Cork On the Ocean
directionally challenged
Coast is Clear said:
Smart Cookie, Coast :clap_1:
Correction: Panhandle real estate sell off just starting
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Smart Cookie, Coast :clap_1:
Smiling JOe said:
Interesting spin on second-home as investment from Philly Inquirer column: Good Time to Buy Second Home?
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Shelly:
I liked the article because it reminds the potential buyer of a second home to think about all the costs, as well as gains, involved in their particular situation. Though one can't predict all costs -- or all gains and other benefits -- it makes sense, of course, to figure out the costs involved in different scenarios. The article made specific assumptions (how much the house would increase in value, a 5 year time frame, etc.). You'd want to play around with different assumptions based on your personal needs. For example, how long a time frame? As for increases in the home's value, that's a tougher one, though I'm still optimistic about SoWal (if you don't plan on buying and flipping) and I think it will be much nicer than many other places that have gone "upscale" that have are primarily concrete and buildings with no green.
The other thing to consider is what you would do with your money if it wasn't tied up in a house. Frankly, a lot of people (e.g., two career couples) waste their money on things that don't increase in value (e.g., cars, too much expensive coffee even when blind taste testers consider some lower-cost coffees to be better, expensive lunches, etc.). One of the reasons that I wanted to get our property in SoWal, aside from how much we'd enjoy it and it's much warmer than Michigan in the winter, is that it would force us to be more disciplined about saving and managing our income. And that has worked very well -- and we don't miss anything we used to waste money on, though the kids are starting to get a bit embarrassed about our aging van.
As for renting to guests, we've been very happy. The rentals don't cover all the costs for sure (and one should never count on rentals to pay the bills), but I finished our taxes recently and the rentals covered about 2/3 of all our expenses. Not bad at all as far as I'm concerned. That's after 3-4 year of owning the property and the major expenses of furnishing the cottages are over, though taxes, insurance, etc. will continue to go up (but so has the value of the cottages). Of course, I put a lot of work into marketing, keeping our guests happy, working together with the management company, and maintaining the cottages -- but I enjoy that kind of work and I've certainly learned a lot in the past few years. One reason to do all this work, by the way, is that it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another.
I hope this information adds to the perspective given in the article. Again, I think the best part of the article is that it encourages people to consider all the costs, as well as benefits, of owning a second home. What the article doesn't cover is (once you can cover the costs) whether the second home will bring you joy, happiness, memories, peace, new friends and a community to belong to, a porch to read on that you can call your own, a warm uncrowded place to go in the winter months for walks on the beach and sunsets (the author of the article calls these "extravagences" though he admits that he has a "glass-is-half-empty" outlook on second homes, so it would be easy to miss these benefits with that perspective).
I liked the article because it reminds the potential buyer of a second home to think about all the costs, as well as gains, involved in their particular situation. Though one can't predict all costs -- or all gains and other benefits -- it makes sense, of course, to figure out the costs involved in different scenarios. The article made specific assumptions (how much the house would increase in value, a 5 year time frame, etc.). You'd want to play around with different assumptions based on your personal needs. For example, how long a time frame? As for increases in the home's value, that's a tougher one, though I'm still optimistic about SoWal (if you don't plan on buying and flipping) and I think it will be much nicer than many other places that have gone "upscale" that have are primarily concrete and buildings with no green.
The other thing to consider is what you would do with your money if it wasn't tied up in a house. Frankly, a lot of people (e.g., two career couples) waste their money on things that don't increase in value (e.g., cars, too much expensive coffee even when blind taste testers consider some lower-cost coffees to be better, expensive lunches, etc.). One of the reasons that I wanted to get our property in SoWal, aside from how much we'd enjoy it and it's much warmer than Michigan in the winter, is that it would force us to be more disciplined about saving and managing our income. And that has worked very well -- and we don't miss anything we used to waste money on, though the kids are starting to get a bit embarrassed about our aging van.
As for renting to guests, we've been very happy. The rentals don't cover all the costs for sure (and one should never count on rentals to pay the bills), but I finished our taxes recently and the rentals covered about 2/3 of all our expenses. Not bad at all as far as I'm concerned. That's after 3-4 year of owning the property and the major expenses of furnishing the cottages are over, though taxes, insurance, etc. will continue to go up (but so has the value of the cottages). Of course, I put a lot of work into marketing, keeping our guests happy, working together with the management company, and maintaining the cottages -- but I enjoy that kind of work and I've certainly learned a lot in the past few years. One reason to do all this work, by the way, is that it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another.
I hope this information adds to the perspective given in the article. Again, I think the best part of the article is that it encourages people to consider all the costs, as well as benefits, of owning a second home. What the article doesn't cover is (once you can cover the costs) whether the second home will bring you joy, happiness, memories, peace, new friends and a community to belong to, a porch to read on that you can call your own, a warm uncrowded place to go in the winter months for walks on the beach and sunsets (the author of the article calls these "extravagences" though he admits that he has a "glass-is-half-empty" outlook on second homes, so it would be easy to miss these benefits with that perspective).
" ...it does seem that there will be a LOT of rentals available and renters will have more choices than before -- so quality and service (and repeat renters) will become increasingly important if you want people to choose your rental over another"
That may be true locally, but on the Gulf coast overall the inventory must be significantly down with all the storm damage. It will be interesting to see how that translates in SoWal. Either people will flock to what is available, or they will assume that the coast is damaged and make plans to go somewhere else.
That may be true locally, but on the Gulf coast overall the inventory must be significantly down with all the storm damage. It will be interesting to see how that translates in SoWal. Either people will flock to what is available, or they will assume that the coast is damaged and make plans to go somewhere else.
Good point, Coast is Clear. I forgot about that. There are so many different things that influence the market, rentals, etc.
Our rentals have been up slightly this year, though I think people may be waiting until later to book their vacations, especially for summer. The risk of waiting too long to book is that you may not get the place or week that is your first choice.
Our rentals have been up slightly this year, though I think people may be waiting until later to book their vacations, especially for summer. The risk of waiting too long to book is that you may not get the place or week that is your first choice.
I can relate to your aging van, Paula. We have one of those, too. Actually, we also have an even older pickup truck. It does have a Seacrest Beach decal on the windshield, though. That adds a touch of class! Without it the security guard might have kicked us out.
I agree, I'd much rather have the real estate than the new car.
I agree, I'd much rather have the real estate than the new car.
Ecopal, to answer your question (with my humble opinion) "is it time to buy now" - my opinion would be most definitely that it is NOT yet time to buy. Although sellers are beginning to desperate, the inventory problem is neither benign nor temporary (depending on what length of time you conteplate by 'temporary')
As I stated in my post December 1st, it is my view that following such a sustained run up in real estate, it would not be damaging, nor shocking to see real estate fall 25% from the highs.. If prices are off 20% now, that is only if you calculate from the highwater mark of asking prices, which occurred roughly 12 months ago.. I would submit that valuations in SoWal have only fallen 10% from that peak so far, and have a good 15% or more to go.
The rate on the 10 yr. bond is creeping up yet again today.... if China, and Japan stop financing our debt, and rates go from current 4.7% on the ten year, to somewhere north 7.5% as could easily happen, we could be in for a much nastier downturn that even i previously imagined. At worst however, my current guess would be that valuations could only drop to 2003 levels (another 30% from today).... and when they do people will be fearful that they drop further (i.e. to 2002 levels).. that's when you can be more assurred that the risk/reward for a longer term investor will be more in your favor; but only those with cash hoards, and therefore no need to use financing at much higher rates will be able to capitalize on that pending opportunity.
I think real estate valuations bottom in SoWal, in June of 2007. I could be off by a good handful of months in either direction though.
While I am on the topic, I had some time ago suggested shorting St. Joe (JOE) as a way to hedge exposure for those holding real estate in SoWal, who don't want to sell into the impending weakness. JOE is now down over 30% from its highs 9 months ago.... JOE is probably no longer a screaming short at current levels. It certainly is NOT however, a long candidate either at this time, until we can be more certain that the bottom is on the horizon which stocks get comfortable discounting ahead of time. If you think we're less than 6 months from a bottoming real estate market in the Panhandle, you would want to get long some JOE. I won't be making that bet, just because I don't think the 'bottom' is that close.
As I stated in my post December 1st, it is my view that following such a sustained run up in real estate, it would not be damaging, nor shocking to see real estate fall 25% from the highs.. If prices are off 20% now, that is only if you calculate from the highwater mark of asking prices, which occurred roughly 12 months ago.. I would submit that valuations in SoWal have only fallen 10% from that peak so far, and have a good 15% or more to go.
The rate on the 10 yr. bond is creeping up yet again today.... if China, and Japan stop financing our debt, and rates go from current 4.7% on the ten year, to somewhere north 7.5% as could easily happen, we could be in for a much nastier downturn that even i previously imagined. At worst however, my current guess would be that valuations could only drop to 2003 levels (another 30% from today).... and when they do people will be fearful that they drop further (i.e. to 2002 levels).. that's when you can be more assurred that the risk/reward for a longer term investor will be more in your favor; but only those with cash hoards, and therefore no need to use financing at much higher rates will be able to capitalize on that pending opportunity.
I think real estate valuations bottom in SoWal, in June of 2007. I could be off by a good handful of months in either direction though.
While I am on the topic, I had some time ago suggested shorting St. Joe (JOE) as a way to hedge exposure for those holding real estate in SoWal, who don't want to sell into the impending weakness. JOE is now down over 30% from its highs 9 months ago.... JOE is probably no longer a screaming short at current levels. It certainly is NOT however, a long candidate either at this time, until we can be more certain that the bottom is on the horizon which stocks get comfortable discounting ahead of time. If you think we're less than 6 months from a bottoming real estate market in the Panhandle, you would want to get long some JOE. I won't be making that bet, just because I don't think the 'bottom' is that close.
ecopal said:
The problem with this thread is that its originator is thinking in terms of absolutes, "boom or bust" real estate cycles, nothing in between. It also bases assumptions on small investors. If you look at real estate dynamics in the U.S. over the past 20 years, there has been a scarcity of this type of "bust" dynamic. A big part of the reason for this is diversified investment. South Walton homeowners and investors are coming from all over the country, a dynamic that will soon expand to more global players.
South Walton rental vacationers would take issue over the claim that rents have been stagnant, which is not at all true. Most rental properties have steadily increased rents (and even passed on some of the maintenance costs) for the past five years, with little change in the numbers of visitors during season.
If you are a potential buyer waiting for the South Walton market to "crash," you may well watch that train go through the station without stopping. The correction in the market with be a more subtle realignment of price expectations in combination with many surplus properties being taken off the market, because they were testing the waters to begin with. It will be a shrug, not a collapse. The best approach is to decide what kind of property you want and can afford, anticipating some cost increases over time, and buy at a price you feel comfortable with. At these prices, purchase of a vacation home or even an investment property is not for the faint of heart or marginally capitalized.
If you are a seller, consider who your future buyer will be and when they will be mobilizing. Bullish segments of the economy fuel real estate investment. The stock market has not made the kind of recovery that most investors need to see for reentry. A change in the current administration will translate into considerable divestiture from the energy and defense industries. This means future investors coming from Texas and Oklahoma and Southern CA.
We can also anticipate more Middle Eastern investors looking for target real estate markets in this country. Do you remember the huge influx of Middle Eastern investors in Southern CA in the early 1980s? Changed their real estate market forever, just when everyone there thought inflation had done that market in and assumed a "bust" condition was inevitable. Didn't happen; just the opposite. And the baby boomers exit from the urban workforce will zenith in 2008-2010. Prior to that time, boomers will be searching for desirable retirement homes.
JOE recovery may be elongated because of their very large inventory and their huge capital investment and commitment, the latter of which is far from over. They could be ripe for a buyout by 2007. Look at the nationwide history on these kinds of large, master-planned communities. History does repeat itself. The early ones can be great investments, because the level of amenities is much greater than future developments will be able to offer. Investors can take advantage of the miscalculations in St. Joe pro-formas, which were developed when they were trying to woo the local officials.
As they say on Broadway, "Somewhere in all this manure, there has to be a pony." If you want to buy a pony, look for a good horse at a good price. The rules haven't changed. If it's freedom you're seeking, stay in the shelter of the barn until the storm passes overhead, then look for a break in the fence.
South Walton rental vacationers would take issue over the claim that rents have been stagnant, which is not at all true. Most rental properties have steadily increased rents (and even passed on some of the maintenance costs) for the past five years, with little change in the numbers of visitors during season.
If you are a potential buyer waiting for the South Walton market to "crash," you may well watch that train go through the station without stopping. The correction in the market with be a more subtle realignment of price expectations in combination with many surplus properties being taken off the market, because they were testing the waters to begin with. It will be a shrug, not a collapse. The best approach is to decide what kind of property you want and can afford, anticipating some cost increases over time, and buy at a price you feel comfortable with. At these prices, purchase of a vacation home or even an investment property is not for the faint of heart or marginally capitalized.
If you are a seller, consider who your future buyer will be and when they will be mobilizing. Bullish segments of the economy fuel real estate investment. The stock market has not made the kind of recovery that most investors need to see for reentry. A change in the current administration will translate into considerable divestiture from the energy and defense industries. This means future investors coming from Texas and Oklahoma and Southern CA.
We can also anticipate more Middle Eastern investors looking for target real estate markets in this country. Do you remember the huge influx of Middle Eastern investors in Southern CA in the early 1980s? Changed their real estate market forever, just when everyone there thought inflation had done that market in and assumed a "bust" condition was inevitable. Didn't happen; just the opposite. And the baby boomers exit from the urban workforce will zenith in 2008-2010. Prior to that time, boomers will be searching for desirable retirement homes.
JOE recovery may be elongated because of their very large inventory and their huge capital investment and commitment, the latter of which is far from over. They could be ripe for a buyout by 2007. Look at the nationwide history on these kinds of large, master-planned communities. History does repeat itself. The early ones can be great investments, because the level of amenities is much greater than future developments will be able to offer. Investors can take advantage of the miscalculations in St. Joe pro-formas, which were developed when they were trying to woo the local officials.
As they say on Broadway, "Somewhere in all this manure, there has to be a pony." If you want to buy a pony, look for a good horse at a good price. The rules haven't changed. If it's freedom you're seeking, stay in the shelter of the barn until the storm passes overhead, then look for a break in the fence.
Donna, I'm not sure from your post whether you disagree with me or not? It sounds as though you think people interested in buying should kick the tires and find the best deal they're comfortable with as the market stabilizes... I wouldn't disagree with that. I think stabilization means giving up a good portion of the last 2 years of appreciation from the beginning of 2004, through the peak in early 2005 - nothing more - market should easily be able to retain the historic appreciation it experienced from 1992 to 2004.
I wouldn't call my prediction of a further 20% decline, from current 10% off/ballooning inventories environment a "boom/bust" call. It may feel like it however to anyone who bought from mid 2004 onward only. We're talking about declines of 20% after a 8 year run which has seen valuations go up 300% or more. I would call that a "correction". You state that this hasn't happenned too often and point to Detroit and California as examples. In the first instance, has Detroit had a similar SoWal run up in valuations anytime in the post Nixon era that I am unaware of? California has experienced 20% plus corrections in recent history. And those corrections did not follow such historic explosions upward in value..
You also intimate that I keep thinking of SoWal as a local market. My first response would be that real estate is local (check valuations in Malibu, Redondo, vs. Detroit/Grosse Pointe to use one of your citations) it seems quite local to me, but I could be wrong.. But I could agree that what has driven SoWal is not local, valuations have been driven higher by 2nd home purchasers/speculators, from Atlanta, Birmingham, Nashville, New Orleans, Houston, Memphis, Knoxville, St. Louis and a sprinkling from Northeast, upper Midwest, California 1031 money, and Germany, UK etc.. So you are correct, it was not buyers from Freeport and Defuniak that drove the beach values up - I don't think I said that, or implied that they did.
Do you currently own some property in SoWal? I did until last March, and therefore I can empathize with your hopes that 1) we see a soft landing, 2) that boom/bust cycles are myths (I'm not calling for a bust here, just a 30% correction we're in the process of on the back end of multi-hundred percent appreciation upward in short time)...
To your point about rental rates...... rental rates have BARELY gone up over the last 5 years (YES, they went up a few percent a year from 99 through the end of 2004), but peanuts compared to valuations. What does that tell you? I know what it told me - namely that renting became much cheaper than owning - that's all. That fundamental market mechanism was crystalized for some, after some catch up in tax assessments, and unfortunate uptick in insurance rates.
The Panacea of the new location and longer runway at the Airport in Panama City I think has been overdone. SoWal valuations, to go higher, need buyers who don't fly commercial. Not sure avoiding a connection in Atlanta for the commercial flying public is going to in and of itself, drive valuations higher. It could expand PCB's spring break, to non-drive in students. The newly located airport is not a bad thing, it can only help.
Maybe I'm wrong about all of this. only time will tell. If you think I'm wrong, I assume you're looking to buy at this point then. There is a growing amount of inventory to choose from, so maybe there is a "deal" to be had - for somone.
For me, I'd prefer exposure to the auction business for the next couple of years. You're going to be hearing a lot about rising interest rates in headlines, and articles this week, and this weekend. The 10 yr. yield is just now reaching levels that we haven't seen in a couple of years. A Breakout trend.
I wouldn't call my prediction of a further 20% decline, from current 10% off/ballooning inventories environment a "boom/bust" call. It may feel like it however to anyone who bought from mid 2004 onward only. We're talking about declines of 20% after a 8 year run which has seen valuations go up 300% or more. I would call that a "correction". You state that this hasn't happenned too often and point to Detroit and California as examples. In the first instance, has Detroit had a similar SoWal run up in valuations anytime in the post Nixon era that I am unaware of? California has experienced 20% plus corrections in recent history. And those corrections did not follow such historic explosions upward in value..
You also intimate that I keep thinking of SoWal as a local market. My first response would be that real estate is local (check valuations in Malibu, Redondo, vs. Detroit/Grosse Pointe to use one of your citations) it seems quite local to me, but I could be wrong.. But I could agree that what has driven SoWal is not local, valuations have been driven higher by 2nd home purchasers/speculators, from Atlanta, Birmingham, Nashville, New Orleans, Houston, Memphis, Knoxville, St. Louis and a sprinkling from Northeast, upper Midwest, California 1031 money, and Germany, UK etc.. So you are correct, it was not buyers from Freeport and Defuniak that drove the beach values up - I don't think I said that, or implied that they did.
Do you currently own some property in SoWal? I did until last March, and therefore I can empathize with your hopes that 1) we see a soft landing, 2) that boom/bust cycles are myths (I'm not calling for a bust here, just a 30% correction we're in the process of on the back end of multi-hundred percent appreciation upward in short time)...
To your point about rental rates...... rental rates have BARELY gone up over the last 5 years (YES, they went up a few percent a year from 99 through the end of 2004), but peanuts compared to valuations. What does that tell you? I know what it told me - namely that renting became much cheaper than owning - that's all. That fundamental market mechanism was crystalized for some, after some catch up in tax assessments, and unfortunate uptick in insurance rates.
The Panacea of the new location and longer runway at the Airport in Panama City I think has been overdone. SoWal valuations, to go higher, need buyers who don't fly commercial. Not sure avoiding a connection in Atlanta for the commercial flying public is going to in and of itself, drive valuations higher. It could expand PCB's spring break, to non-drive in students. The newly located airport is not a bad thing, it can only help.
Maybe I'm wrong about all of this. only time will tell. If you think I'm wrong, I assume you're looking to buy at this point then. There is a growing amount of inventory to choose from, so maybe there is a "deal" to be had - for somone.
For me, I'd prefer exposure to the auction business for the next couple of years. You're going to be hearing a lot about rising interest rates in headlines, and articles this week, and this weekend. The 10 yr. yield is just now reaching levels that we haven't seen in a couple of years. A Breakout trend.
Galt's Gulch, we are not necessarily in disagreement on some points, particularly those associated with the current South Walton market situation. However, I do maintain that the new airport will be a big factor in future appreciation. Keep in mind, many people who had private planes sold them in the past couple of years and have opted for purchasing air space, the timeshare version of private luxury flight. And lots of those people are complaining that their schedules are impacted by the need for these planes to fly away asap to service other investors. So they have resumed first class travel as a preferable alternative. I'm not sure that a house at South Walton really equates with a person who owns their own air transportation, though. The prices there are still a screaming bargain compared to most East and all West Coast beaches.
Yes, we own a house at Grayton and are probably not looking for another property there, regardless of the market. For the sake of diversity, we are looking at Bainbridge Island, WA and possibly a condo in HA as the next moves. We considered putting our Grayton house on the market, primarily because we're tired of viewing hurricanes from afar and we don't get down there often enough to justify having the house (long journey with segmented flights and the time differential). However, we purchased the house in 2001, before the big increase in values. Even a desperado sale would yield an almost absurd profit. Just the same, I think we are going to keep the property under the assumption that the area is very desirable and we don't see the need for panic.
I believe the pre-construction condo and spec single-family home group may well be in for some pain. The jury is still out on lot sales. Then again, I have never been one for investment opportunities related to condo development. It is wonderful for a person who wants a place away from home without the headaches of maintenance. But usually not a sound plan for long-term investment, because there is such a tendency toward proliferation of attached product. Lots of this product can go into the ground too quickly. I'm frankly surprised that the "patio home" has not caught on down there.
Yes, we agree on much. But I also believe that the great disparity of owners and investors in South Walton has finally translated into an uncertain and hard-to-define market dynamic. There is no overall market trend that one can hang their hat on. For example, we recently asked several listing agents for their take on what our home might list for. The estimates reflected a RANGE of $1.4M. Something wrong with that kind of feedback. As for interest rates, keep in mind that about 80% of $1M+ sales are cash sales. The 1031 exchange factor is key.
Yes, we own a house at Grayton and are probably not looking for another property there, regardless of the market. For the sake of diversity, we are looking at Bainbridge Island, WA and possibly a condo in HA as the next moves. We considered putting our Grayton house on the market, primarily because we're tired of viewing hurricanes from afar and we don't get down there often enough to justify having the house (long journey with segmented flights and the time differential). However, we purchased the house in 2001, before the big increase in values. Even a desperado sale would yield an almost absurd profit. Just the same, I think we are going to keep the property under the assumption that the area is very desirable and we don't see the need for panic.
I believe the pre-construction condo and spec single-family home group may well be in for some pain. The jury is still out on lot sales. Then again, I have never been one for investment opportunities related to condo development. It is wonderful for a person who wants a place away from home without the headaches of maintenance. But usually not a sound plan for long-term investment, because there is such a tendency toward proliferation of attached product. Lots of this product can go into the ground too quickly. I'm frankly surprised that the "patio home" has not caught on down there.
Yes, we agree on much. But I also believe that the great disparity of owners and investors in South Walton has finally translated into an uncertain and hard-to-define market dynamic. There is no overall market trend that one can hang their hat on. For example, we recently asked several listing agents for their take on what our home might list for. The estimates reflected a RANGE of $1.4M. Something wrong with that kind of feedback. As for interest rates, keep in mind that about 80% of $1M+ sales are cash sales. The 1031 exchange factor is key.