Me and My Money

Buying Florida Real Estate

Posted November 25, 2011
Originally Published April 11, 2011

Sure, it’s spring now. But have you forgotten last month? It was -20 degrees with the windchill. The sleet slapped your face. Even in winter proof boots your toes went numb.

Did it ever cross your mind that warmer climes might be more your style?

Or perhaps you’d like to invest in property but you’ve given up waiting for the real estate market to retreat enough to make one of those tiny, trendy condos financially viable.

Whether you’re snowbird inclined or thinking about an investment, why not zero in on one of the most miserably depressed real estate market in North America? That would be Florida. Buy low now, sell high later. After all, southern real estate is bound to rebound -- they’re not making any more of it, you know.

If you’ve been thinking along these lines, you’re not alone. In January, house sales in the Tampa Bay area (including St. Petersburg and surrounding regions) were up 19 percent and jumped another 16 percent in February.

Further south in popular vacation and retirement spots such as Sarasota and Naples on the Gulf coast and and West Palm Beach and Miami on the Atlantic, sales showed similar flutters.

Many buyers are investing for the approaching retirement wave. Boomers aged forty-seven to sixty-five account for nearly a third of Canada’s population (28 per cent in the U.S.) With 70 per cent of Canadians living in Ontario, Quebec and the Maritimes -- Florida seems like a natural investment choice.

Jim MacGowan, managing partner with Deloitte in Calgary, is a Haligonian who loves the water and feels the siren call of the sunshine state. “I get to Florida every year and every year I’m tempted.” But he believes southern home investors need to be realistic. “I personally think the likelihood you’re going to buy a distressed property and turn around and flip it in the short term is really low.”

Experts agree there is money to be made in the sunshine state for those who buy smart and have patient money. Here are nine cautions when shopping for Florida real estate.

1.

Don’t expect to get rich quick. Prices have shattered, for instance the median in the Tampa Bay area is $111,100, down 54 per cent from the June 2006 peak of $239,000. But there is an enormous inventory of housing which is not yet on the market.

Currently one of six houses in Florida is empty and, according to the Mortgage Banker’s Association National Delinquency Survey, in the last quarter of 2010 more than 24 per cent of Florida home loans were either delinquent or in foreclosure. This oversupply of housing could keep prices depressed for a decade or more as they were following the 1920s real estate bubble when fabulously ornate gates stood as lonely sentinels at the entrances to unbuilt subdivisions.

2.

Don’t buy at a distance. Even if you are a frequent visitor to Florida, plan on a number of reconnaissance trips to comparison shop and research local conditions such as future development and past problems. In the lake areas around Orlando and in Citrus County on the central Gulf coast, some of those who purchased waterfront homes on shallow lakes 10 years ago now find themselves with docks and boats sitting high after the water table dropped.

3.

Look to the future. Even as an investor, target a property you’d be happy using as a vacation home or for a snowbird residence. That way, if the market stays tanked, you will have years of personal use.

4.

Factor in transportation. Driving and flying costs are climbing with the price of oil, so price them in to future costs.

5.

Evaluate rent versus own. “Remember, you’re paying for the maintenance 365 days a year,” says MacGowan, “and if you are only going to use it for 30 days your money might be better invested elsewhere.” Right now rentals are cheap and readily available even in holiday hot spots.

6.

Consider the loonie. Most experts think the better-than-par loonie is here to stay for the next couple of years. But there have been some awesome swings -- between 1997 and 2001 the loonie crashed to $.62 then six years later soared to $1.10. The low points will really hurt if your purchase includes vendor financing.

7.

Research insurance. Once the insurer of last resort in the state, Citizens Property Insurance Corporation has become the largest as other firms, like State Farm, are no longer writing new homeowner policies or have left the state entirely. Don’t assume that because the current owner has insurance you can get it also or at the same price.

If you are buying in sinkhole prone area, particularly in central Florida, your premium will spike. Hurricane protection is also very expensive if you opt for replacement rather than a cap on the damage payout.

8.

Do a holiday rental budget. Many Canadians buy in the south and sign up with a vacation rental agency. Some will quote glowing occupancy figures. Assume a lower number. Better to be pleasantly surprised by a flood of visitors than financially crushed if your investment turns out to be a holiday wallflower.

9.

Know your neighbourhood or development. If there is a homeowner association check into fees and the health of the reserve fund. Many HOAs are struggling as foreclosures and abandoned properties place more financial stress on the other homeowners.

The sunshine state offers much to investors and snowbirds alike but the real estate market is a troubled one so risks are greater but so, perhaps, might be the rewards.

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