Post-Pandemic Market Update (with a Florida Focus)


Hello, my friends. And welcome to another episode of Passive Real Estate Investing. I’m your host Marco Santarelli, and welcome to today’s show.

So today’s show is a little different than some of the others. I wanted to do a market spotlight on Florida and some of the markets that we’re building new construction homes in. But when I was talking to one of my large property providers out in Florida, who I have today, as one of my guests on the show, we got thinking about doing a post pandemic market update, and we did talk about markets around the country. So it’s kind of a nationwide in general to some degree, but there was a little bit more of a focus on the Florida markets, because that is just a hotbed right now for growth and activity, investor interest investor demand to the point where builders have literally stopped taking orders, not all of them, but many of them.

And so they are pacing themselves. Literally, they have a term in the industry for how many contracts they take at any given time, whether it be per week or per month. So it’s time for a market update with a focus on Florida. And this is coming from a post pandemic perspective because the last time I had Jim on was exactly one year ago, last June. And so it makes sense for us to get caught up. Now let’s remember something about Florida and one reason why I like the Florida markets so much, it is one of the best states for real estate investing. They have stable markets, a very diverse economy, strong population growth, organic growth, international demand home of many, many fortune 500 companies. You can get newly built, single-family detached homes, duplexes, and these come with warranties. So that’s always nice not to say that there is anything wrong with newly refurbished existing inventory, which can be just as good if not better.

Because often they’re in very mature markets with strong demand and desirability from the existing population there. And you can find both of these types of properties in solid white and solid blue-collar areas, all with good rent to price ratios. And so that’s a very attractive thing and something of course, that you want to look at as a real estate investor. And of course, there’s very high private sector employment. The Florida markets in general, and to a large degree from Texas on over the whole Southeast region does not have a very high public sector employment base. It’s predominantly private industry, which is great. And it happens to be one of the fastest-growing job markets in the country. And when I say it, I’m referring to Florida as a whole, and we can break Florida down into its various regions. So I’m very bullish on real estate.

As I talked about in a previous episode about six or eight weeks ago, if you haven’t listened to that episode, I would go back and listen to that one. I literally say why I’m so bullish on real estate and all the reasons why. So anyway, let’s get to our interview today. So I hope you enjoy it. And if you have any questions hit me or my team up and we’ll be happy to help you.

 

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All right with me today is Jim. One of our fantastic new construction property providers in the state of Florida and some other places as well. But I want to welcome him back to the show because it’s been a while since we had them on. And we got into some conversations recently about what is going on in this crazy hot market down in Florida, especially as we are kind of moving away from this pandemic. So Jim, welcome back to the show.

Marco. Good to be here. Thanks for having me.

It’s always great having you on. I know we have you on our, um, team calls once in a while, so you can update my team. And I got thinking, well, heck you know, this is great information with what is going on in the hot, hot markets all throughout Florida. So this is probably a good time to talk about the Florida market, give everybody an update because I know a lot of people like, and love Florida has an investment state and especially, you know, as we are getting it to this time that we could probably start calling post pandemic. So where would you like to start? I was thinking we can just start with a 40,000 foot level of what the heck has happened in the last year.

Yeah, that’s a, that’s like a big 40,000-foot view for sure because none of us had ever expected anything like we saw and no one really knew what to think was going to happen. Marco, that was the crazy thing. There were some fundamentals out there that were showing positive signs, but I don’t think any of us knew the growth that Florida was going to experience. So overall the word growth is an understatement to be our model, as you know, is always to build new construction, investment property in high growth areas. That’s always been our niche. That’s what we’ve done together for so much. And obviously that became an understatement, you know, with an a nonpolitical item, Florida handled things a certain way than other states did it attracted people to come there and attracted businesses to come there. And there was a need housing. I mean our Southwest markets alone, you know, the municipality the year before the pandemic had released a report showing they were three years behind on inventory.

So with the influx of population that’s occurred over the last year and businesses, we haven’t been able to keep up. The good news is through all this. There was, as we all remember central businesses, certain businesses had to sit on the sidelines. Other businesses were lucky to continue. And in Florida real estate construction was deemed essential. So what this allowed us to do was it allowed us to continue to build, which was a much needed experience. And one of the things with building that’s happened over the last years, as we’ve seen, there were some surprises. I mean, lumber went up from may to may, uh, 410% that was at its height. And it’s dropped down a little bit. So obviously there were some increases in material prices, but luckily with being in Florida, the material increases did have to increase prices to build a home, but the values have had a staggering jump just because the old supply and demand people want to live in Florida right now, I’ve always wanted to live in Florida, but other people are saying, Hey, it makes sense. It’s someplace we want to be. And so the demand for housing has put us at, I mean, a healthy market normally is, you know, Marco has about, you know, four to five months of inventory. We’re at about less than a month of inventory in the major markets that we build in and that’s causes an incredible demand and also an upward pressure on rent that we’re starting to see, which is great for us investors who are wanting to plant our feet into a portfolio of properties and have the wind at our back.

Yeah. I don’t know if you know this, we have some builders that we work with within Florida, not including you, but a few other builders that we work with that have literally put the brakes on any new sales. They just don’t have enough inventory or any inventory right now. Second, they don’t know when they’re going to have enough supply to be able to break ground and start building and then have prices locked in at a point when, you know, when the time comes that they need the copper and the lumber that they know what their costs are. So it is possible that some of these builders go under contract or have a reservation with a customer at a particular price. And by the time they actually break ground and start construction and put the concrete and the lumber in place, the costs have gone up so much that it’s eroded away their profit margins. I don’t know what’s happening with you guys, but this is actually a trend that we’re seeing where builders are literally not locking prices. And they’re going to take a reservation, puts you on a list, but they won’t start construction until they have a gauge on material.

We’ve been fortunate to be able to lock prices. We had to do some material increases on some people that had contracted middle of last year. And we gave them the option to either step out and receive their deposit back plus 6% interest fee. Or we could just add a little bit on to make up for some of the material increases. And when they saw what that amount was compared to what the today’s value of that property was, they were happy to continue to move forward. We’re at this time, able to lock in prices and give a price because, well, one, we brought in the number two guy from KB homes before this whole thing started. He’s been great at having those relationship for bigger fulfillment amounts. So that helps give us some sort of visibility. The second thing Marco is we, as I said, it was an unknown time in the pandemic, but we a very big chance people smarter than me who understands the economies that I listened to.

Uh, you know, I know you study that a lot more than I, but they said, I think this is actually going to be good for real estate, especially for Florida. So my building partner and I doubled down and we actually went into $20 million worth of land in Florida at the very beginning of the pandemic. So supply of land and finding the right land in these high-growth markets has been tough for a lot of builders where we anted up at a very early stage in the pandemic to make sure that we had lot of inventory to be able to build our house homes on. And that was a risk, but it’s a risk. I’m very glad we took, because one of the reasons I think builders are on the sidelines like you said, they just don’t have the lots. They don’t have any land that’s been through going through the development process and almost ready to be released. And that’s where we took some serious measures to make sure we could. And that’s why our inventory is strong every month with Narada to be able to offer properties. And the build times are continuing to, they’re not as short as they used to be, but they are starting to get into more of a fixture. Now that county departments are open materials are becoming more available. As you said, as we’re coming out of this pandemic,

Well, demand in Florida is so incredibly strong, not just domestically and especially in some of the larger markets like Miami, Florida, and Southwest Florida, like Cape Coral and Fort Myers, but we’ve got this massive demand coming in from international buyers. There are Florida ranks in the top 10 us markets as far as international demand. And so we’ve got this in-migration from outside the country, as well as people moving in from places that like New York state, New Jersey and other parts of the US so demand is, I mean, to use the phrase through the roof, it’s through the roof.

Yeah. It’s been pretty staggering, you know, to give like a personal example. I grew up as a kid in New Jersey and the dreaded thing, Marco was going to get your license. You were excited to get it, but the New Jersey DMV is notorious for you’d be in there for three, four hours at least. So you want to get your license. You’re sitting in there for four hours when I got to, you know, St. Augustine, Florida, where our original market was Jacksonville, our little DMV you’d be out in and out in 20 minutes. And you’d, oh my gosh, what a change? Well, just the other week, I was with friends who were involved in real estate and they’ve had a couple of, uh, different, uh, family and friend members moved down from New York and New Jersey. And they said that they were complaining that they were in the DMV in our little area of Northeast Florida for over two hours.

And I’m going, wow, that’s crazy. Because what that says is there’s so many people being issued, new licenses, which I had heard and read a study on that. It was, it really has been interesting to watch it happen right in my own backyard and where you can feel the effects of something that’s not real estate related, but it’s service-related well, wow. We taking in a lot of new people and that will require housing. There’s just not enough of what was already existing there, which were proven by the inventory levels we have right now in the MLS. There’s basically.

This tremendous demand for housing, which is fortunately predominantly organic. It’s not just investors coming in, speculating looking to build a new construction home and flip at nine or 12 months later. Like we saw back in 2006, but it’s true demand. It’s people looking for households. This has caused some double-digit price growth year over year, pretty much in every single market, I was looking at or reading a report just not long ago. And I saw that pretty much every market in Florida was clocking in a double-digit price appreciation year over year. Is that what you’re seeing? Is that pretty consistent with your markets?

For sure. It’s been double-digit, not only with that, we’re also reaching a double-digit in rent increases. So it’s the standard of again, supply and demand is a very simple economic concept that we’re really seeing the effect on. So yeah, all of our markets, again, we’ve been going into any market. We went into, you know, we have our five factors, Marco, before the pandemic. We wanted to see that there was already existing population growth occurring. There was economic growth, more businesses going there. They were good on the affordability index, you know, the national affordability index. We wanted them to have a good, strong number there. And then something desirable to the area, drawing them there and healthy supply and demand. Like you said, we don’t want to go to someplace like in 2006 where there was more houses than there were people. So those were always our five factors that were there before the pandemic and with the pandemic, the fact that these markets already had these things, these are the places of growth, like three of our markets in Southwest Florida, like you names Fort Myers, Cape coral, and then also Lehigh acres.

Those were all released two months ago. It was in the top 20 fastest-growing cities in the nation. So just three of our markets in Southwest Florida are in the top 20. And two of those are in the top three, Fort Myers is number one and I believe Cape coral was number three. So again, it’s very interesting to see so much has emerged on Florida. I think they had always talked about a baby boomer migration happening, you know, as more people retire and that generation, but no one expected a pandemic migration.

This might blow your mind there. Jim. So builders around the country were polled and there was a survey done just very recently last month, actually. And they were asked how much have net prices increased year over year on average, and the national average looking at every region across the country, the national price increase on average was 18%, which is incredibly high. And I’m guessing that a lot of that was driven by lumber and other commodity prices increasing, but Florida was right there with the national average at 18% price increase with the Southwest as a whole, having a 19% price increase, Texas 20% and the Northwest, which surprised or not surprisingly was 22, the highest 22% price increase year over year.

That is surprising. It’s very surprising. But I think that what we’re seeing is one of my first questions. Marco was, is this 2007, again, going into the pandemic and what a lot of the, I only follow a few economists, but the few that called things right in oh 7 0 8. Um, and even in the eighties that have been playing that long, said this is different. And one of the reasons why is the lower interest rates and the demand, you know, when there was a, I don’t know if you saw that the wall street journal was the other day released a report that said Freddie Mac did a study and based on the April numbers for what is in demand right now, and this, I didn’t even believe it, mark. I had to read it twice. They said we are short 3.8 million single-family homes right now. And th that didn’t even seem possible in a number. And what they’re talking about is the demand of what’s being wanted. That just there’s not inventory, people are holding on to things they’re not wanting to go, or there’s just such a demand to go more into more of a home because of being in this, going in this shelter in place experience, they said we were short 3.8 million homes of desire. I couldn’t believe that 3.8 million short as of right now, or was that a prediction for a particular year? It was In April now in May. They updated it to, I believe it was. And I can send you the article. It was 2 million, a little over 2 million single-family homes. And then I was at 550,000. Multi-units being short, small multi-units meaning four or less units. And when I hear that that’s for a national average, I can’t help, but think with Florida with its huge amount of influx in population, even ahead of Texas and Tennessee is got to be about big

Chunk of that. Well, that’s a massive shift. And I’ll tell you why it was about a year ago that Freddie Mac was predicting that we would have an up to 4 million housing unit shortage by the year 2030. And we’re in 2021 right now. So we’re way ahead of that prediction now. I mean, we’re almost there.

Yeah, yeah. You’re right. Wow. Yeah. So it’s been interesting to watch that. So I think that for years I hung my badge of honor Marco on rehabbing homes. You know, I was very active in the foreclosure market and after the fallout of oh eight, and that was well, but seeing how that market had changed and going into the new construction very heavily seven years ago, that was a shift that was not easy, but I just think it has more controls, especially when there’s no inventory. I want to be able to create my own inventory because if I’m bidding on an old fixer-upper with 150 other investors, it’s probably going to get emotional, which means I’m going to have to overbid it, which means I would have to cut corners to get it fixed up, which I don’t want to do. So taking the leap over into the new construction was taking three steps backwards to take five steps forward. But I think that it was an evolution we had to do as investors to be able to handle this shift. And believe me, I did not know there were this type of shortage of Indian inventory. I had no idea. All I could see was, wow, we are bidding against investors willing to go higher for us on fixer-uppers. Maybe it’s time to start creating our own inventory from the ground.

Yeah. I think a lot of what we’re talking about, Jim can be carried across the entire country. I mean, we’re not generalizing, we’re talking a little bit more about Florida than other places, but what’s happening in Florida is also happening in other places. And what you did in terms of moving out of California to Florida, to build new construction there, to buy up land and start doing what you’re doing was incredibly smart, just, you know, way ahead of yourself. But that was the smartest thing someone could have done. So let’s take a pivot here. Okay. So I’m listening to this as a prospective investor or an investor. In fact, full disclosure, I’m in the process of purchasing an investment property in Florida. Right now I’m out picking a location, but I’m very bullish on Florida as I am for most markets around the U S but not the largest of the markets, like the tier one markets. 

I think there are some issues there, but I’m very bullish on real estate. In general, I did an episode probably two months ago explaining why I’m so bullish on us real estate, but I especially love Florida for so many reasons. You know, it’s, it’s a tax-free state diverse economy, stable market home to many fortune 500 companies, some of the best local real estate markets, the numbers still make sense. So there’s so many reasons, but I’m an investor listening to this. You and I talk and thinking, well, either one, I have FOMO fear of missing out, or I have fo or foo, whatever you want to call it. Foo fear of over forgot the acronym. Now fear of paying too much is basically what it is. That’ll come to me in a minute, but is there validity in that? Is it too late, or are we still in a, like in an early inning of this particular housing market?

And that’s a great question and no one has the exact answer in it, but again, I try to look at fundamentals and when you go back to 06, 07, there was some signs of some very strange stuff. There was fog, a mirror loans, um, where, you know, it was these very odd adjustables, 110% of the loan was financed 110% of the purchase price was financed five 30 credit scores. Very strange. Uh, there was also, inventory was creeping up. The inventory amounts were creeping up, creeping up, creeping up. And like, where I left in Bakersfield, California, there was absolutely zero cashflow, zero. I mean, it couldn’t get a 1% cash on cash return for what we were selling out of our portfolio there and moving to California. I mean, moving to Florida. So from the fundamentals, it looks like it’s different from the concern. I think it’s a healthy concern to say, wow, these things have gone up so quickly.

Is it over? Is it too late? Is there a bottom again? I go back to what’s the inventory, like, what are the interest rates look like? What is the return on investments? And it seems like for certain areas of the country, it looks like there is another, you know, as you said, the housing shortage going right up to 2030, there is a demand and an inflationary period right now where it seems to me, Marco, like we’re resetting, you know, we’ve reached a new level, but there’s new factors involved. One of them being inflation where I think we’re all gonna feel like the old guy, the old guy saying, you know, my father grew up in New York city. You can say, I remember when pizza was a quarter, a slice, you know, and I think we’re becoming my dad where we’ll say hi, remember we could rent a property.

If that property for 10 50 now it’s at 1850. And from all my inflationary friends who made it through the seventies to eighties and made a lot of money, that’s when rents start to jump, that’s when value started to jump. And I think we’re starting to see that since we’re an inflationary time, that there is going to be another run of not only value increases, but rent increases. Because if the value is just go in the rents, don’t, that’s not going to work, but we’re seeing growth in both. So I think, again, speaking on the one area, I know the most Florida, I think we have quite a, run-up still about to happen because both those factors are going up. Both the rents, both the values and the demand is so huge with little supply, the wind continues to be at

Well, you mentioned inflation. Most people don’t like inflation because they don’t want to pay more than what they feel they should on goods and services. But I don’t know if you saw the wall street journal recently, it was like within the last seven days, but they, as in, you know, the media is finally coming out and saying that US inflation is the highest that it has been in the last 13 years with prices surging 5%. And I think that’s a low number because we all know that certain things have increased more than 10% in terms of price of inflation. So for them to come out and start characterizing this accordingly, in fact, right in the article says, overall prices jumped at a 9.7% annualized rate over the three months ended in may. So that is the highest jump in inflation over the last 13 years. And we’re seeing that in housing or seeing it in food, healthcare education, I mean the big things, the things that most people spend money on.

Yup. And the thing that won’t, uh, as we all know, the old investor playbook says, if you’re locked into debt, fixed-rate debt during inflationary times, you start to pay off your debt with cheaper dollars, a hundred percent, which is a V onset. And that’s something that can be overlooked. One thing I know we don’t realize as lucky as we are. I did some investing years back with friends in Australia and it was good experience. We did well, there was good appreciation and we timed it well. Uh, but the one big risk that they always say they have their, we don’t, they can normally only lock their rates for about five years. Yeah. Five years. And or they pay exorbitant fees to go to seven or 10. We have the ability to lock in clean windshield for 30 years. And that’s unbelievable. So the fact that you can lock in your debt at that fixed rate while inflation is going up and start paying off with cheaper dollars, you know, I’ve refinanced my portion of portfolio and I’m holding it because I’m looking at that and saying, wow, this is now locked in at that debt. But as that inflation goes up and I, you know, had some of my nicer properties, like let’s say in a downtown St. Augustine jumped ridiculous amounts of money in two years, I know I’m experiencing just that I’m paying down existing locked debt with cheaper dollars and the rent has gone up.

Yeah. Yeah. And inflation is definitely your friend. It increases the price of the asset. I mean, you could say that’s a nominal terms, but the beautiful thing is it erodes your debt away. And so you’re paying it every year and cheaper and cheaper dollars. So what looks like a thousand dollar mortgage payment today will still be a thousand dollar mortgage payment, 15 years from now. But at that point in time, it will be the equivalent of having a $500 mortgage payment today. So it’s a beautiful thing. So where are the opportunities right now in the Southwest or more specifically in Florida? I know you’re focused on a bunch of different areas, but if I were an investor, what should I be looking at?

Yeah. Again, as you know, we started in Jacksonville, um, that had been my, my main market for years. And we realized if we were going to offer a bigger building opportunity, we had to go into other growth markets. So Jacksonville is still a strong market going down into Palm coast. Uh, Calla has been a tremendous market for many of the investors, as you know, uh, with a good affordability index and rents growing upward, along with population and citrus county over there, the town of Inverness, and then going into Southwest Florida, that Southwest Florida, almost like with Fort Myers, as a hub, going down to Cape Coral, out to Lehigh Acres, and then into smaller markets like Punto Gorda, Port Charlotte, there’s a number of good markets on there that are experiences. So all of the markets we’re seeing again, hit those five factors and we almost branched. I think I told you Marco into Tennessee, we actually had 220 lots tied up up there. And we decided we didn’t want to de-focus our efforts. We really wanted to double down into Florida and into those markets. So we’re really going to be hanging our hat on Florida for at least the next few years, because we feel that’s where we can do the most good for ourselves and our investors.

Okay. Is there a particular why Southwest Florida is getting so much attention?

Uh, I think the reason why it’s getting so much attention is the population growth. There is anchoring and it’s desirable. People love Cape coral. They love the little beach towns, Englewood beach, where we do things, Punta Gorda, people like it there. And when they like it there, they want to be there. And so the population has just leaked. And I think why it’s getting a lot of buzz is because, like I told you, when we first started building down there a couple of years ago, we had gotten a report from the municipality and they would said we are three years behind on needed rental inventory today. So now you can imagine what they’re dealing with. So that’s why I think Southwest Florida is getting such a buzz around it.

Okay. So what is pricing looking like today? And, uh, in terms of pricing, how has that compared to a gross rental income? I know that these are moving targets from year to year and sometimes quarter to quarter and month to month, but just to give people a sense of what they’re looking at in terms of new construction investment property and what the gross rents are. Can you just paint that picture.

Again? Price point? Our main focus is as you know, Marco or single-family home in duplexes, that’s 90% of what we build an offer price point for single family homes. You’re looking at average, you know, 1 99 or 1 95 to 2 95 for the majority of our single-family homes, duplexes will be more of the high twos to high threes for a duplex, and then rents again, we’re looking at a single family home, hopefully to get you six to 8% cash on cash return that doesn’t include principal reduction or depreciation or anything. And then on the duplexes, we’ll look to get higher amounts, you know, 8 to 10% cash on cash return for the duplexes.

Okay. So more of a macro question here, stepping back a little bit. I’m bullish on Florida. As I mentioned before, in fact, I’m looking to purchase a property. I haven’t put anything under contract. I’m still evaluating different markets and options, but I know it’s a great place to be. It’s one of many great places to be. So it’s not the only place to be. But if you Jim look into your real estate crystal ball, and you try to make a prediction of where we will see these Florida markets in three or five years from now, very general question, but what is your forecast for those markets for appreciation wise growth and appreciation?

It’s going to be tough to guess on population growth, because again, the factors of how I tried to calculate we’re just so thrown apart by the pandemic, unknown, it jumped it. It would be very hard for me to give a percentage on population growth. I mean, I’ve heard numbers of 10 million more people over the next eight years. And that sticks out to me for overall Florida. Appreciate in wise. I don’t see. And I don’t like to ever promise because I do more verbally. Yeah. And we can’t promise, but I don’t even like to state, but with the lack of inventory, the demand, the interest rates, I don’t see how our main set. And again, our main markets are second tier. I think that’s why you and I always saw eye to eye. We’re not building in Orlando. We’re not building in Miami. We’re not building in Tampa. I mean, those are all, those are the top dogs of Florida. I like second tiers. More, not that you can’t get great deals. There are do them. I’m sure people do, but that’s not our focus. Uh, but for the second tier markets, Marco, I don’t see how double-digit appreciation is not in the forecast for at least the next three years, at least because we have to catch up on needed inventory to appease the people.

Yeah. I agree with you. And if we were back in 2005, 06, I might agree with you, but you know, hindsight is 2020. And I know that there was a period back then when I remember Kate property values and Cape Coral, Florida had went up in one year 32%, which is crazy. But I also know that that is completely unsustainable because as you have increases in all the good factors, what you have at the same time is decreasing affordability. And you’ll get to a tipping point where the affordability becomes unaffordable. You get to a point where investor and buyer demand starts to drop off. And that’s where prices start to flatten. And then you hopefully have a balanced or normal market. So the reason I’m saying that is because I don’t think we’re there today, even though we’re seeing these double digit price growth, we’re not there.

And I would tend to agree with you. I don’t have a crystal ball, but I would say if that for at least the next two, three years, we’re going to continue to see very strong price growth in most of the Florida markets. Maybe not in places like Tampa and whatnot that are experiencing hyper-growth right now, they might top out sooner than some of the other markets around Florida. But I would tend to agree with you that we’re going to see strong growth and I’m not making any guarantees or price predictions here. I just am giving you my personal perspective on this, but I’m very bullish on Florida. So I think it’s a great place to be invested. I think one of the reasons I’m saying what I’m saying is because I don’t want people, as I said before, you know, to have FOMO the fear of missing out or FOO, which is fear over overpaying. That’s what I couldn’t remember before. Fear of overpaying. Yeah. So when you sit back and you hear that Florida markets have had double-digit price growth this year, and probably last year, you start to think, well, maybe I miss that train. I don’t think that’s the case. I think the opportunity is still wide open and huge for the Southeast and the general and Florida very specifically.

I agree. And again, it goes back to, we need to look at history to try to have an, just an educated opinion of the future. I mean, that’s the way that’s most economists who called get out in oh 6 0 7 of Southwest Florida. Like I said, the appreciation was huge. The people being offered loans were not qualified. There weren’t enough people, the houses were being built and there were, there was a large marketing overall strategy or theme saying, buy this house today, not looking at any rental fundamentals and sell it for a hundred grand more in 10 months. Right? I mean, that was marketed and not to mention it was really bad construction. I mean, you start to get into, I don’t know if you remember that Chinese drywall incident, just huge things. And that’s what was occurring here. We have less houses than the people now.

So that’s opposite. These subprime loans, have they come back some sure, but nothing like before of 110 hundred and 20% funding fog a mirror, you know, get the loan, no qual, uh, that’s gone away. The rates are lower. And coming through that last meltdown, you know, a number of new money that’s coming into the market is not over-leveraged. The market was over-leveraged. You know, I don’t know what the percentage of LTV loan to value is now for markets like that, Marco. But do you remember going into the 08 meltdowns? I mean, the leverage was staggering. No one had equity here. That’s a lot different. There’s a lot of cash buyers, still buying properties, which obviously takes leverage out of the market, which gives it more of a strong foundation.

Yeah. And what you’re talking about back in 04, 5 and 6 was by definition, speculation. People were buying with no intention of keeping or renting the property. They were looking to get in and get out and get paid and do that within a 12 month period. So by definition, that was pure speculation. And what we have today are real buyers and real renters who are looking and in need of property. And if you look at the median age, not the mean, but the median age of today’s homebuyer coming in, first-time home buyer coming into the market. It’s 33 and these people are out there looking for housing because they need it. They want it and they need it. And this is a huge demographic that’s coming in right now that is just continuing to swell buyer demand, demand for housing, both new construction and existing inventory. So we as investors have pretty much every tailwind working for us. And we have very little if any headwind at this point in time. So it’s a great time to be investing in real estate where.

I do feel it’s a fantastic time where I do feel people will develop FOMO. I think the biggest FOMO is this interest rate situation. I believe people who get it in the next year will continue to lock in probably at four and a half percent or lower, or even below 5% or lower. It’s tougher, a newer investor Marco, to understand the power of that. And that will start to go away. As inflation goes, these rates can not stay down, but they are now. And they’re holding them down for what they’re saying the rest of this year and hopefully next. And that’s, that’s the hope. But when I bought my first property, 23 years ago, Lompoc, California, seven 50 credit scores, it was a three-family home. So that brings up a little bit, but my rate was 9.12, 5%. That’s all good credit and full documentation.

So, and I’m saying you are at the ability to more than cut in half right now, which brings to the bottom line and that will go away. And the people that lock-in and then continue to take the inflationary rate of rent increases will have an advantage. That’s where the real FOMO is going to start to occur because were just rent. Rents have been pretty flat for the most part for the last six years. I think in most, even our growth markets, but they were strong, but they were flat. We’re just starting to see that growth. And I think that as that growth really starts to take off for the next 12, 18 months, that’s when they’re going to start to raise interest rates and you’re going to miss out on that. So that’s why I encourage people. If they have opportunity, you need to look at the interest rate you’re locking in it today and don’t fool yourself to think that, oh yeah, I can lock in at four and a quarter. That’s that’s going to be available because it’s just not, I mean, I remember the first time I locked in an interest rate of 7.5% on investor loan. And I thought I was the king of the world, Marco. I thought it was incredible.

Yeah. I’m seeing mixed opinions on where interest rates are going to go over the next couple of years, two, three years. But it is my expectation that we’re going to start to see interest rates rise after this year for, you know, the next two, three years. Because again, these are unsustainable rates and it’s just going to continue to fuel or fan the flames of housing growth housing market units. The counter argument to that is this is that if they raise rates, we’re going to stifle the housing market. And we’re not going to be able to fulfill this growing demand for housing because we are choking the market by raising interest rates. So it’s hard to know, you know, which direction it’s going to go because we need both at the same time. Absolutely. So time will tell Jim any final thoughts or closing comments here before, uh, we wrap it up with you? 

I just think it’s an exciting time for real estate investing. I think there is homework to be done, but I would look at the fundamentals pretty closely, whatever you go to. And there’s some good states out there besides Florida. Obviously, I’m a thumbs up Florida guy, but I think that, you know, just make sure you do your homework. And I think one thing you and I hit on on other shows, Marco is I think landlord laws are really important for the investor. Um, and obviously gone through the pandemic. We saw some very unfriendly landlord situations out there in certain states and others. So I would really look at that. Moving forward, the landlord friendly, non landlord-friendly should play a big part in where you’re going to mind.

I completely agree. And we saw that play out during COVID during the, you know, this pandemic where I don’t know what to call the states, but, uh, I’ll just say some of the more bluer states or more liberal states really had tight, tight lockdowns. And it made it very difficult for investors who are running a business, running their investments, or managing their investments to be able to replace and evict tenants put paying tenants in place, you know? And so it just hurts a lot of people. It’s not just the person or the people who are losing their jobs, but it has a trickle-down effect. And if you can’t move and adjust to market conditions, well, you’re basically handcuffed. So I agree with you having a friendly landlord-tenant law is important in Florida is certainly one of those states.

Yeah, for sure. For sure. So yeah, that’d be my only thing and there’s other good states out there and I know Narada has got great reach and lots of places. So I think they’re in good hands, but always a pleasure, Marco sharing this. And it’s definitely been an interesting year since, you know, we’ve talked a lot, but we haven’t done a show together in a year. And it’s definitely an interesting experience

This last year. Yeah. It’s been long overdue. It’s it’s roughly a year. I think June last year. It was the last time we had you on, but we’ll have you on, on a regular basis. It’s always good to have these conversations. And so

No, I look forward to it and look forward to continue serving the neurotic clients. And, uh, we’ll be talking soon then. Yup, yup.

Everything we talked about you, um, anybody listening to this, if you want more information, just contact your investment counselor here and we’ll, uh, you know, we’ll, we’ll provide you additional information and put you in touch with Jim and his team as well. If Florida is an area you’re looking at. So Jim, thanks for coming on today. It’s been a pleasure.

Thanks for having me Marco. I really appreciate it.

All right. Well, that’s our episode for today. I hope you enjoyed it. We try to cover a little of everything in terms of the post-pandemic market conditions, but more of a focus on Florida, just because Jim is based in Florida and does a lot of new construction in different markets. So again, just connect with my team here. We’re here to help you and provide you information and help you make sound real estate, investment decisions outside of that, I appreciate you listening. Be sure to subscribe to the show so you can catch our show every week as we drop a new episode, spread the word, revisit us on iTunes, leave us a rating and review. Thank you for listening. And we will see you all on our next episode.

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