All Forum Posts by: Frank Harris

@Frank Harris if you are building in Cape Coral, permitting is through the City of Cape Coral, not Lee County.  Areas that Stetson mentioned that were hit hard would be dealing with permitting through Lee County.  I would not anticipate any major delays in permitting for your build.

Also, look in to the 1031 exchange and the holding period, it's murky waters because there is no clear rule on this. If you build and sell in under a year, you may be viewed as a dealer and be subject to shot term capital gains.  I'm sure a CPA or 1031 expert can chime in here.  This clip from an article hits a few points:

How long must property be held for investment in a 1031 tax-deferred exchange? This is one of the most commonly asked questions in an exchange transaction. Though the Internal Revenue Code and Treasury Regulations are silent on this issue, a careful analysis of case law yields some principles that can be stated with certainty.

First, the IRS has issued several rulings stating that if the property a Taxpayer seeks to exchange was acquired immediately before the attempted exchange, then the Taxpayer will be viewed as having acquired that property primarily to resell for profit, not held for investment. (See Revenue Rulings 84-121, 77-337, and 57-244). The IRS has also taken the position that if replacement property is disposed of immediately after the exchange, the property would not be viewed as being held for a qualified purpose (investment) under IRC section 1031. (See Revenue Ruling 75-292). Courts have been more liberal on the issue of how long a Taxpayer must hold a relinquished property to prove investment intent (See 124 Front Street Inc. v. Commissioner, 65 T.C. 6 (1975)) but tend to agree with the IRS on disqualifying an exchange when the replacement property is disposed of soon after acquisition (See Black v. C.I.R. 35 T.C. 90 (1960)).

In Private Letter Ruling 8429039 (1984), the IRS stated that a holding period of two years would be a sufficient period of time for the property to be considered held for investment. Though private letter rulings do not constitute binding precedent, some tax advisors believe that two years is an adequate holding period, assuming that the investor not only held the property for two years, but that he intended to do so for investment purposes.

Some tax advisors believe that one-year is also a sufficient holding period, for two reasons. First, if investment property is held for 12 months or more, the investor'­s tax returns will reflect this fact in two tax filing years. Second, in 1989, through HR 3150, Congress had proposed that both the relinquished and replacement properties be held for one year to qualify for tax-deferred treatment. Though this timeline was just a proposal, and it was never incorporated into the tax code, some tax advisors nevertheless believe that it represents a reasonable minimum guideline.

Hi @Frank Harris,

I just wanted to second everything mentioned above, including that home being a great bed/bath layout, the previously high and now huge demand for housing in this area, and the future growth potential

To answer your initial question a bit more directly though, to Southwest Florida as a whole, it's unlikely that Hurricane Ian will have any lasting impact on the general area as a whole. Obviously there were some local markets that saw total devastation such as Sanibel, Fort Myers Beach, etc. Those specific markets are likely to see the exact issues that you're cautious of running into, but these problems are likely to stay specific to these heavy-hit markets. Cape Coral, for example, which endured minimal to moderate damage on average, will likely easily recover to previous levels within the coming months

Florida certainly did have and still does have an insurance issue, but strong storms are not likely to influence this greatly as this is something that the larger and more reputable insurance companies have already accounted for. This is obviously a complete 180 from what you're likely reading on the news about the issue, but the key word here is 'reputable'. Until Florida is able to legislate regulation on the fraudulent insurance claims that are rampant here right now, you're likely to see minimal annual increases. As that progresses though, I can assure you there's not going to be a mass migration out of the state any time soon

I have a STR down there & drove down the day after Ian to clean up the property. I freaked out a bit as neighbors told me that it would take years for the area to get back to normal & trying to get me to shift my house to LTR (so their friend could rent it). After coming back & getting more bookings for contractors, insurance adjusters etc, we decided to keep it a STR.
We're not worried about the long term health of the area.  

I would not have an issue buying more rentals in Cape Coral right now. Although, prices have gone up since I bought last year, I still like the future potential. I still like the metrics (population growth, wealth, wages, employment, etc.) and now, unfortunately, there is going to be more of a housing shortage (at least temporarily) due Ian's devastation. This should just fuel more demand, at least temporarily.

I had no trouble finding insurance for my rental and changed companies earlier this year for a better rate. I think you may see a bump up in value, including rents, in the near future, but since you haven't started building yet, building costs may go up and it may take longer to build, due to shortages and increased demand, after the storm. You may be in a good position, since you are already in the permit process and your 4 bed + den is a great choice. I had to get a 3/2, since I had time constraints with my exchange and that is what was available.

I bought a new build through a group last year and the head person had experience in the FL real estate market after Hurricane Andrew (1992). And these are bullet points from their experience and their current expectations since Ian:

* overload for construction and insurance business
* The destroyed homes need to be built to current standards, which will take time, and this contributes to lower inventory and increased demand for existing real estate.
* Owners of damaged properties get an insurance check and need to either buy or rent existing houses, since their homes are not habitable.
* Construction workers increase in the area and they either buy or rent houses
* They have over 100 homes in current stage of construction and none had any major damage, most were fine with minimal damage

Bottomline, I think you are in a very good position and I really like SW FL market for it's great potential, probably significantly better than a midwest market, at least for appreciation potential. If you do want to sell your lot and deal, I could probably find a buyer for you, but honestly, I would go through with it, if I were you.

Frank, I work for a builder in Cape Coral and I can tell you that nothing is slowing down for us. Experienced investors and institutional investors are buying left and right. The lack of inventory before Ian made this a great environment and now the unfortunate home owners and renters are displaced. There is a serious crunch going on right now. Try to book a hotel in Cape Coral, no dice. There is a huge push for affordable housing in Lehigh Acres because the city of Cape Coral is backed up. Lehigh Acres permitting goes through Lee County which has a shorter time frame for permitting. The demand for housing in SWFL is strong and you should be good as long as your build cost is $180 per sq ft or less under air. 

When did you start permiting? Prepare for a 6 months wait for permit and may be longer now due to Ian