First of all, this is a note about Florida Real Esate, not a book, so the title isn’t; “Everything You Should Know about Florida Real Estate”. Many of you have commented that I should write a book. OK. I will, but I need to do it a page at a time. Many of you commented that I should hire a proof reader. Let me tell you something, if you read a blog of mine and it’s absolutely perfect, you will know I took your advice. But in the meantime, please forgive, no, embrace the typos and transpositions as a “tell” that I am the one who proofed it (and wrote it).
Now to the subject at hand: What’s going on in Florida Real Estate and what should you know? In no particular order I want to share with you the answers I give day to day to this question. The first thing you should know is that we are 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.
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.
The rental market is hot. But be careful of rental prices given to you in pro formas. 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 mechanicals 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. At Market America Realty we literally have orders for 20 homes a month for cash buy and hold investors. What do they want? They want homes in areas that will rent to people that will be buyers in three to five years.
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 $10,000
Annual Vacancy loss 8%
Annual Cleaning and Repairs .08% of Purchase Price
Annual Insurance .75% of Purchase Price
Monthly Property Management 10%
Leasing cost One month’s rent
Annual Taxes 1.5% of Purchase price
Selling Costs 10% 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.
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 will cost you around $250. DO NOT SKIP this step.
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 we can help you in your real estate needs, just drop me an email