Important Facts For International Real Estate Investors
Florida has often been the land of investor dreams – and investor heartache.
A mix of retirees, snowbirds, job seekers and foreign investors has swung home prices to ridiculous highs and stomach-churning lows more than once in the past. In just a few years before 2008, home prices in some Florida markets more than doubled — but after 2008 they fell 60%.
In the years that strong economic growth has returned to Florida, it’s not surprising that home prices have again climbed briskly in almost all local Florida markets. Does this mean that investors can just dive back into the warm Florida waters, certain of a good return on their efforts?
Buyers beware, it’s not that simple. You can invest in any of the Florida markets, but how you invest will make all the difference down the road.
To help you figure out the best way to approach in evaluating the local Florida markets Forbes assembled some economic statistics. And based on these stats they divided the markets into a few categories of a Florida investment strategy.
Here are their 2019 conclusions:
The most important driver of demand for housing—in all of these markets is impressively high. The national average increase over the past year was only 1.8%. With a few exceptions, the rate of growth is well above the rate of six months ago. The acceleration of growth suggests that demand for housing will stay strong for a while.
However, jobs are not the only thing that affects real estate markets in Florida. Another major factor is the constant flow of retirees into the state; they only show up in the job stats indirectly—more assistants at doctors offices, more checkout clerks at Publix.
The flow of South American money
Mainly into the Miami area, Which varies according to foreign political circumstances.
On top of that, and most difficult to measure, is pre-retirement investing—future retirees who figure they might as well buy now and rent the place out until they move. This last phenomenon often kicks in sharply when home prices rise.
With these uncertainties in mind, let’s see if Forbes can suggest a sensible way to invest in the Florida market.
Where home prices are already higher than they ought to be. See how much home prices are higher than the “income” price; for Miami it’s 39%. The income price is not a precise measure, but when actual prices are more than 20% over the income price, a market is usually in a overpriced territory.
In these markets, the risk of a boom—followed by a bust—is sharply higher. Unless you’re making a long-term investment and don’t mind riding out a bust, your best strategy is to keep a short time horizon. Rehabs for quick resale and apartments (which are much less affected by a downturn) are good possibilities.
In Orlando and Cape Coral, where the ratio of home prices to annual rents is still below 20, single-family rentals are also a possibility, but be sure your rent is no more than about 25% above the average monthly rent; that’s where the largest concentration of renters is found. In a downturn you won’t find many takers above that rent level.
Where homes aren’t yet over-priced, but where home prices are shooting up.
In these markets you can invest in rehabs, apartments, single-family rentals, and single-family splits into multiple units, but you’ll have to act fast—which isn’t how you want to make investment decisions. You’ll do best renting out no more than 25% above the average monthly rent, a good way to stay disciplined about how much you pay.
Where are home prices are rising but not too fast. Note that in Naples, Crestview and Sebastian the home-price/rent ratio is well over 20. This means you should avoid single-family rentals unless you split them into multiple units. Other than that, all types of investments are good possibilities. With the exception of Naples—where prices are high and the economy is volatile—these are probably the best long-term bets for cautious investors.
There’s more to decision-making than these general stats, but understanding the special economic circumstances of a market can help you make a successful investment. Feel free to call Uncle Pete at 941-702-0277 to discuss your Florida Real Estate investing strategy.