Florida: It's all about timing

The financial crisis of 2008 took a devastating toll on main street America, leading to an unprecedented wave of foreclosures - nearly 100,000 a month in late 2010.

As with many other housing markets, Florida's has been flooded with foreclosed homes, which have depressed prices throughout the state.

Florida even hit a national high in the second quarter of 2010 when more than 20% of all mortgages in the state were either delinquent or in foreclosure, according to the Mortgage Bankers Association.

Aside from the obvious negative effects such an economic crisis has on the lives of those who are losing their homes, there's also an upside for investors: great deals on quality properties. Add to this the growing number of former homeowners looking to rent and willing to pay on average US$1,000 monthly and investors have a recipe for success.

Susan Barnes, of Rock Rose Realty, says Canadians are presented with what could be an once-in-a-lifetime chance to get a property at a rock-bottom discount in the Sunshine State.

"They're couldn't be a better time for them to buy actually because the prices are at what they were in 1995," she says.

Barnes, a real estate agent and business broker, says in Kissimmee, Florida, where her business is based, investors could find homes that were worth more than US$200,000 just two years ago for as little as $100,000. And those properties will rent out for US$1,000 to US$1,200 almost immediately.

Given the low price point, an increasing number of Canadian investors are coming to understand that a move into the Florida market means instant cash flow in the hundreds of dollars and serious potential for significant price appreciation over the long-term, she says.

Buy, hold and profit

For investors looking to jump into the Florida market, Barnes suggests one of two buy-and-hold options. Either they can purchase a home and rent it out for a long-term lease, or if they would like to use the property personally, they could rent it out to retirees for three to six months during the winter months and to vacationers during the spring and summer for a nightly fee, which could be as high as US$120.  The typical family on holidays spends two weeks in Florida, she says, so that's US$1,680, or US$3,360 a month.

Rock Rose Realty assists investors who choose to use this short-term strategy by managing their properties and finding new renters. And since Kissimmee is right next door to Disney World and Universal Studios, it's not too difficult to find families looking for accommodations during the spring and summer, Barnes says, adding that many of her clients' homes have 80% occupancy throughout the year. The additional 20% is supplemented by the higher rental rates investors can charge vacationers.

For investors who want to play it safe, however, she suggests they go with a long-term leasing strategy. That way they'll have consistent cash flow.

In for the long-term

Don Shippey, a Re/Max real estate agent in south Orlando, says investors who buy short-term rentals are limited to the Kissimmee market since most neighborhoods in the Orlando are not zoned to permit these properties. Buying long-term rentals, on the other hand, provides investors with more versatility and convenience.

"If they're buying a property strictly for investment, I would suggest going with a long-term rental. There's less headaches, and you're guaranteed that rental amount, whereas with short-term rentals there are slow periods in certain months when they wouldn't have any rentals and they would be carrying the expenses," he says.

Shippey still thinks investors should be buying properties near the state's amusement parks, though, to provide housing for the tens of thousands of employees working at these sites. But investors shouldn't buy regular existing homes if they want maximum ROI. Instead, they should buy foreclosed homes, Shippey says.

"Bank-owned foreclosures are the way to go," he says. "If investors look for regular sales they're just not going to get a good price because most of those are priced well above what the bank prices."

He says investors could purchase condos for US$70,000 to US$80,000 that sold for more than US$200,000 just two years ago. And again, these properties could rent for roughly US$1,000. For instance, he was just working with an investor who bought a single-family home for US$89,000 and is now renting it out for US$1,100

"Investors are not losing anything. They've just got to buy a property that's in decent condition and it has to be in an area that's got strong rental demand. They have very little to lose," Shippey says.

Clearing the title

Shippey, whose business is primarily comprised of foreclosure sales, says that he's only run into problems establishing clear title a couple of times since the financial crisis.

The big U.S. banks made headlines in late 2010 for processing foreclosures too quickly, leading to improperly filled out paperwork and homes without a clear title holder.

Typically banks establish who owns the title to a property before it goes on the market. If a house goes on the market without a clear title holder, the bank will pull it off the market and determine who owns the title before trying to sell it again.

At present, Shippey says the odds of encountering a property without clear title are fewer than one in 100, and will probably be less so as the banks improve the foreclosure process.

State of the market

The incredible wave foreclosures and short sales in the U.S., which made up 34% of national sales in October, will likely keep home prices depressed for another year, according to TD Economics.

Given these conditions, Shippey believes the South Orlando market will stay flat for another year also.

"I don't see us decreasing more in this area, but I don't see us increasing for a while either because there are a lot more foreclosures coming, so I think we're going to be at the bottom for another year."

The median residential price in the Orlando Region has fallen more than 60% from its peak of US$264,436 in July 2007 to US$105,000 in October 2010, while the average residential price has fallen more than 55% from US$320,727 in May 2007 to US$143,755 in October 2010.

Condo prices, in the area, sunk to US$50,700 in October, well below the state median of US$ 82,400 and the national median of US$165,400.

Still, these low prices are driving real estate transactions. In fact, sales in the Orange, Seminole, Osceola and Lake counties rose to 1,882 in October the highest one-month total in the state, though it's still 20% lower than the same month in 2010, when sales were 2,297, according to the Orlando Sentinel.

The banks are getting their full asking price for foreclosed homes and sometimes there are up to seven bids to get some contracts, Shippey says.

"I just had a Canadian get outbid on three different properties in the last three weeks," he says. "All were good offers with one being well above ask price. This is common in this area. That is not the sign of a falling or collapsing market."

I want my money

For Canadians who are interested in buying properties in Florida, it's important to remember that it's "extremely difficult" to get financing, especially for investment properties, Shippey says.

While Canadians can generally apply for a mortgage for a second home with their bank, which usually requires 30% down, most Canadian institutions won't fund investment mortgages south of the border.

So investors who want income properties in Florida will typically have to pay cash, Shippey says.

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