Florida has long since been a popular area for investors. And why wouldn't it? We have the best beaches, a lot of water and a real estate market that is hotter than our weather! But investors be aware: Many communities here in Naples are seeking to curb the high prices by limiting investor purchases. During New Construction and Pre Construction building, you'll have to put down substantial cash deposits. Additionally, builders are putting limits on when you can sell the property you are purchasing. And in some instances, are voiding the building warranty upon the resale. Currently, in some of the new communities, you must hold the property for at least a year before selling, in some cases, when you do sell, a portion of the profit is owed to the builder. I've included a few news articles related to investing in Florida real estate, not to act as a deterrent but to help you better understand our market.
It's important to realize that because our prices are so high, it's nearly impossible to have a positive cash flow on rental properties. Typically in this market, it's safe to say that for every $100,000 of sales price, you need about $800 in rent. For example: You purchase a property for $300,000. You will need to collect a minimum of $2,400 in rent to cover the debt service of the loan. Keep in mind that this does not cover property management or commissions.
10 biggest mistakes of novice investors
WASHINGTON-- Aug. 4, 2005 -- Real estate has become the tech stocks of the 2000s, the darling investment that everyone seems to think will be their ticket to easy wealth. And why shouldn't investors be snapping up cute little cottages? After all, mortgage rates are low and the housing market is hot. How hard could it be? Slap on a new coat of paint, put some flowers in pots by the front door, put a "For Rent" sign in the yard and start counting the cash.
It's a popular notion. The National Association of Realtors reports that nearly a fourth of all the houses sold in 2004 went to investors; about 80 percent of investment properties are existing single family houses.
If they're looking for rental income -- and most investors are, according to the NAR -- buying a single-family house may be their first mistake. All it takes is for a property to sit vacant for a couple of months -- or a tenant to run out on the lease -- to put a new real estate investor in a financial bind. Far better to buy multifamily units, such as duplexes.
That way, you can live on one side and have the rent from the other side pay your mortgage. Or, rent out both sides and give yourself some breathing room in case one tenant moves in the middle of the night without paying his rent.
"I'm not a proponent of single-family units," says John Anthony, president of the Pennsylvania Association of Mortgage Brokers. "A first-time investor should look at (multifamily units of up to) four units to limit their risk."
If you're still convinced that investing in rental real estate is the road to riches, at least go into the proposition with your eyes (and your wallet) open. Here are 10 common mistakes made by new real estate investors:
1. Falling in love with the property. Stop thinking like a homeowner and start thinking like a business owner, says Robert J. Hill, a Nashville-based investor and author of "What No One Ever Tells You About Investing in Real Estate." Get emotional about the deal, not the house.
2. Not performing your due diligence. This is more than just an inspection of the property, although that's essential. (Can you say, "deferred maintenance costs?") It's also a thorough investigation of your area's current rental market, says Gerald Marsden, a New York-based CPA who specializes in investment real estate. What are the vacancy rates and average rents for comparable units? What's the average age of the rental housing stock? How is the neighborhood zoned? What are the government regulations about rental properties? Has City Hall approved new rental complexes nearby?
3. Forgetting the rule of home improvements. It will always take three times the money and twice as long as you estimated to get a unit ready to rent. Or is that twice the money and three times longer? Either way, you need to build that extra cost into your expenses, Anthony says.
4. Thinking you'll get those low mortgage rates you see on TV. Those are for owner-occupied homes, says Bob Walters, chief economist for Michigan-based Quicken Loans. Investment property is considered a riskier loan and you'll pay more in points and interest rates. Expect about an extra 1.5 points or half a percent more in interest rate. The credit standards also will be higher. "You don't need perfect credit," he says, "but if your credit is in the dumps, you won't get the loan." And you won't get many low-down or zero-down-payment offers, either.
5. Not pre-screening tenants. New landlords can get very excited about prospective tenants who show up, take one look at the place, hand them a cash deposit, and want to move in that weekend. Don't do it, Hill says. When selecting renters make them fill out an application, and check their credit, employment and rental history before you take a dime from them. It's a much more expensive -- and potentially nasty -- headache to evict a bad tenant than to have a unit sit vacant for a couple of months.
6. Breaking your own rules. Landlords establish policies for good reasons. When they start ignoring those policies, they're headed for trouble. No pets means no pets. Don't ever let someone move in without a security deposit and don't ignore collecting late fees.
7. Investing long-distance. Unless your rental property is in a spot you love to visit regularly, such as a lake or the beach, keep your rentals very close to home, say New York-based real estate attorney Neil Garfinkel. Otherwise, you'll eat up your profits driving back and forth to manage the property or paying someone to make repairs for you.
8. Paying too much for the property. If you're embarrassed to make a low-ball offer to a seller, don't invest in real estate, Hill says. Rental property owners generally work off a multiple of 100. That means that if you pay $100,000 for a unit, you need to collect $1,000 a month in rent to pay all the bills and have a decent profit margin. If you've done your homework, you'll know what your rental market will bear.
9. Not studying the competition. Why does the guy across the street fill his units the same day someone moves out and yours sit vacant for months? He might not be very picky about whom he rents to, but he also might have lower prices, have washers and dryers in his units, pay for lawn maintenance and trash pick-up, or have his building on a wireless network.
10. Being underinsured. Insurance on rental property goes beyond insuring the building against fire or a hurricane. You need to look at your own coverage for liability, Garfinkel says. If there's a loose railing and a tenant's child falls off a balcony or there is a burglary and a tenant says it's because you wouldn't install security alarms, you're likely to get sued.
Writer agrees: No bargain anymore in foreclosed homes
Editor,
The article "No bargain buying foreclosed homes anymore" is right on target. I don´t buy at the courthouse steps but have found that buying from banks is no bargain. And certainly buying from HUD is no bargain.
The problem is that market conditions encourage foreclosing lenders to price properties at market value regardless of condition. The frenzy to buy homes and the prevailing thought that if it´s a foreclosure it must be a bargain make for many bad deals for buyers.
How about the buyer who bought an Orlando HUD home recently for $132,000 when it was listed for $61,000? A bargain? I think not.
I did a study earlier this year and found that for the first four months of 2005, HUD homes sold for about 123 percent of the asking price. Obviously, the "get rich quick at someone else´s expense" mentality has come back to bite the buyer. Ed Rordam EPR & Associates Winter Park
No bargain buying foreclosed homes anymore
Editor,
I have bought over 50 houses in foreclosures sales.
This article does not point out the single biggest recent problem in buying foreclosures. Due to the proliferation of "get rich quick" courses, there are just too many bidders at the average courthouse sale.
The result is that houses end up getting sold for within 10 percent of retail price. When you factor in the various problems, such as deferred maintenance, it is hard to make money on them as a fixer-upper.
For these reasons, I haven't wasted my time even bothering to go to the courthouse auctions for several years.
When someone stops paying their mortgage, you can guarantee they will stop maintaining their house too. So don't plan on finding this "bargain" in perfect condition.
And there is always the possibility that they may have decided to pour concrete down the toilets before leaving or take the plumbing, electric wiring and kitchen cabinets with them!
Most of the houses sold on the courthouses GOT as far as the courthouse steps because there was no or little equity in them. If there WAS a lot of equity, the homeowner would usually have sold them. The banks will bid in for them as the mortgage balance and they will become REOs (Real Estate Owned), to be sold later by the banks.
The few houses that get as far as the courthouse steps AND have enough equity in them for an investor to buy, fix and flip will have investors fighting for them like hyenas over a dead zebra. The net result, some fool who has just completed a get rich quick course will get a real life example of how to lose money in real estate.
WASHINGTON -- Aug. 10, 2005 -- Analysts say the growth of investor-owned properties represents a "shadow" supply of rental units that do not surface in traditional rental-market studies and are even pushing rents down in some areas.
Property Portfolio Research Inc. reports that rents are on track to increase an average of 1.2 percent nationwide this year, even while a surplus of investor-owned properties is holding back rents in a number of segments of the market in places ranging from South Florida to Las Vegas.
In 2006, as more for-sale condominiums bought by investors come onto the rental market, the pressure on rents could become much more noticeable on a national scale. The U.S. Census Bureau reports that there are already some strong indicators in place, pointing out that vacancy rates for multifamily residences and apartments properties fell from the second quarter of last year to the same period this year.
Raymond James Associates, meanwhile, adds that the number of vacant single-family homes for rent currently stands at an all-time high of 1.339 million.
Source: The Wall Street Journal (08/10/05) P. D1; Simon, Ruth
ORLANDO, Fla. -- Aug. 11, 2005 -- Home buyers have something new to worry about when buying a new home from an investor, rather than from the builder.
The home's warranty -- which provides protection against defects -- may be voided in some instances.
That's what some real-estate sales agents across Central Florida say they have run across recently, as builders look for ways to discourage rampant buying and reselling of new homes for investment purposes.
Most builders offer warranties -- either through their company or through outside providers -- that guarantee their work for one year. And 10-year coverage is usually offered for the major structural components.
The state's largest company supplying warranty programs to builders in Florida -- Port Charlotte-based Bonded Builders Home Warranty Association -- provides for a transfer of the warranty after a sale to a new owner, said Ann Hagen, Mid-Florida sales director. But that's not always the case.
"Buyers need to check out the warranty situation before they buy," Hagen said.
With the housing market in its hottest cycle in history, many investors have been buying existing and new homes for quick resale and profits.
Home builders across Florida and the nation increasingly are putting the brakes on sales to investors, said Edie Ously, spokeswoman for the Florida Home Builders Association.
Some severely limit sales to investors, she said. Others have contract stipulations to bar quick resales without a financial penalty.
"Some builders have found investors competing with them to sell homes in a community still under development," Ousley said.
The possibility of voided warranties is just one more roadblock for investors.
Bob Blankenbiller, manager of the Watson Realty Co. office on State Road 434 in Longwood, said his agents are paying close attention to the issue.
"It came to our attention when we had three instances where the warranty could be voided," Blankenbiller said.
One of his agents, Dana Shulman, said she's negotiating with a builder now about extending the warranty on a new home that's being resold by an investor.
"People think they're buying a new home, and they are," Shulman said. "But they need to check out the warranty. You don't know if something's wrong until you live in the house."
This website is not facilitated or maintained by Coldwell Banker Residential Real Estate, Inc. but is the property of the independant contractor "agent". This agent does not warrant or guarantee the accuracy of any information contained on the site and is not responsible for any of the information that may be found on any pages or links to other pages within the site.
