even six months ago. The prices at the bottom and moving up as demand increases; and the inventory is depleted. We are not seeing as much flipping by investors as we are seeing “buy, fix up , and rent” investors. Upper level homes are still going wanting for buyers as retirees and second home buyers look for smaller homes in prime locations. There are still deals, but they sell quickly and often with multiple offers.
Technology has made confident buyers come to the market thinking they know what’s going on. They don’t. Zillow does not know neighborhood trends. Trulia does not know the difference between active and active contingent, and Realtor.com can’t give you the pulse of the market; what’s hot and what’s not. A good amount of the initial time spent with buyers is educating them on local conditions. Use a local expert to help guide you. And to get the full picture of the market, instead of using Trulia or Zilow, you can ask me a password to access our MLS.
The rental market is hot. But be careful of rental prices given to you in a proforma. Move in incentives and free rent are skewing yield rates. Yes you can buy rental property here and get a good return (6 to 10%), but it is rarely as good as presented. This is due to differed maintenance; move in incentives, and underestimated lease out fees and management costs.
New Homes are hot. The last time any volume of homes were built was in 2005. Some of these have never been lived in, been air-conditioned, nor had the mechanical put to the test (if they are even there). They have no warranties. Because of this buyers are looking to new homes. They will be better built, perhaps Green, and will be smaller and smarter. And financing is cheap (3.88% today). And you can get what you want in a house.
Buy and Rent is the New Flip. To build a new home cost around $120 per square foot. You can buy an existing home today for half that. The rent less expenses will return you more than you can get in a traditional liquid investment. The gradual return towards a par with replacement costs is the bonus round. I have regularly leads from cash buy and hold investors, especially from Europe. What do they want? They want homes in areas that will rent to people that will be buyers in three to five years or that they can enjoy themselves for retirement.
Cost of Owning.
What does it cost to own a rental house in Florida? In the absence of accurate numbers for a specific house I use these rules of thumb:
Initial improvement and get ready costs $8,000
Annual Vacancy loss 5%
Annual Cleaning and Repairs .08% of Purchase Price
Annual Insurance 1.2% of Purchase Price including liability
Monthly Property Management 8% at Rossman Realty
Leasing cost is 50% of the first month’s rent
Annual Taxes 1.5% of Purchase price
Selling Costs 7%-8% of selling price
Insurance Costs. It costs more to insure a home near the water or in low lying areas. You can’t get insurance on an older home without a roof inspection. If you are comparing homes, get an insurance cost estimate before you buy. If you want to rent it, make sure to have a liability insurance as well.
Hurricanes. More important to outsiders than the locals. Newer homes built since 1992 are better equipped to deal with them. Look for good drainage (we get a lot of rain), solid windows, and roof quality.
Air-conditioning costs and water costs are high. Check on insulation, age and efficiency of the air units, and make sure there is a deep well for irrigation.
Water and Sewer. Not all homes are hooked up to city water and sewer, and if they are, not all the assessments are paid.
Termites. Like the hot weather and the rain, bugs are a way of life here. Get a WDO (Wood Destroying Organism) inspection. All houses will have bugs, they can be dealt with. It’s when the bugs have been ignored for a long time you have trouble.
A good house inspection with WDO (Wood Destroying Organism) will cost you between $250 and $300. This is your best investment.
Let’s talk about the commercial market. It’s coming back. Empty retail and office space is getting filled. There are great deals on empty industrial buildings now. I do not expect that to last more than a year or two. In fact the rate of our recovery is increasing. Like a snowball, we are picking up momentum. The locations that are hot have the traffic and infrastructure. Look for a return of the industries that cater to the home building market. Medical has been soft while the doctors fret about Obama care, but I see this loosening up as well. It’s a great time for owner occupied purchases because there is money to lend to them. It’s still very tough to get investor money for commercial property.
I expect a very busy summer for both home and commercial sales. Condos are disappearing as well. (Prices are well below replacement costs)
If I can help you in your real estate needs, just drop me an email or call me at 239-240-3283
Apr 01 2013