Need to dump your property?

Can anyone come up with sales at pre-'04 pricing?

Not a sale but I had an appraisal done in July 2003 when I refinanced my condo (at 5.0% 30 year fixed). High Pointe in Seacrest Beach, 2BR/2BA poolside 2nd floor with view was 390k so I am sure there were comparable sales in the complex. If I can find my appraisal, I could post the comps that were used.

FYI, asking prices during the peak for other same floor/same plan units were around 850k. Asking prices are now around 725k, I think. Not sure of recent sales, but that is about a 15% drop in asking price.

"Most real estate investors expect their property to return a reasonable rate..." - I agree. But "Most" can mean, let's say, 90%. That still leaves 10% of buyers to purchase a property based on desire and financial ability, not rate of return. Ever hear a buyer of a new Porsch say it was a great investment? Maybe an emotional investment.

Let me give you another example... on Lagrange Bayou, a bayfront home just recently sold for 1.5 million (cost basis was probably around $700,000 about 4 years ago). It took a couple of years to sell, but it did sell. Again, someone WANTS to live in the home and was willing to pay a good price for the waterfront experience. Could the owner rent that house for $12,500 per month (based on the 120 factor)? Not a chance in hell.


Again, not all future purchases of prime real estate will be based on rental return. There are a lot of rich baby boomers ready to retire soon. Believe it. They have made their money and will buy what they want.


Again, not all purchases will be based on immediate rate of return. Some will simply buy for themselves driving up the price of the more desirable properties. This won't happen overnight however. I've said before, those properties that I consider not to be prime, will be in trouble for a while if they were purchased at the pre-Hurricane Dennis prices, IMHO.

I agree, some of the buyers for properties in SoWal are not interested in rental or returns or anything but enjoying the beach and the area. I am primarily an investor and my feeling is that the market there is driven by other forces and many owners count on the income from rental. The rents from vacation property generally will not create cash flow with a typical mortgage. The cash on cash return from rental is usually awful as well but at current asking prices it ranges from 1-5 percent which is laughable. I don't consider a quick "flipping" type of return when I buy a property. I buy and hold properties until they no longer make sense to hold. One nice thing about owning beach property as an investment is the ability to "check your property" and have a margarita at the beach at the same time.

I look at property every time I visit and the numbers still look ugly. If (when) the prices go down enough I will buy more, they just aren't even close yet.

I agree, some of the buyers for properties in SoWal are not interested in rental or returns or anything but enjoying the beach and the area. I am primarily an investor and my feeling is that the market there is driven by other forces and many owners count on the income from rental. The rents from vacation property generally will not create cash flow with a typical mortgage. The cash on cash return from rental is usually awful as well but at current asking prices it ranges from 1-5 percent which is laughable. I don't consider a quick "flipping" type of return when I buy a property. I buy and hold properties until they no longer make sense to hold. One nice thing about owning beach property as an investment is the ability to "check your property" and have a margarita at the beach at the same time.

I look at property every time I visit and the numbers still look ugly. If (when) the prices go down enough I will buy more, they just aren't even close yet.

Good points.

I am curious, at what price level would you be buying?

I agree, some of the buyers for properties in SoWal are not interested in rental or returns or anything but enjoying the beach and the area. I am primarily an investor and my feeling is that the market there is driven by other forces and many owners count on the income from rental. The rents from vacation property generally will not create cash flow with a typical mortgage. The cash on cash return from rental is usually awful as well but at current asking prices it ranges from 1-5 percent which is laughable. I don't consider a quick "flipping" type of return when I buy a property. I buy and hold properties until they no longer make sense to hold. One nice thing about owning beach property as an investment is the ability to "check your property" and have a margarita at the beach at the same time.

I look at property every time I visit and the numbers still look ugly. If (when) the prices go down enough I will buy more, they just aren't even close yet.

No reasonable person on this thread can really disagree with anything you've said on this particular post, especially the margarita part!!

But let me ask you this regarding your comment re: "cash on cash return". How's this "1-5 percent" defined? Honestly I don't see how anyone can make any short term or cash flow "profit" by buying a property at today's prices, no matter which way you slice it.

Thanks for the reply.

Yes, but the one I posted at least has an electric meter included in the <$2M price, even though it may be under water at high tide.

Those pictures make my heart hurt.

No reasonable person on this thread can really disagree with anything you've said on this particular post, especially the margarita part!!

But let me ask you this regarding your comment re: "cash on cash return". How's this "1-5 percent" defined? Honestly I don't see how anyone can make any short term or cash flow "profit" by buying a property at today's prices, no matter which way you slice it.

Thanks for the reply.

I am referring to an all cash purchase and the return after all expenses from rental income. Example, if a $1m property has a net income of $35,000 that is 3.5% cash on cash. For those who don't currently rent, in order to net the $35,000 you would need to gross something like $70,000 if you use a management company. Hard to do with a $1m property purchased at the height of the frenzy.

I am referring to an all cash purchase and the return after all expenses from rental income. Example, if a $1m property has a net income of $35,000 that is 3.5% cash on cash. For those who don't currently rent, in order to net the $35,000 you would need to gross something like $70,000 if you use a management company. Hard to do with a $1m property purchased at the height of the frenzy.

Now I see and understand what you're referring to. Clear and concise regarding "cash on cash return" - thanks.

Regardless of when one purchased investment property for rental, its almost impossible to come out ahead, "total investment" wise, when you factor in the current value of the property vs. the time-value of the equivalent amount of money. In other words, if one were to rent out a 100% financed property at "average interest rates" (even interest only), there's no way to service this loan and all expenses with a positive cash flow from only the rent. Of course appreciation changes that formula.

I know that everyone already understands this.

With that said, many people purchased property near the beach with the idea... "I know it'll cost me to carry the property, even if I rent it. But the rental will help me pay for the property NOW, IF the price goes up. Otherwise, I won't be able to afford buying the same property later and eventually retire there." And based on values from let's say 3 to 20 years ago, they were right. They were able to leverage a 20% down payment and make an approximate 50-100% annual return on that 20% investment.

I'm not saying there's a total disconnect between higher-end properties and the others when it comes to price. I'm just pointing out that higher end (i.e. water front or first tier) owner occupied properties fall into a somewhat different category than typical rental properties... Higher end owner occupied properties don't have to be justified by rental return - only by the desire to own and live in a very unique spot in a very unique area of the country - hurricanes and all.

It's also been said several times before... South Walton County has 2 important things going for it: 1. Building height restriction and 2. Lots of state owned land. Both of these items will restrict development (compared with other areas) and shore up values in our area.

Shelly, are those photos current, or taken just after the storm?

bmbv, 'shoring up value' is great for those of us already here, but bad for those who still want to live/work here. just like boulder with their greenbelt, the land inside has become almost unattainable. and i know that term begs, 'to whom?' it just becomes part of the larger cart/horse issue.

good to see you back here.

jr

...bmbv, 'shoring up value' is great for those of us already here, but bad for those who still want to live/work here. just like boulder with their greenbelt, the land inside has become almost unattainable. and i know that term begs, 'to whom?' it just becomes part of the larger cart/horse issue.

good to see you back here.

jr

You have a point. The examples I use typically infer "retiring baby boomers" or others with financial independence. Those that are employed by the local service industries (real estate agents aside...or at least it use to be ;-) ) typically can't afford to buy in at today's or even yesterday's prices. But as you suggest, that's true in MANY areas of the country, not just South Walton.

Just because a person is employed and maybe lives in South Walton doesn't provide them with an entitlement to own property there as well....in a perfect world, maybe. I better be careful. Someone might accuse me of being a socialist.

Oh yea, thanks. Nice to join in on "less controversial" threads as well.

Shelly, are those photos current, or taken just after the storm?

That's a photo from Navarre Beach (down near Pensacola) that was hit by Ivan in Sept 2004 and then again by Dennis in July 2005. They weren't able to renourish the beach fast enough and the waves just pounded the "beachfront" properties day-after-day. The photos above were taken on October 25, 2005--here's that same house two days earlier (Oct 23, 2005):


(Photos were taken by a Navarre local named Kenny Wilder)

I agree, some of the buyers for properties in SoWal are not interested in rental or returns or anything but enjoying the beach and the area. I am primarily an investor and my feeling is that the market there is driven by other forces and many owners count on the income from rental. The rents from vacation property generally will not create cash flow with a typical mortgage. The cash on cash return from rental is usually awful as well but at current asking prices it ranges from 1-5 percent which is laughable. I don't consider a quick "flipping" type of return when I buy a property. I buy and hold properties until they no longer make sense to hold. One nice thing about owning beach property as an investment is the ability to "check your property" and have a margarita at the beach at the same time.

I look at property every time I visit and the numbers still look ugly. If (when) the prices go down enough I will buy more, they just aren't even close yet.

Pirate, taxes, insurance, and salt air upkeep would kill your margins even if you could get greatly reduced pricing. Those issues will never get better, only worse.

Gulf front property is not nearly as desirable as it was 2 years ago. The risks are huge with possible hurricane and insurance is almost impossible to get. Gulf front property seems to been its own micro-market and a lot of people aren't touching it. Don't use gulf front property as a benchmark for the entire 30-A area.

Why is there still building going on on the Gulf, East Coast, West etc. People live on fault lines, side of mountains and when something bad happens they just re-build. I take exception to your observation. I have insurance not hard for me to get and the Gulf is my front door.

Pirate, taxes, insurance, and salt air upkeep would kill your margins even if you could get greatly reduced pricing. Those issues will never get better, only worse.

I own property there and in many other areas. I understand all the costs involved as well as anyone and better than many. You have mistaken me for a cheerleader for high prices. The prices are to high by half or more, I was pointing out how awful the returns are and in turn why the prices will never hold.

Now I see and understand what you're referring to. Clear and concise regarding "cash on cash return" - thanks.

Regardless of when one purchased investment property for rental, its almost impossible to come out ahead, "total investment" wise, when you factor in the current value of the property vs. the time-value of the equivalent amount of money. In other words, if one were to rent out a 100% financed property at "average interest rates" (even interest only), there's no way to service this loan and all expenses with a positive cash flow from only the rent. Of course appreciation changes that formula.

I know that everyone already understands this.

With that said, many people purchased property near the beach with the idea... "I know it'll cost me to carry the property, even if I rent it. But the rental will help me pay for the property NOW, IF the price goes up. Otherwise, I won't be able to afford buying the same property later and eventually retire there." And based on values from let's say 3 to 20 years ago, they were right. They were able to leverage a 20% down payment and make an approximate 50-100% annual return on that 20% investment.

I'm not saying there's a total disconnect between higher-end properties and the others when it comes to price. I'm just pointing out that higher end (i.e. water front or first tier) owner occupied properties fall into a somewhat different category than typical rental properties... Higher end owner occupied properties don't have to be justified by rental return - only by the desire to own and live in a very unique spot in a very unique area of the country - hurricanes and all.

It's also been said several times before... South Walton County has 2 important things going for it: 1. Building height restriction and 2. Lots of state owned land. Both of these items will restrict development (compared with other areas) and shore up values in our area.

All good points. The market looks very different now than 3-20 years ago. Deals have come and gone. If you bought at some points along the way you could make properties cash flow with a mortgage on rental within a few years of purchase, I have done it.

High end owner occupied homes definitely have a totally different dynamic. I understand you feel the market will be driven by full time residents/second homes and I simply disagree. At best it may be 50/50 some day IMO. Only time will tell.

If I wasn't crazy about the area I sure wouldn't waste so much time yapping about it.

I own property there and in many other areas. I understand all the costs involved as well as anyone and better than many. You have mistaken me for a cheerleader for high prices. The prices are to high by half or more, I was pointing out how awful the returns are and in turn why the prices will never hold.

I think perhaps you are fortunate to have a low cost basis presence in SoWal. Duplicating that investment may prove frustratingly elusive. I hope you find the right property.

I think perhaps you are fortunate to have a low cost basis presence in SoWal. Duplicating that investment may prove frustratingly elusive. I hope you find the right property.

I am fortunate. Do you think the prices will hold where they are Bob? I am a patient man.

All good points. The market looks very different now than 3-20 years ago. Deals have come and gone. If you bought at some points along the way you could make properties cash flow with a mortgage on rental within a few years of purchase, I have done it.

Fortunately for us, our property of 4 years now falls into this class. We are self-managed however.

High end owner occupied homes definitely have a totally different dynamic. I understand you feel the market will be driven by full time residents/second homes and I simply disagree. At best it may be 50/50 some day IMO. Only time will tell.

To what absolute degree this aspect of the market will be sustained by "owners" vs. pure investors is of course unknown. But it will have more of an influence over time.

All this made me think about our home in Atlanta. I know what it's value is. When I consider the 120 x monthly rent "rule" we were playing with earlier, I know that the rent I can realistically get for my personal home is probably just a little more than half the amount based on the formula. Does that make my home over-priced? Apparently not based on comps.

Again, I think we're basically in agreement...the absolute amounts and time frame are just a guess on anyone's part.

If I wasn't crazy about the area I sure wouldn't waste so much time yapping about it.

Ditto.

I am fortunate. Do you think the prices will hold where they are Bob? I am a patient man.

There are so many variables, that I'm hesitant to guess. Surely on raw land, I would guess prices should continue to soften for '07 because of the amount of inventory. Because every homeowner's basis is so different, I think there will also be some deals coming up in condos and sf's. Taxes and insurance will motivate some to exit too. Barring bad weather next year, and with continued low long term rates, you've got to think 3-5 years out, the market will shift back in favor of sellers. Beach renourishment is slated soon, and hopefully[with the comensurate dealys/litigation] the PC airport will come online as well. I'm guessing you may have 12-36 months of opportunity to grab a deal. Whether or not the subject property is self sustaining is another story.

There are so many variables, that I'm hesitant to guess. Surely on raw land, I would guess prices should continue to soften for '07 because of the amount of inventory. Because every homeowner's basis is so different, I think there will also be some deals coming up in condos and sf's. Taxes and insurance will motivate some to exit too. Barring bad weather next year, and with continued low long term rates, you've got to think 3-5 years out, the market will shift back in favor of sellers. Beach renourishment is slated soon, and hopefully[with the comensurate dealys/litigation] the PC airport will come online as well. I'm guessing you may have 12-36 months of opportunity to grab a deal. Whether or not the subject property is self sustaining is another story.

Well said. My opinion is prices will fall back in line where historical averages of appreciation would put them which is down as much as 50 percent from the peak. This may take a year or two. After that I agree that it will be back to normal or slightly better appreciation (barring a brutal recession) until the next group of lemmings comes to the beach.

Well said. My opinion is prices will fall back in line where historical averages of appreciation would put them which is down as much as 50 percent from the peak. This may take a year or two. After that I agree that it will be back to normal or slightly better appreciation (barring a brutal recession) until the next group of lemmings comes to the beach.

"QUE THE LEMMINGS".....now!

I think a key question is how many properties were built as investments to sell with no intention of living/vacationing there. If you can separate the volume into true buyers vs investors building to resell, that would be instructive. I was in Starbucks the other day and noticed a guy sharing the table with me that was on the phone, quite animated, for quite a while. Turns out, he has about 10 houses going up from Destin down to San Blas, even had a couple in Orlando area. He had a separate file for each one, bursting with papers. Each one was a spec he was hoping to resell prior to closing. In a word, he is screwed and he knows it. Told me he is just trying to get out with his skin at this point. He was not a prof builder, had a day job, which is lucky for him. You never want to be the last guy in....

Is it just me, but I think it's kind of funny when everyone says that we'll never see prices go back down to the levels prior to 2004. That was only 2 years ago; it's not that long ago!

Is it just me, but I think it's kind of funny when everyone says that we'll never see prices go back down to the levels prior to 2004. That was only 2 years ago; it's not that long ago!

For some folks who've bought into pre-construction in 2004 and want to get out from under their "investment" with their deposit or credit score in tact -- it's a very real possibility. In fact, its what SJ's clients are banking on.

It is interesting to read various articles in newspapers, etc. where they are debating the 'Is this a bust' question. Most that I have read involve talking to a few 'investors' who may be sitting on 3 or more pre-construction contracts and are basically saying 'it will come back, I'm just going to sit tight'. A bit optimistic, I think, for those with day jobs who are going to be looking at 3 additional mortgages IF they close on the properties and don't just walk from their earnest money. I have yet to see one where the 'investor' says anything like 'I earn a million dollars a year in my regular job so I can afford to wait it out'.

I have a ground floor unit at the new Seagrove Highlands 3/2, 1126 sq. ft. that I need to unload for $519,000. Beautiful unit!