What's the Value of a Mobile Home?

For some time the only “flippers” were investors who had a seemingly bottomless pot of money and who were gobbling up all the cheapest homes, with the idea of reselling them at a profit.

Any time you buy and sell a house—is called a flip. And we are seeing flips come back into our market.  It’s either a fast flip or a slow flip, but it’s still a flip no matter how you look at it.  In cases where an investor bought a property and sold it a short time later is termed in the media as “flipping”.  That’s just doing business.  It’s legal.  And it happens every week.

So when you buy a house, and either fix it up or simply choose to resell it.  If you’re buying and rehabbing houses, document all the work you do.  Keep a file on what you’ve done and spent to make a case on how you raised the value so quickly. You should also document your work using before and after photos.  Good records will help with everyone you deal with from other contractors to bankers to the IRS.

Typically we say that the “market value” of a home is what a willing buyer will pay a willing seller for a particular property, neither of them being under any pressure to buy or sell. Meaning that a home that is sold because a seller can no longer afford the payments, is a home that is selling under duress, and the settlement price may be lower than fair market value and therefore not reflect what the house is actually worth, similarly, if the buyer is under pressure to buy, let’s say for tax reasons, A house might sell for more than the so-called market value.

This week a friend asked about buying a mobile home.  In Florida there are plenty of them and there are some very nice “parks” where the homes are parked.  Some of them are owned by investors, and the “pads” where the homes are parked are rented out by the month or year.  Others are either condo or co-op ownership where the residents manage the entire business, but still pay a monthly fee to a management group—which pays the bills, taxes, road maintenance and so on.  If you are planning to involve yourself in one of these parks, do your homework and read the condo or co-op documents.

My friend is living in a park right now and her landlord has offered to sell her the unit she lives in. Recently he has been quite friendly and if she wants to purchase the home he will even offer to hold the mortgage.  All of this sounds very good to her, and she was asking my opinion, I think hoping I would say it sounded good.

Not so fast.  Mobile homes tend not to appreciate over time. And this one has seen quite a few calendars hung on its walls. This home is 30 years old, and the asking price? What the seller paid for the place.

Mortgages for mobile over 20 and certainly over 25 years tend to be pretty hard to get.  Remember the only collateral the bank has is the right to foreclose on the building. And there is something about an older mobile home that scares bankers.  The few loan companies that write mortgages for the older homes tend to need 20% down and charge a high rate.  Today you can mortgage a house for 2.5% or thereabouts, maybe up to 3%. Mobile homes will likely be in the double digits.

And then there’s the “pad rent”.  In this case $675/month.  So looking at a project that would cost my friend at least $1,000 (if she has the landlord provide the financing) and possibly a good deal more if she has to use the sharks that finance mobiles.  Not to mention the market value of the 30-year old trailer being significantly discounted from the original price—well I just can’t give her a thumbs up on this deal.

The amount of money she will have to pay for this mobile today could put her in a free-standing home that will not depreciate over time.  Or, having done the math, she can show the landlord that his chance to sell the home 30 years after he purchased it for the same amount of money is probably no realistic, and so he needs to ask much less for the unit.

Dane Hahn is a real estate professional practicing in the Englewood Area.  Reach him at 941-681-0312, or by email at dane.hahn@gmail.com.  See him on the web at www.danesellsflorida.com

New Vista, a Clone of GDC, Florida Land Scams

If you missed last week’s column, in November 2003, my wife and I traveled from NH to Port Charlotte to see land that was for sale by the New Vista Company, and meet the management team to learn how to sell Florida land.

As we drove around North Port and South Gulf Cove, the marketing manager pointed out lots that were apparently available for sale and gave selling prices of the land. All the prices seemed so cheap—at the time I was selling lots in NH for from $100,000 to $3 million. The lots—and some were nice waterfront lots—were selling in the $25-$35,000 range.

We had been there since Friday, but on Sunday morning we were sequestered in a room at the hotel. We watched a presentation and met with the principals and the marketing guy, and we sat through a sales pitch program, the idea being that we would be more successful if we knew the company line.

I had bought a newspaper the evening before during one of the very few moments we had to ourselves, and I had read the classifieds when we got back to the room Saturday night—so I knew that the land New Vista was offering could be bought for much less than they were asking. And so I asked that very question during the meeting. “What’s the difference,” I asked, “between the land New Vista has for sale and all these lots for sale in the paper?”

I soon found out that was not the right question to ask. “This program may not be for everyone, Mr. Hahn, and it might not be right for you. It’s a program for agents who want to make money, who will offer these lots to people regardless of their economic situation—because we handle the financing. And our agents will sleep well knowing that they have helped other Americas achieve the American dream of owning land they can retire to.”

I began to see the other people in the room moving away from me, and I could see I was going to be the person they would point to and say, “He doesn’t get it.”

This was a three-hour meeting, but it seemed like a full day. Finally the meeting broke and it was time for lunch. I thought I had become a “persona non grata”, that is an unwelcome visitor—but surprisingly the marketing guy joined me for lunch and said he thought I made some good points, that the lots were expensive, but they needed to get the higher price to cover the costs of bringing people down to Florida to see the land, that he himself had bought a couple of lots, and expected to build a home on one of them and sell the other when he was ready. He was a good guy, and I could see the sales costs were significant, but I didn't agree to sign up. And so I was worried that we would need a cab to the airport—since we had not signed up to sell the lots—but they were good enough to take us back—as originally promised and that afternoon we flew back to NH.

Back in my office the next day—and with Google—I looked up the principals of New Vista and found they had sold more than thousands of vacant lots in mostly rural areas of Florida to buyers from such places as the Caribbean, Switzerland and France. The properties were sold at prices far exceeding their assessed value. The mostly standard, quarter-acre properties in North Port, Charlotte County and elsewhere ranged from $18,000 to $72,000 -- though the taxable value averaged about $3,000 per lot. In Citrus County, lots valued at roughly the same price were sold by the company for $30,000

Twenty years ago, the principals,  Ehrling and Reizen were accused of fleecing more than 10,000 homebuyers in North Port and Port Charlotte while employed by the former General Development Corp. At a 1993 trial, Ehrling was convicted of 39 counts, including mail fraud and conspiracy, while Reizen was convicted of a single count of conspiracy. The pair served two years in prison, but their convictions were overturned on appeal in 1996. The 11th U.S. Circuit Court of Appeals ruled buyers were free at any time to check out other Florida home prices, and were therefore not defrauded by the GDC executives.

New Vista seeks out customers who are unfamiliar with Florida real es tate. Using tactics perfected at GDC, it depicts undeveloped areas of inland Florida to buyers as sandy resort destinations via sales seminars, brochures and guided tours of the Sunshine State. New Vista has sold 1,556 lots in Charlotte County, more than 2,100 in Sarasota County, 824 in Citrus County and another 290 in Marion County, among other counties around the state. Since the depths of the Florida housing crash in 2009, New Vista has sold 458 vacant lots in North Port alone, collecting $16.45 million, or an average of $35,917 per lot, according to court data.

The company finances many of its deals, a move that further boosts profits and allows New Vista to sidestep the appraisal process required for most traditional real estate loans. About one-third of New Vista customers eventually lose their properties to foreclosure after falling behind on monthly payments, and New Vista simply takes the lots back and resells them.

Although they are still in business today, their sales style at New Vista still mimics that which was employed at GDC. Today Ehrling and Reizen are occasionally in the news, but are not charged with any crimes.

So how did this event cause me and my wife to ultimately move here? We liked what we saw on that November weekend, even though we didn’t like New Vista program or the people who were affiliated with them.  So we came back the following March and after a whirlwind tour of the area, with bona fide Realtors, we found a home in Englewood—simple as that.

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

New Vista Properties, the Acorn doesn't fall Far From the Tree

The following blog has been modified at the request of New Vista's President, Bob Erling. Mr Ehrling points out that my memory may be flawed, that he was not involved with this sort of sales, but he did apparently engage a master broker whose role was to call on Realtors with the idea that the local agencies would be a fine conduit of leads to sell the lots in question. In an email received today, Mr Ehrling goes on to say that the company that I have mentioned in my April 30th article was not New Vista, nor was the call I received from New Vista, and further it was not a New Vista tour I took.  Here I quote him, "As a "real estate professional" I'm sure you can see how unfair it is to weave your unconfirmed story into the erroneous story written in your local paper and even refer to us as "these guys" and "the boys from New Vista."

I must say Mr Ehrling's insistance in my making the changes in this matter is both complimentary to me, in that the readership of this blog is minimal at best, and proper for the sake of accuracy in that it is possible that the "New Vista sales team" that I met may not have even been employed by him, but were in fact only a commissioned outside contractor, loosely using his name. Because I didn't agree to represent them, I have no paperwork to pinpoint who my "host" was.

The story, in case you somehow missed it partly follows: One dreary November day I was sitting in my real estate office looking out the window at the dusting of fresh snowflakes on the parking lot when the phone rang—this was 10 years ago in New Hampshire.  The voice on the other end said he was calling from Florida, I thought he said he was from from a company called New Vista Properties, but maybe he only implied that...but he did say he was looking for a few NH based Realtors to help sell vacant lots in Florida's Charlotte County. I liked the concept right away.

The offer was—well—too good to refuse.  “Come on down here and see what we have,” said the voice.  “We’ll give you an all-expense paid trip to Florida, over a weekend.  Fly down on a Friday and go home Sunday, all on us.” Ehrling says this never happened.

In answer to my many questions of what the weekend was to hold, he told me that he represented a Florida land developer; they had some 5000 lots, and crews to build houses. My role would be to funnel interested New England buyers to them and they would pay me a referral fee of 10% and take the buyers from there. 10% was about 8% more than I would get for doing a similar thing in New Hampshire.

My answer was that my partner (who is my wife in real life) and I would come to evaluate their offer and the properties, and to hear the offer in a face-to-face meeting with the “management team”. And so the event was scheduled, this was November 2003.

As it turned out there were non-stop from Manchester NH to Ft Meyers where they met us—and 9 or 10 other folks at the airport. The other folks who were a part of our “group” were from Canada New York and Europe. There were German Realtors, Brits, and a couple from France as I recall. Most of us owned real estate firms or were “estate agents” who could focus on bringing in new buyers.

We were given VIP treatment, and once we were all rounded up, we took a “unmarked company” van to North Port, where we were shown a few model homes and then whisked off to cocktails at the hotel in Port Charlotte, where we were both staying and where the “management team” wanted to welcome us. It was pretty clear by this time that they had done this kind of thing before and were good at the planning and execution.

After cocktails we were invited to have dinner in the dining room—“we can't join you, but just charge it to the room—order from the dining room menu or room service, you’re on your own for dinner,” said the marketing manager “Get some sleep tonight, we’ll see you at 9 AM to go out and look at the lots.”

The next day at 9 the company van picked us up and took us to a huge pontoon boat docked at a marina in El Jobean, and took us on a boat ride through the canals of South Gulf Cove. The marketing guy led the discussions about which lots were “ours” and the lot pricing was on everyone’s mind. I could see the interest from my fellow real estate sales agents. And of course I was interested too. These were nice lots.

We returned from the boat ride just before noon and were taken to Boca Grande to a little beachfront restaurant for lunch.  We walked the unspoiled beach, waded in the Gulf briefly and then back in the van to go see North Port—where there were another 3000 lots.  Finally, back to the hotel, with the instructions that the “developers” would meet us Sunday morning—they wanted to show us a presentation and discuss the offer they had for us. And if we liked it, they would ask us to agree to become a bonafide representative of theirs in our own area.

That evening my wife and I walked the half-mile to the Fisherman’s Village waterfront bar and talked over the opportunity. On the walk back I found a newspaper vending box and bought a paper.  Remember 10 years ago was a long time before smart phones and hotel emails. That night in the hotel room I read the classified ads in the paper and discovered a bundle of lots for sale in the very areas we had driven through earlier that day; but what stuck with me most was that the price of lots for sale in the areas we had been looking at were for sale in the newspaper for significantly less than our hosts were charging—I mean MUCH less.

Listen, when you come right down to it, there's no law precluding overcharging a buyer in a real estate deal. A contract is a contract, if I offer you a watch for $100 and you accept the offer, we have a deal. If I offer you a bridge for $100,000, and you accept the offer, we have a deal. So if I offer a lot for $30,000 and you say yes, well that's how it's done. Due diligence allows a cooling off period for the buyer to review his decision, but as the law says, let the buyer beware--caviet emptor. 

Well, we didn't sign up to become a representative for our hosts, but we still happened to move to the area—a decision we made largely through that November weekend with the salesmen who claimed to represent New Vista, but then again maybe actually didn't.

Dane Hahn is a real estate professional serving Sarasota and Charlotte Counties. You can reach him at 941-681-0312 or at dane.hahn@gmail.com.

A Quarter of Florida's Real Estate Sales Are to Canadians

This week Canadian Wealth magazine had a piece that covered the Florida real estate market. Because they report mostly to Canadians,  their view of us if from 1550 miles away. Sometimes that makes for errors, sometimes clarity. But in any case, their reporting is motivating buyers from Canada to come to Florida and purchase real estate.

From the pages of their article, they wrote (and I quote), Florida experienced one of the biggest property booms in America. But lax lending policies coupled with borrower greed led to massive growth in a relatively short period of time. Despite the meteoric rise in prices, many believed that market couldn’t fall. But when the U.S. market imploded, Florida was one of the first states to crash. And, like the rest of the country, many watched helplessly as prices and demand plunged.

As ‘Foreclosure’ and ‘For Sale’ signs popped up like weeds, many Canadians – retired snowbirds and keen investors alike – started taking interest. Florida prices plunged more than 40 per cent peak-to-trough on the FHFA Index and top destinations such as Orlando experienced a 56 per cent drop in prices from an average $258,000 (U.S.) at the peak, down to $113,400 in 2011. Rock bottom prices and a high exchange rate made purchasing U.S. property an attractive proposition for northern neighbors.

According to the National Association of Realtors, nearly a quarter of home sales in the 12 months ending in March 2012 were by Canadians.

Times, however, are changing. A 2012 report from BMO indicates that while the housing market in Florida is relatively stressed, the worst is over. “Florida was one of the epicenters of the housing bubble-bust cycle, but there are mounting signs that a recovery is under way,” it said.

Economists indicate that the Florida economy is recovering at a modest pace with real GDP expected to grow 1.9 per cent in 2013. Unemployment is trending down, but it is still an above-average 8.7 per cent. Certain pockets of the housing market are showing promise, with prices in Miami and Tampa bouncing up 9 per cent from their late-2011 lows. Another positive sign is a reduction in the supply of homes.

There are bidding wars and multiple offers on almost every property. As long as a home is not overpriced, the market has delivered a buyer within the first week of listing and sometimes it’s sold before it even hits the public MLS. Building starts are up and more and more people are paying builder prices for a new home due to the lack of inventory available.

However, it should be noted that the foreclosure rate is still the highest in the U.S. at 13.7 per cent.
Overall, Florida’s housing market is one of the most stressed (second of 50) in the country, behind Nevada, but a draw down in inventories and upward price momentum are positive indications that the worst is over.
We may be seeing the beginning of the end for Florida’s negative market cycle, Florida Home Finders of Canada vice president Brian Ellis, says it’s not too late for Canadians looking to buy.

Most savvy real estate investors will tell you the best time to buy is just when the market has turned a corner and is starting to go up – and that’s where Florida is now. All of the factors that have made U.S. property an attractive real estate proposition still hold true; Florida real estate prices are low, the Canadian dollar is strong, and low interest rates at home make it easier for Canadians to equity out of their home and put cash down on a U.S. property. The only drawback to the Florida market, says Ellis, is that this situation will not last forever.

Canadians have to jump and they have to jump fast if they want to take advantage of this marketplace.
Florida has unique economic advantages that set it apart from other destinations. Florida – which is already the fourth largest state in the country – has long been one of the fastest growing regions in the U.S., and by the next census will surpass New York to become the third largest state in population.
Florida’s attractions make it one of the top tourist destinations in America and its weather will always be a selling point for retirees looking to escape cooler climes. As Jerry Seinfeld quipped, “my parents didn’t want to move to Florida, but they turned 60, and that’s the law.”

There is no state tax for individuals and business structures in the state, making it attractive for entrepreneurial activity. Major changes to the Panama Canal – which will allow container ships to reach Florida in 2014 – will make the state a stopping point for distribution of imports to the Eastern Seaboard. And on top of that, major inter-modal expansion is being planned for Central Florida.

The recovery in Florida is not happening uniformly across the state. As a top tourist destination, Orlando is starting to benefit from a recovery in tourism-related employment and expansions to Disney World’s Magic Kingdom Park, SeaWorld Orlando, and Universal Studios Florida. Meanwhile, Miami is experiencing a turnaround in prices, thanks in large part to foreign investment. The Miami Association of Realtors reported a 34 per cent increase to $160,000 in median sales price of condominiums in Miami-Dade County in 2012 over the previous year.

The hottest market is currently central Florida, from Orlando to the Tampa region, with returns yielding on average 8–12 per cent. In the south Florida market returns are less, ranging from 6–10 per cent, but appreciation and prices are much greater. However, it depends on the investor’s appetite for risk and investment goals.

80 per cent of Canadians buying real estate in Florida are purchasing condos. Condos allow owners to lock the door and walk away and not have to worry about the exterior maintenance. So that’s what most Canadians are buying. Vacation rentals are also a very popular option right now for those not as concerned with the short-term return but are looking to win big on the capital gain over the long run.

Dane Hahn is a real estate professional serving Sarasota and Charlotte counties. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.

Rain Brings Good Fortune, Honest.

Florida has suffered from no rain for months, which keeps the Snowbirds happy, but for those of us who live here (most of the year) it's been a long dry spell. So after this long drought, we were pleased to see it rain hard almost all day Thursday and even overnight into Friday morning. And Friday was the day that I had a closing in my own neighborhood between a really nice couple from Maine and a neighbor I had recently come to know as a seller for whom I was the listing agent.

I listed that house about 6 weeks ago, and the market being what it is, I had a showing there nearly every day—sometimes 2 or three showings the same day until a buyer was found. My seller was a bit difficult from the very start, and would not agree to leave the home when there was a showing. He felt that he could answer any question a buyer might ask, and he had no place to go anyway, plus his dog apparently didn't like riding in the car.

Left at home the a barking dog wanted to jump up on every visitor, we did manage to have the dog caged for showings. But my lister, living alone with no one else at home—well, he liked to talk. My opinion was if his dog didn't scare away buyers, he might easily talk a buyer out of buying his house. My own conversations with him always seemed to come around to his getting a deal on this item or that. He would wax eloquently about his conquests on Craig's list, or how he took care of his own pool with acids and chemicals he would be leaving in the garage for the buyers.

It became evident that if the house were going to sell, I could not have him and the dog at home by themselves. And because they wouldn't leave, I would have to accompany any showings and act as a buffer between him and any agent or client who wanted to see the property. This is NOT the way we Realtors would like to run our business, today a real estate agent usually puts a lockbox on the front door, and when a showing is requested, tells the owners to go for a drive, or go shopping (or some similar suggestion) so the house can be shown in peace and quiet.

The electronic keys that we Realtors use unlock the house are smart keys and tell the listing agent which Realtor was the one that accessed the house and at what time of day they went in. About the only thing they don't monitor is how many people came through at the showing. So when a Realtor makes an appointment to see a house, the listing agent knows who is coming and when, and when the electronic key is used, it confirms that agent opened the door and at what time. This provides a good sense of security to home owners and limits the liability a real estate agent would assume if he or she let “just anyone” into a home. But we had no lockbox for this home, or even a key for the Realtor because he was always there.

But again, that was not my biggest problem. My biggest problem was the inability to provide a good showing environment. I would arrive for showings early to be sure the place was straightened up and turn on the lights. My lister would follow me around his house turning off the lights I was turning on. I would move the dog's food and water bowl out of the way to the garage, and part-way though a showing, it would magically be back in the traffic pattern. But it was a nice house, well priced, and soon enough a buyer came forward.

Once the buyer was found, he became worried about the home inspection. “What if they want me to fix things—I'm not going to,” he told me. More Realtor headaches come from this sort of attitude than almost any other. I work hard for my clients, and frankly I want them to do their part. But this seller made this a difficult transaction.

The bad news was the home inspector found a half dozen issues that needed correction, and the seller was good to his word, he wouldn't make the repairs. The good news was the buyers understood that the total expense to make the corrections was minimal and agreed to accept a sofa bed in trade instead of demanding the repairs. So, as they say, “all's well that ends well.”

And back to the rain. Some years ago I was a party to a sale of several churches. The other agent was a Native American, full-blooded Wampanoag Indian, and chief of his tribe. There were many spirits with us the day we closed the transactions with the Methodists and Presbyterians, and it was raining hard with thunder and lighting as we met to finalize the transaction. My Indian friend asked for a moment to “bless” the proceedings, and time was granted by the several ministers and clergy in the room, who normally would have handled this religious aspect but were upstaged that day. My Indian friend went on to ask for blessings on the parties and to say that Native Americans see rain as a blessed omen, it signifies cleansing and rebirth. This week at our closing I was able to take a moment and share the Shaman's thoughts--if not quote his exact words--that luck and good fortune, and a complete cleansing will favor the home and it's new owners.

For the seller, he's starting again too, this time in Delaware, and we all wish him well.

Dane Hahn is a real estate professional practicing in Sarasota and Charlotte counties. He can be reached at 942-681-0312 or by email at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com

Investing in Real Estate 102

If you've spent any time looking at real estate—even on the internet, you've found there are at least two different types of properties, residential and commercial. Residential is comprised of houses, condos, duplexes, apartments and so on. Both of these types of properties took a haircut during the last recession—they were all a part of the bubble and they all profited from the lift in the market price of properties.

Today, residential properties are selling at a great rate, and although many are being bought by investment groups, most are being purchased by people who expect to live in them. And they’re buying for cash. Because the prices are affordable right now, a cash deal relieves a buyer of having a mortgage payment as they get by on Social Security and fixed incomes.

Sometimes an all cash transaction happens because the buyers are “from away”. If you are a Canadian, for example, don't bother trying to get a mortgage in Florida. You get your loan in Canada, and bring the check to the closing table here—meaning, even if you have to get a loan (perhaps a home equity loan on your Toronto residence), when you use the proceeds here to buy the beach front house on Manasota Key, we will see it as a cash deal.

But let's talk about commercial real estate. This is the investment arm of the real estate market. Oh I know people say they have invested in a home and it will probably grow faster than the stock market. But really they have not invested, they are speculating on residential real estate. If you don't think so talk to all the folks who bought “investment homes” over the last 5 years. Speculation really is a “fingers-crossed” investment, and works out about 50% of the time.

Obviously commercial properties are not residences. They are the doctor's offices and the retail stores up and down Main street, the warehouses a couple of blocks back and the malls and hotels and golf courses, and all the vacant lots that are zoned commercial which one day may become a McDonald's or a Walgreen's.

The barrier to entry in this type of investment is higher than residential, the cost of entry is usually substantial. But the market is less fickle and there's nothing like a good lease from a well known tenant. Back in the day, the best investments were Kmart leases. These were paying a significant annual profit, your investment would be pooled with other investors and as a group you would participate in a limited partnership to buy one or more buildings, and then rent them to Kmart. Sometimes these were called purchase, lease-back deals and you could make 15% maybe 20% on your money. True investments come with a known--or at least projected--rate of Return On Investment (ROI). Even today I know one investor who owns 6 United States Post Offices. Love them or hate them, they pay the rent on time.

And one of the interesting things about Commercial vs. Residential is the two markets tend to peak at different times, almost as though when one is up, the other is down and vice versa. Residential real estate began it's slow recovery about 3 years ago, (really when it seemed it could go down no further), and it's been climbing back ever since. If you had to sell during that time, I'm sorry. The good news on residential is it has another 2-3 years to grow, some say 5 years still to grow.

But if you didn't have to sell then, now is the time to rethink your real estate portfolio. Take a clue from the big builders who are constructing homes all over the counties, with the knowledge that there are buyers, and there will be buyers in the future. Even when the final blip of the phantom inventory hits the market, (which will be in direct competition with their new homes), the new ones will be selling.

But back to commercial, things are just now turning around for commercial. Buyers are stepping forward, and vacant buildings are being gobbled up. As a landlord of a prime commercial property, you should be able to expect a net net net lease with a 20 year duration that will have escalator clauses so that you have a fixed rate of rent the first year, but you might have a clause that increases the rent based on the cost of living as set by the Federal Government—or any of a dozen other kinds of escalations. One of my favorite is based on the annual gross of the tenant. If they're having a good year, the landlord should too, right? (And net, net, net means the tenant pays everything including the taxes.)

Three years ago I told you the residential market was at the bottom—and I was right. Now I'm telling you the commercial market is starting to come back. Talk to your investment advisor about how you can take part in that market's success with a sector fund or mutual fund in the real estate field, or call a Realtor and ask about commercial opportunity right here. There are some nice buildings—plums waiting to be plucked—right here in Englewood.

Dane Hahn is a real estate professional practicing in Sarasota and Charlotte counties. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0132. See him on the web at www.danesellsflorida.com

Real Estate Market Cycles, 5 more good years

Our local daily paper ran a six column headline this week stating: “Home sales, prices up”.  What a happy turn of events given the last 5 years or so, when almost all of the news stories have been about the fall of real estate—and now the market is climbing faster than the editors seemed to think was possible.

I won’t go into the details, except to say those of us who live our lives in the real estate marketplace agree that the news is accurate for a change, the market really is going up.  The buyers are back and the sellers could not be happier. We are on the leading edge of the new real estate market, and the prices are as low as they are likely to be for another dozen years.

Typically the residential real estate market swings up and down in a 12 year cycle

The normal pattern of real estate price movements is a smooth curve, 6 years upward and 6 years or so downward.  The cycles have a similar length, 6 years of building to a high market, and six years of weakening and tightening.

The recent “Great Recession” redrew the graph, but it appears we are on the uptick of a six year cycle, with perhaps the first year already behind us, meaning that we may have a good 5 years still to go. The last year didn’t seem good, but it was the turn-around year and grew into a solid year one cycle.

The firm—which is now called Case-Shiller—was once just a couple of economists, and they postulated that the housing boom of 1983-1988 could be explained using a consumer phychology approach—when certain financial situations were in place. During that time period, house prices doubled in many parts of the US, and they interviewed both buyers and sellers.

In their interviews they found that the driving forces of that boom time rested on the perception of the public. An especially striking feature of the answers, noted Case and Shiller, is that not a single respondent referred to explicit quantitative evidence relevant to future supply of or demand for housing.

Buyers never cited any concrete evidence about the economy, or housing supply. Rather than being based on objective economic facts, the optimism of buyers was based on mutually reinforcing conversations. I like to call this cocktail chatter.  Everybody at a cocktail party talks about real estate, and almost never talks about fundamental economic factors. Conversations like: “Housing prices are booming,” said the buyers polled by Case and Shiller.  And these folks tended to worry: “Unless I buy now, I won’t be able to afford a home later.” The moral is simple: do not always believe that the current markets growth is due to ‘fundamental’ factors.

And what are these fundamental factors?

Increases in national income (GNP). A 1% increase in GNP growth was associated with a 1-4% rise in real house prices after three years.

Reductions in interest rates. A 1% reduction in the short-term interest rates is associated with ½ to 1 ½% increases in house prices within a year.

Equities prices increases. In the US, a 10% equities price increase causes about a 1% house price increase over three years.

So the fundamentals are in place for a booming market over the next 4-5 years. Yet above all, buyers pay attention to what other buyers are saying and are prepared to pay. So there is no perfect market driven by external news but rather a predictable market, feeding on itself.

Today you actually can still make real money trading houses.  And I’m happy to share my time-tested system with you:  buy low, and sell high.  Your profit is the difference (between the buy price and the sell price, less the transaction expenses and costs of fix-up).  But here’s the secret, since you can’t control the selling price, you must control the buy price.  All your profits are established in your purchase price. 

Step One is to buy low when the market is weak but rising—like right now.  But what’s the right price?  Ay, there’s the question, and it’s one I can help you with.  Just remember, this is a great time to buy.

Dane Hahn is a real estate professional.  You can contact him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the net at: http://www.danesellsflorida.com/