Foreign Investors Have Cash

I was pleased to attend a breakfast this past week in which Michael Saunders was the invited speaker. This was a businessman’s meeting and Mrs. Saunders was speaking on the economy and real estate in general throughout the SW Florida area. She was not recruiting, she was not in her training mode, she was simply reporting what she sees as the immediate future issues and successes that we might experience right here.

First the good news, of which there seems to be quite a bit. Houses are selling again, prices are turning around (heading up), and the number of sales is increasing as well. She was mixing new homes with used inventory in her remarks, but because there are many more existing homes than brand new stock, the trend is good for new sales as well as resales. And the buyers have cash. About 80% of the sales we have seen over the last month were for cash.

The banks—who would normally have been lending for all these sales—are busy with refinancing existing homes for folks who have decided to stay put, but would like some of that 3.5% loan money.

It's pretty hard to ignore the opportunity to refi a home at 3.5%, especially when headlines about worldwide inflation are only a few months off, and when inflation is at 3.5% (which it no doubt will be by March or April) then your mortgage is free. Back in the day, when the inflation rate hit 6-7% and President Ford was wearing a WIN button (Wip Inflation Now) the mortgage rates were at 18%. So you can see that the Federal Reserve is holding down rates that would naturally be on the upswing.

But there was some bad news too. And I don't mean the so-called “shadow inventory”--which are the homes still owned by the banks that are vacant and will one day flood the market. That dirty little secret is still to be dealt with. No, the bad news is that foreigners are lurking out there ready to eat your lunch.

Economic and political uncertainty around the globe are benefiting real estate in the United States, especially in Miami and New York, the two “safe haven” American cities foreign investors usually look to first. Florida's real estate market is certainly no stranger to capital flight from Latin America. But the velocity at which some Argentines are investing in Miami real estate has shocked some brokers here. In the past few months, Argentines have quietly passed Brazilians to become the most active group from Latin America buying Miami real estate. Argentines are buying foreign properties not only to park their savings but also to make extra income through rentals. Argentines don’t want any more Argentine risk. So they are willing to risk their savings on Miami real estate instead. But Miami is Miami, what about us?

Mrs. Saunders related that she had a call last week from a working acquaintance of hers who owned one of the largest real estate offices in Paris, France. He left a phone message saying he was coming to Sarasota to look at property—which was good news for the Saunders Agency. But when he arrived, it turned out he wasn't looking at the million dollar properties up and down the Keys—as Saunders had suspected. He wanted to buy 150 homes under $150,000 for a syndicate of Parisians who wanted to invest in Florida real estate—and the had cash.

All this sounds fine, and is good news for sellers (albeit, most of the sellers for this batch will be banks of hold-over short sales), but in fact this is bad news for the “little guy” who wanted to pick up a piece of paradise for a few dollars under the old prices, so it's no wonder when I take my clients out to see homes throughout Sarasota and Charlotte Counties, there's not much left in their price range—the inventory has gotten thin.

And what is the Franco-American plan for the 150 homes? To rent them of course. The steps the syndicate is taking is to 1. Buy up the stock. 2. Fix them up so they can be rented. 3. Rent them for 5 years. 4. Resell them. Sounds like the late-night TV pitchmen who sell you a system on how to get rich in real estate.

Dane Hahn is a real estate professional serving clients in Sarasota and Charlotte County. You can reach him at 941-681-0312 or by email at: dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com.