Investors Spur Growth in the Florida Real Estate Market

Investors continue to steer Southwest Florida’s real estate market recovery with all-cash deals, which in many cases are squeezing traditional owner-occupiers out of the market.  Many of those purchases stem from foreign investors, who are gobbling up foreclosures and short sales at a ferocious pace for use as rentals, a phenomenon that first began elevating the market almost a year ago.

That investor thirst, coupled with tight lending restrictions, have made cash real estate transactions more prevalent in Southwest Florida than perhaps at any time before.  Cash represents a very large portion of current real estate sales, especially in many Florida markets.

Buyers closed on 2,091 homes in Lee, Collier and Charlotte counties in August, well outpacing numbers from a year ago.  Of those, buyers paid cash on 62 percent of the sales in Lee, 65 percent in Charlotte and a whopping 74 percent in Charlotte, all above the national average of 40 percent in August.  Those gains were led largely by bulk-investment buyers.

The recent influx of cash also has been fanned by baby boomers, who have regained enough equity to sell houses up north to finance Sunshine State retirements.  Bank-owned listings and short sales, which also tend to draw more cash offers than mortgage-backed buyers, both have risen steadily over the year, as well.

Some real estate consultants point out that this area always has carried a greater portion of cash buyers than most real estate markets, given the seasonality and dependence on retirees.  To learn more about the local market contact a member of the 9 Core Realty sales team at (239) 222-3331.

Southwest Florida Real Estate Market Report-August 2013

It looks like the recession of the housing industry is in full recovery especially throughout Southwest Florida.  Unemployment remains high in many areas of the country and GDP growth is slow.  But the housing market is looking good.

Higher demand paired with lower inventory has led prices to increase across the board.  This limited inventory is mainly due to two factors: years of repressed new home starts and lower foreclosure rates.  Land sales throughout the region including Cape Coral land sales are seeing growth in sales numbers and sales prices.  It’s as simple as the law of supply and demand.  When demand outpaces supply, prices rise. The proof is in the pudding of our current housing market.

Though mortgage interest rates have begun to creep higher, they continue to stay near historic lows.  Following the restructuring of the lending industry at the end of the last decade, banks are doing a much more thorough job at screening borrowers.  People know they’ll need to jump through hoops, and they are prepared.  What we are seeing right now is a pool of buyers that are qualified and ready to move into homeownership.  This pool continues to grow.  Buyer traffic is up 29 percent from last year, but inventory is down 10 percent.

When searching for real estate invesments, it’s easy to get excited when you see this rise in prices.  It’s time to dust off those properties purchased at the bottom of the market and start getting ready to sell.  If you weren’t lucky enough to grab any of those great deals, don’t despair there are still many great lots and land available for sale.   To learn about land for sale in Florida contact a member of the 9 Core Realty land sales team at (239) 333-2221.

Tips for Buying Land through a Self-Directed IRA

Here are five things to keep in mind when considering investing in land or real estate through a self-directed IRA.

#1:  It Takes Time: It’s advised devising a timeline based on the account-opening process, transferring or rollover of assets and finding the actual investment.  It normally takes two to three weeks to open an account at a typical brokerage firm, and you’ll need to find a custodian who will hold real estate inside an IRA.  The down payment must come from IRA funds, so rollovers may be required.

When a real estate investment is contracted, the IRA account holder reviews and signs the purchase agreement and then the custodian must approve it and release of funds to the title company.  All of this takes time, so it’s imperative to learn as much as you can before jumping into a decision.

#2:  You Cannot Take Advantage of IRA Investments until you Retire:  You can’t use the fund to pay off your mortgage or live in or use the property you buy as an investment in the self-directed IRA.

You buy it because it is anticipated to appreciate in value, plain and simple. You also lose the depreciation tax deduction that you would otherwise receive on an investment property.

#3:  Your Spouse, Immediate Families or Companies you Have a 50% Interest in Cannot be Involved: While it is possible for the property to be held as tenants in common, an IRA is an individual account—and you must avoid any conflicts of interest.

Self-dealing or enabling a transaction that is beneficial to you on the other end is strictly prohibited.  You also cannot use the IRA as collateral for a loan; it should be treated like other retirement accounts.

#4:  It’s a Lot of Work:  While there are many highlights and potential benefits, many investors don’t fully appreciate or understand the reporting and administrative requirements involved in using a self-directed IRA to buy real estate.  For example, the investor should not be doing the work on the property, especially because he can’t get reimbursed.

All expenses, maintenance, taxes and insurance are paid from the IRA.  If there are association dues or golf memberships, those all must be withdrawn from the IRA.  Finding tenants and contractors may take time, and every penny in and out must be approved by the custodian.   In many instances land investment over an existing home is a better choice when purchasing with a self-directed IRA as no maintenance or dealing with tenants is required.

#5:  All Income from the Property is Tax Deferred:  That includes rental income and capital gains. If you plan to be in a lower tax bracket at retirement, this is quite beneficial.  You can also make tax deductible contributions to the IRA.

To learn more about investing in land or real estate through a self-directed IRA visit http://www.gratiagroup.com or call a member of our land sales team at (239) 333-2221.

Looking to Invest in Real Estate? Think land!

Many investors, especially first time investors, choose to invest in real estate over stocks, bonds, mutual funds or other types of investments.  Real estate is so popular for investment purposes due to tax breaks, its being a tangible asset, it experiences less depreciation, and the real estate market is less volatile than the stock market, among many reasons.

Within real estate there can be many investment choices.  You can purchase a home to rehab and sell, a home to produce rental income, commercial property or land.  Land is the wisest of investment choices within the real estate world for a variety of reasons.  In many instances vacant land for sale is less expensive to purchase than land with an existing home.  The land can be used for many future uses including building, development, resale, or personal recreation.  Also, the depreciation on land value is much smaller than the deprecation an investor would experience purchasing a home.

Within the Cape Coral and Southwest Florida market we are seeing a much higher ROI on land over land with existing homes.  Parcels within Cape Coral with Gulf of Mexico access purchased in 2010 for $20,000 are now being valued by the Lee County Property Appraiser and sold for nearly $50,000.  Quite a return in three short years!

Determining your ROI on Investment Land Purchases

When you look for ways to put your money to work, real estate may catch your eye as a source of potentially big profits.  Whether you buy a home to live in or purchase undeveloped land, calculate your return on investment.  ROI can include rents paid by tenants on houses, duplexes, apartment buildings and office buildings.  ROI also encompasses appreciation in the value of property, including a home, commercial buildings and unimproved land.

ROI with Leverage

If you put $20,000 down on a property worth $140,000, your investment is $20,000.  Don’t make the mistake of counting the full amount as the value as your investment.  Real estate investment allows you to leverage your money.  That is, you control a much larger value by putting down a smaller percentage on the purchase.  When you pay a down payment on a home, land or commercial real estate, you receive all of the ROI from that property.  A comparable investment in stocks, for example, might produce a return of 15 percent.  For a $20,000 investment, 15 percent is $3,000.  If your property worth $140,000 appreciates 15 percent, the increase in value is $21,000.   Calculate your ROI by dividing your gain by your investment and multiply by 100.  In this case, 21,000 divided by 20,000 times 100 shows that your leveraged investment produced a 105 percent ROI.

ROI Using Capital Gains

Capital gains come from an increase in the property value.  Even if you don’t sell a property, you can estimate its current value vs. the original value.  Use comparable properties in the local area for your estimate.  If you prefer, you can hire a professional appraiser.  Capital gains apply to any type of real estate, including a home, unimproved land or buildings you rent to tenants.  To calculate ROI using capital gains, determine how much the property has appreciated in value.  For example, if you invested $20,000 in a property and it went up $10,000 in value, divide 10,000 by 20,000 and multiply by 100 and you find you made a 50 percent ROI.

Total ROI

If you invest in a property that is leveraged (you make a down payment but get all the capital gains from the full value), produces income and incurs expenses, you need to combine all of your factors into one formula: ROI equals capital gains plus income, minus expenses, divided by your investment.  For example, if you had $10,000 in capital gains plus $5,000 in income, that totals $15,000. Subtract expenses of $2,500 and your net figure is 12,500.  Divide that by an original investment figure of $20,000 and multiply by 100, and you find that you made 62.5 percent ROI in this example!