Opinions requested regarding SoWal real estate pricing...

[fisher]

Yes, gross rent. NO Rental Agency = 0%. You do not need a rental agency. It much easier and more painless without a rental agency. Sorry to the advertisers. Also, most rental agencies charge much less than 33%, more like 20%-25%. Lastly, you have to take in the effect of the paper depreciation losses on your taxable income. I believe you could gain a taxable benefit of up to $25k per year.

Talk to a good realestate broker and enlist a good CPA, before you decide buying is not feasible for your situation. Good luck with your decision.

You can only deduct the depreciation and other expenses up to the amount of your rental income. So, you get no tax "benefits" other than the fact that you pay no tax on the $25k which I factored into my equation.

And, I disagree, using a rental agency makes things much easier for a landlord. A good agency takes most of the hassle out of renting--especially if you own multiple properties.

 

[fisher]

As I said, I'm not a Realtor anymore so don't have access to the MLS to quickly pull some data - and I'm not going to sift through public records ... Beach Dad can do that.

That said, I've heard of homes in WaterColor selling around $600-$700K and people getting incredible deals at auctions. And there is a lot on my block here in Point Washington that was just recently listed for $99K (or around there). That to me is a steal. Maybe some Realtors could quickly share some data with us?

Are you talking about one of the lots on East Point Washington or the one on Oak Street or the one on Georgie Street? Looks like some lots nearby several of these lots have sold for less than $99k over the last 6 months or so. So, is $99k really a steal?

Also, given the current state of the market, you would likely be better off putting your money in a 15 year CD at around 5% than buying a $99k lot from an investment perspective (does not take into account intangibles of simply wanting to own a nice piece of property). Hypothetically, you would be better off at the end of 15 years in the CD netting 3% after taxes than buying the $99k property with prices stagnant for 3 years then increasing by 6% per year thereafter. At the end of 15 years, after paying property taxes each year, then selling the property, paying broker fees and cap gains, you will have less money at the end of the period than you would by simply putting the money in the CD.

I don't believe an interior lot in Point Washington is worth $99k. Maybe the $25 to $30k the lots were going for just a couple of years ago is a better measure of the value. Lots in many areas of South Walton are retreating to levels from 2003 and 2004. That means your Pt Washington lot could have a huge way to go on the downside making the analysis above look all the better for the CD.

 

[Rather B Paddlin]

?????????

You are able to deduct up to $25k of rental losses against normal taxable income with a Schedule E. Your are not limited to deducting $25k of expenses against your total rental revenue. Please see your CPA to verify.

Rental Agencies - Personal experience. I have used 3 different rental agencies. Marketing, renting, and maintaining multiple rental properties on your own is much easier and lot less expensive. Please talk to other rental home owners about there experiences.

 

[beachmouse]

Even if you bought wisely today and prices stagnate for the next few years, if you have purchased as a long term investment, according to history, things will swing up again.

More importantly though, if you rent for 2-3 years, you have lost that time to build equity - and helped the owner of your rental build theirs! There are many "what if's" in life ... this is an AMAZING place to live and we all have to be thankful we can afford to be here because many who would like to move here can't. Do your homework and you will see there is a perfect place for you RIGHT NOW to buy and call "home".

In a flat market, the rate at which you build equity in a home in the first five years isn't very good unless you're one of those freaks with a 15 or 20 year mortgage. Go look at the amoritization tables for a 30 year fixed, and look at how much interest you're paying in the first few years, and how little principal.

 

[Smiling JOe]

I am really tired of hearing this line of crap...

If you buy, you are building equity...

If you rent, you are throwing money away...


Lets actually look at this simplistic mainstream idea a bit deeper...

Lets assume as you have stated that the market will stagnate for a few years and I am looking to buy or rent next week...

Well if I looked to buy a home in South Walton and say as example I picked Village of Blue Mountain I would be looking to pay anywhere from $700k to $1.5M depending on the size....

Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million...

So say I bought it at $1.25 million and I even put down 20%(doubtful to have $250,000 cash on hand for a down payment... but I am giving the benefit of doubt in this argument toward the buying side... I also won't even use this downpayment against you as far as the opportunity you have wasted by putting $250k into the house rather than letting it grow in a mutual fund or even a high yield savings) my mortgage with insurance taxes and interest would be no cheaper than $7000/month... This is assuming annual taxes at $7500/year and Annual Insurance at $2500/year... pretty low assumptions...

So knowing that very little of your PITI payment each month for your mortgage actually goes to Principal for the first 5 years of the loan... why would I want to spend $5000/month more to live in the same type of home...

Assuming you even had $7,000/month to spend on a mortgage would you not rather pay $2,000 per month to rent and save the difference ($5,000/month in even a high yield savings account???)

In this scenario with house prices stagnate and the difference from price to rent in five years that person could have saved and grown his savings to close to $350k in a simple high yield savings account with absolutely no risk... or he could fork over $7,000 per month and hope and pray everynight that his house appreciates like it was 2005 all over again...

I also left out maintenance costs, HOA dues, and maybe some other small things to again give the benefit of my math to the buyer.... But in the end, in my opinion you would be crazy not to rent for a few years and see how this thing shakes out...

The fault in this argument is your assumption of a flat market for the next several years. If it was a fact that the market will rely flat, your argument holds truth. The truth is that it is unkown what the market will do. Who knows, buying that property at the $600K mark, may prove to earn you an extra $300K. To say that you know what will happen doesn't hold water.

Also, one additional minor note: In your opportunity costs example, you mention mutual funds as one choice of investments where you say that money can "grow." Again, you make the assumption that all mutual funds will grow over the same period. I can give you many people's real life examples where their mutual fund investments were not growing.

 

[Smiling JOe]

I assume you are quoting gross rent. After deducting 33% or so percent for the rental agent. You are netting out $50k or so. Next deduct property taxes, utilities, maintenance, insurance, etc. You might be left with somewhere in the neighborhood of $20k to 30k. A return of 3% or less. CD's are running around 5% right now. So, you need appreciation of 2% per year to breakeven. That kind of appreciation ain't happening--in fact properties are depreciating right now. Bottom line--renting is a better option from a financial perspective right now.

It isn't? Tell that to the sellers who profitted around $1 million dollars on a $4.1M investment, of which I am sure wasn't paid for with 100% cash, on the sale of the property at 260 Blue Mtn Rd. It was purchased in April 05 while the market was still high in price. It recently sold in Aug 06, in this "down market" to which you guys keep referring. Let's say for our example that they put 10% down on $4 Million ($400,000). They paid interest on the balance of $3.6 million for 1.5 years at 6% per year, equalling $324,000. Add that to their costs of downpayment and you have a total cash out of pocket of $724,000. Oops, better throw in taxes and insurance. Assessed value being at $1.56 million would bring the taxes to around $15,000. Insurance? I have not idea the costs. Lets say its a crazy number of $50,000. So when we add those numbers to that total cash out of pocket in the investment, we get a total of $789,000. To receive the $1,000,000 return on the investment of $789,000, you get a before tax return on investment of 126%. Divide that by 1.5 years and you receive an avg annualized rate of return of 84%. Show me that CD that pays that.

...and this sale is in a "down market" for a property which was originally purchased in the peak.

There are plenty of example on both sides. My point is that if you shop, you can find a property which may work for you today.

 

[Indigo Jill]

In a flat market, the rate at which you build equity in a home in the first five years isn't very good unless you're one of those freaks with a 15 or 20 year mortgage. Go look at the amoritization tables for a 30 year fixed, and look at how much interest you're paying in the first few years, and how little principal.

Alas, but once again this is based on an assumption to support your point of view and you aren't "thinking outside the box" . Your are assuming that the buyer would be taking out a 30 year mortgage. If, after researching and doing one's homework, the buyer feels confidant that the property will stagnate for a few years (and remember, not one person here knows what is going to happen), there are options to accomodate for that out there (differnet types of financing, more cash invested (again, I'm not judging to say this is good or bad - if the buyer thinks it is a good idea, it's a good idea), etc.).

That is what is frustrating, a lot of pessimists here have no peripheral perspective. No one sitaution is the same - there are ALWAYS ways to make things work in every market, up and down and why some win and some lose in this game.

Again, just my opinion.

 

[Rather B Paddlin]

S.J.

Great point. The rate of return needs to calculated against the cash out of pocket to purchase property not the total sale price.

It is true that overall properties have seen values decrease. But if you buy right, you will experience an instant 10%-20% equity gain that will neglect a slight decrease in the market.

Buying investment realestate that will have a great return is not easy, but it is very feasible with some work. If it was easy everyone would do it.

 

[Indigo Jill]

It isn't? Tell that to the sellers who profitted around $1 million dollars on a $4.1M investment, of which I am sure wasn't paid for with 100% cash, on the sale of the property at 260 Blue Mtn Rd. It was purchased in April 05 while the market was still high in price. It recently sold in Aug 06, in this "down market" to which you guys keep referring. Let's say for our example that they put 10% down on $4 Million ($400,000). They paid interest on the balance of $3.6 million for 1.5 years at 6% per year, equalling $324,000. Add that to their costs of downpayment and you have a total cash out of pocket of $724,000. Oops, better throw in taxes and insurance. Assessed value being at $1.56 million would bring the taxes to around $15,000. Insurance? I have not idea the costs. Lets say its a crazy number of $50,000. So when we add those numbers to that total cash out of pocket in the investment, we get a total of $789,000. To receive the $1,000,000 return on the investment of $789,000, you get a before tax return on investment of 126%. Divide that by 1.5 years and you receive an avg annualized rate of return of 84%. Show me that CD that pays that.

...and this sale is in a "down market" for a property which was originally purchased in the peak.

There are plenty of example on both sides. My point is that if you shop, you can find a property which may work for you today.

:clap_1: Thank you SJ for the "real life" example.

 

[Bob]

Beach Dad, Full time is right about buying, because the consensus says rent. There are raw land deals out there. Builders need work now and are dismounting their Clydesdales. Make your homestead Florida and build a stout home exactly as you wish. The west end of 30A north of the road and Point Washington will provide you with a quiet location, without the hassles of short-term renters generally speaking. And, of course, mortgage rates are very low. If only we could have a permanent El Nino. Buy this spring after a full scouting foray, or wait and treat this whole process like a stock trade.