Florida Market. Risks?

Question

I am looking to buy a Condo or SFH in Florida. Eastern seaboard. I am not opposed to the Miami-Dade or Greater Orlando region. Ultimately, as long as it cash-flows- RIGHT? LOL

I currently have a cash flowing property here in California, but the price points and wars here are making it a non-profitable business model for me. So, until conditions for me change, I am ok with one property here.

I am very familiar with Florida as I go there for work upward of 10-12x/year for multiple days on end.

What is it about Florida that is driving the incredible demand? I get it that the weather and costs of living are better than say, Minneapolis. I grew up around hurricanes so I am familiar with the need for higher elevation, flood insurance and such. But what I am not understanding is this:

- What is driving the demand to Florida

- How long is this demand going to be sustained

- Are we destined for another 2008 crash like Florida had

And, most importantly. Why would someone rent from you or me if owning a a home is only a little bit more than rent.

(example, a 350k home is maybe 1700/mo give or take. I can rent for 1400 or own for a few hundred more? )

I am looking to network with Florida investors and landlords.

Thanks for your time, look forward to doing some business!

Share Ross · Answer

Hey @Sumner Rabin. Very good questions and while some of them are 'if I had a crystal ball' type... I will do my best to answer.

- ---- What is driving the demand to Florida

As a realtor, I see the demand as several reasons. No state income tax is a biggie. The shift in people's ability to WFH has grown immensely and when you pair that with lower property tax compared to states like New Jersey... the appeal is huge. Along the same lines... a LOT of folks are getting bigger homes now due to WFH and multi-generational living. And again, compared to NY, CT, NJ, CA etc... our homes in SE Florida (or all of Florida) ... are way less for the amount of space a person can get. (Compare a $500k home in CA to a $500k home here!)

Let's not leave out the mortgage rates! Lenders are off the charts busy with refinances along with new mortgages! That is making buyers show up as well.

Then you add in the weather and ... you have an unbelievable increase in demand.

- ----How long is this demand going to be sustained

That is a tough question to answer. Right now, we have painfully low inventory and increased demand. It will stay at crazy demand levels until we finally have more homes for sale.

Also ... when rates go higher, it might slow it down a little bit. (If I had a crystal ball!)

- ----Are we destined for another 2008 crash like Florida had

The crash in 2008 was not exclusive to Florida and was nationwide. As of right now, mortgages are not the easiest to get ... right now, it's simply supply and demand.

----And, most importantly. Why would someone rent from you or me if owning a a home is only a little bit more than rent.

(example, a 350k home is maybe 1700/mo give or take. I can rent for 1400 or own for a few hundred more? )

The main reasons - down payment cash, closing costs cash and credit scores.
To buy a home in today's market ... it's very competitive. So buyers are typically (not always) having to come up with fairly big down payments to win the bidding wars. It makes it really tough for a first time home buyer to get the property.

Condos require a minimum of 10% down if they have good reserves. If they don't have reserves, then they require 20% and sometimes 25% down. A lot of first time buyers just don't have that kind of cash. It's easier to buy a house with FHA ... but due to the multiple offer situations... it's hard to win the bidding war with 3.5% down.

Phew. I hope that offers a few insights. These are just my opinions and I look forward to reading what other folks are experiencing.

Melissa Jolley · Answer

A couple things....

Florida has no state income taxes

Florida is and has always been a tourist destination (several hot spots that I am sure you are aware of)- this creates a need for jobs and small businesses that can thrive in that environment

The weather

The median price of a home in FL is around $250,000

I will stop the list there but property taxes are low in most areas as well. The state is a a popular choice for disabled veterans because they pay no property taxes on their primary home. Right now, boomers are still retiring or already retired. Since Florida is home to many resort style retirement communities....it is super popular with boomers and that influx will continue since the youngest boomers are in their late 50's. Folks that purchased homes in more expensive states are sitting on a lot of equity...they are selling (California for example) and paying cash for homes in FL.

I will only speak for my area but rent is much more than owning a home in NWFL in most cases. For example, my home would be $325K right now. I pay $1450 a month after taxes and insurance. That figure now would be around $1600. To rent my home would be $1800-$1900. So...it is much more advantageous in my area to buy.

In terms of insurance- yes, Florida policies are higher and they are very strict right now due to the last storm season. This may stick around for a while. I expect that rates will level out and home prices will go down but it is difficult to predict anything with certainty because of the effects of COVID. Still, I can assure you...people need to rent in FL. Homes are affordable and 8 out of 10 homes can rent for more than they cost to buy. The only caution I would provide there is that home prices are crazy right now and homes that meet all insurance guidelines are selling with multiple offers above list. Be cautious. Consider the costs....estimate rents appropriately....work with a good agent.

Shawn McCormick · Answer

@Sumner Rabin. Wow @Melissa Jolley and @Share Ross pretty much nailed everything there is! Florida is no secret, it has always been the dream of everyone in the mid-west and North-east to eventually get down here. Covid made many realize that living in crowded spaces may not be such a great idea, pair that with the weather they deal with and Florida just makes sense. Not to mention there are like 10,000 people a DAY turning 65!

The Orlando market has been appreciating in near or at double digits due to so much demand and so much new construction. Now with businesses forced to either comply or adjust how they deal with social distancing (think theme parks, beaches, restaurants), our climate is much easier to move outside to accommodate those types of businesses. South Florida will get more of a punch from outdoor dining as the weather there is a bit more stable.

Mike Watson · Answer

@Sumner Rabin  the short answer is the South FL demand is fueled by New Yorkers.

I personally don’t think RE prices can continue at this rate. I think in 2 years from now there will be many unused 2nd homes when everyone forgets about Covid and return’s to NYC.

I don’t think we will see a crash, but something has to give. Rental returns in Palm Beach County make absolutely no sense right now.

Sumner Rabin · Answer

@melissa Jolley. I agree on all fronts. how long are you seeing Properties stay available as a rental before signing to a tenant?

Kevin Kohler · Answer

@Sumner Rabin you can get properties that will cashflow and while that's the case you should know South FL is more of an appreciation play versus high cashflow. Happy to discuss the details.

Melissa Jolley · Answer

@Sumner Rabin If they are near market value or slightly above...around 2 seconds. The biggest thing here (and I assume many places) is pets. It is the major deciding factor for people to buy or rent. My area is heavily saturated with military so there are always folks looking to rent.

Sumner Rabin · Answer

Those are terrific and thank you for your input. I do agree, a lot of people are tired of shoveling snow and as they get established, the idea of returning to former hometown looks lesser and less likely. I know I got tired of winter after 11 years of it in Chicago.

Florida Market. Risks?

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