SWFL Update - Cape Coral, Ft Myers, Lehigh, Naples

[Adam Bartomeo]

Here is what I sent to my owners 3 weeks ago...

SWFL We Have A Problem

A year and a half ago I sent an update with a warning that there were several factors that were potentially going to impact in SWFL real estate including immigration laws that were passed. A little less than a year ago I sent an update stating that there was a flood of inventory that hit the market and that it would impact sales prices and rental pricing in the future. And, 4 months ago I sent an update saying that the market has declined as predicted but we felt that it was starting to stabilize. Today's update is to let you know that it has not stabilized and is continuing to decline.

At Bartomeo Property Management we track several key metrics to not only assess the market but to help us understand our internal operations. We understand that vacancy is a true killer to an investor's portfolio, and we track multiple metrics to keep abreast of any potential concerns. The indicators that I will highlighting are total vacancies and total inquires.

An Explanation
Forgive me if this is elementary to some of you but it is necessary to explain for a better understanding.
There is a direct correlation between the number of vacancies one has and the amount of inquiries, showings, applications, and ultimately signed leases that one receives. As total vacancies go up so should inquires, showings, applications, and signed leases. For example, if you have zero vacancies then you will likely have zero inquiries, so, we will have to understand why we don’t have vacancies. Is it because the rent ready’s are taking too long, or we have very little turnover. Tracking these metrics is detrimental to understanding why a unit is not renting and what is broken in the system. We track these metrics and cover them in our weekly property management meetings in an effort have the lowest amount of vacancies AND to reduce the amount of time the units are vacant. There are multiple steps to filling an empty unit, each step trickles down to the other with the climax of having a signed lease. The first two steps are 1. having a vacancy marketed and 2. receiving inquiries. If you do not have these two steps than you will never get the unit filled.

The Problem
Below I included a chart and the raw data to help you understand our concern. As you can see from the chart, inquires have been steadily declining (there is fluctuation in the chart depending on how many vacancies we have). If we look at today's vacancies/inquires, we have had 9 vacancies for the month of May and have ONLY had 11 – 23 inquires per week. In contracts to Dec when we had 7 – 11 vacancies, we were having 60 – 81 inquires. This is extremely worrisome as there hasn't been anything on our end that changed, and this means that there is a shift in market conditions. There is a trickle effect that happens with lower inquiries... with lower inquires there are lower showings, applications, and leases. On average will need a minimum of 23 inquires to get 1 signed lease. Based on our current numbers the average vacancy will sit for 2+ months to get a qualified tenant and another 2 - 4 weeks for them to move in.

What Have We Been Doing
1. We put a big push on reducing turnover about 10 months ago which included:

• Speeding up rent ready’s to have less down time and pushing owners to complete their large rehabs. Some of you have had vacancies for a year due to large rehabs.
• Slowing down, stopping rent increases, and even lowering some rents. Some of our owners still have very low rents but the average rent increase right now is $0 - $50.
• Improving the work order response time which is a factor of customer service. We have 3 maintenance technicians that have increased response time and have saved our owner tens of thousands every month.
  • In June 2023, we were averaging 130 work orders every week. We are currently averaging 75 which is about a 40% reduction. This is with adding 30 units to our portfolio.
  • Last year we were averaging expenses of $150,000/mon. This year we are averaging $106,000/mon. About a 30% reduction in expenses for our owners. This is despite the higher turnover rate (creating more expenses) and adding 30 units to our portfolio.

• Increased customer service - The office and phone are maned 9a – 5p, M – F to give our tenants the ability to text, email, call, or walk-in.

2. We will need to get even more aggressive with our pricing strategies

• Not over pricing at the start.
• Weekly price reductions based on traffic.

3. Aggressive marketing

• We currently have a fairly aggressive marketing strategy but there is always room for improvement.
• With the current NAR settlement, we will no longer be able to market commissions to agents on the MLS. We are working on another form of communication with higher commissions.

The Future
All indications are showing that it will get worse before it will get better - sales inventory is still high, rental inventory is very high, more and more new construction apartment buildings are nearing and/or have been completed (at least 10 in Cape Coral that have hundreds of units are still being built), displaced homeowners are returning to their homes, and a host of other concerns.

We have gone through years of rapid rent growth and a lack of inventory. The market had adjusted accordingly but then over adjusted with over building. The market is correcting itself again and it will reach equilibrium at some point. We are here to answer any of your questions.

The chart below help you visualize the concern that we are having.

	31-Oct	7-Nov	14-Nov	21-Nov	28-Nov	5-Dec	12-Dec	19-Dec	2-Jan	9-Jan	16-Jan	23-Jan	30-Jan	6-Feb	13-Feb
Listed	8	11	11	12	10	7	9	11	8	6	6	4	4	3	3
Inquiries	26	48	101	123	133	82	94	61	60	77	42	61	67	55	44
Showings	8	10	34	33	48	31	37	16	23	35	14	16	27	19	12
Applications	4	2	16	10	9	18	15	5	12	11	8	7	7	3	8
Signed Leases	1	0	3	2	5	7	0	4	3	4	2	3	1	0	3

	20-Feb	27-Feb	5-Mar	12-Mar	19-Mar	26-Mar	2-Apr	9-Apr	16-Apr	23-Apr	30-Apr	7-May	14-May	21-May
Listed	7	9	9	6	5	5	5	2	8	8	7	9	9	9
Inquiries	41	78	90	81	43	33	80	29	30	28	19	20	23	11
Showings	19	23	29	29	8	12	34	11	13	7	5	6	9	6
Applications	3	10	11	11	12	5	22	7	7	8	2	1	1	3
Signed Leases	1	2	4	4	4	1	3	3	3	5	2	0	1	2

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[Drew Sygit]

@Adam Bartomeo we've been warning our clients about the same thing!

Interestingly though, just spoke to a newbie investor last week who was so out of touch with the current market that they thought is should only take 2-3 DAYS to place a tenant! They didn't hire us, so guessing they got suckered by a competitor that told them what they wanted to hear:(

Recommend you look into some type of showing scheduling software, so prospects can schedule showings 24/7/365.

DM me if you'd like to chat about our experience...

[Adam Bartomeo]

@Drew Sygit

Yes, it is taking us a month if priced properly. We have automated software to set up showings so we are covered there. 

[Amber Stout]

@Adam Bartomeo Great insights into the market. I have a couple agents I work with in your area and they're seeing their listings sit longer than expected along with longer rental vacancies. We're seeing a correction in the Tampa market as well. Thank you for sharing these reports! 

[Adam Bartomeo]

@Amber Stout Thanks. Reach out if you ever need anything.

[V.G Jason]

Yup, the start of the fall in some of these areas. The fact you are in front of it is great for your customers.

Lots of delusional folks out there.

[Jeremy Mahoney]

Ok, asking for a friend... Say you bought two lots in Cape Coral late 2020, went through a turnkey company who had connections with a builder. Paid deposits. Permitting took literally 2 years. Builder costs went up. Turnkey company stopped answering calls. Found out the builder essentially took the deposit and ran (is "facing litigation"). 
Would you: 
A) Sell the lots now at a discount, take a loss but at least get some money back out to try and redeploy elsewhere. 

B) Hold the lots, pay the taxes each year and just sit tight to see where things go, hoping in a few years demand will pick back up and then either sell the lots or build. 

C) Work with another builder and try and get something built to either sell or rent. 

I guess what I'm asking is how optimistic are you on Cape Coral medium to long term. And what do you think the timeline would be before building to rent would make sense again? 

[Adam Bartomeo]

@Jeremy Mahoney

These are very personal questions that require more info to answer properly but below are my answers. I just had an investor that went through a very similar situation. We sold 2 of his lots about 2 months ago.

A) The investor decided to sell the lots and deploy their funds elsewhere. He sold them below what he paid and took a larger loss due to sales costs. Personally, I am not a big fan of owning dirt unless there is a much larger and more lucrative plan. There is a high probability that you will be able to buy these lots for less in another 12 - 24 months. You can put you funds into assets that are positive cash flowing.

B) Personally, I do not like holding assets that negative cashflow. Depending on where these lots are you may have assessments coming which will outpace the value of the lot in just a few years.

C) See above

I am extremely bullish on Florida, SWFL, and Cape Coral in the long term. I am telling anyone that will listen that they should be buying houses now. They are on sale in Cape Coral and it is only a matter of time before you will be saying "I wish I would have bought more". I think that we will see it hit bottom in the next 6 -12 months. I am not a big fan of building SFH's to rent. The numbers make more sense to buy an existing home and make that a SFR. As you have experienced, trying to predict what will happen through the course of two years is very difficult - contractor integrity, materials costs, what the sale price will be, what the rental price will be.

Give me a call if you want to discuss it.

[Sheryl Sitman]

@Adam Bartomeo curious as to what you see happening in Cape Coral in the long run.

[Stetson Miller]

@Jeremy Mahoney You're definitely not alone, I've also sold multiple lots over the past year or two for investors that were in the same situation, and still have a couple for sale. One big benefit for you though is that there's a good chance those lots have appreciated since purchasing in 2020, and there's a chance you may be able to sell and completely recoup your costs and permitting fees, pending specifics. Although it's not a great situation to be in, it sounds like you may be able to get out better than most!

[Adam Bartomeo]

@Sheryl Sitman

I am extremely bullish on Florida, SWFL, and Cape Coral in the long term. I am telling anyone that will listen that they should be buying houses now. They are on sale in Cape Coral and it is only a matter of time before you will be saying "I wish I would have bought more". I think that we will see it hit bottom in the next 6 -12 months and then it should go up from there. I am buying houses now and not waiting the 6 - 12 months.