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Real Estate Investment Newsletter

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  1. WHO is the developer? Florida has a very strict successive developer law. The developer that is responsible for warranties and liable for other major issues just may be a bank or some other investor and not the large developer that built the project. Investigate this thoroughly and get a good agent working on your behalf that can intelligently get these answers and advise you of the ramifications.
  2. Who is carrying the warranties and what is the policy on warranties for things like appliances, punch out items for the condo and major structural items, such as concrete and doors? Many of the subcontractors for things like the pool, the concrete work and the tile may now be out of business. If the condo you are buying is three years old, yet has never been lived in, is there still a warranty? Who do you call if, when you move in, you find that the hot and cold water lines were mistakenly crossed or your doors don't work?
  3. How many condos in the community are paying their assessments? If you buy a condo for $179,000 and the condo fees are $900 per month it is a safe bet that only a small portion of the condos are actually paying the condo fees. How does this affect you? What will the fees be in two years? In five?
  4. Who built the condominium? This is different from who developed it. Are they still in business? What is THEIR policy on latent defects? Do they have the money and resources to back up their warranties? A good agent will contact the builder for you and get these answers.
  5. Who is managing the condo association and has the project been turned over to the owners from the developer?  The condo association is likely very busy with issues like uncollected fees, estoppel letters for foreclosed properties and other problems associated with today's recession. To get answers from them you may have to make a personal visit. I would do so or insist that your agent do so on your behalf. You can learn a great deal about issues like insurance, warranties, the percentage of owner occupieds and other problems or challenges the community will face in the future. Most associations are run by a management company that is paid a specific amount money per month, per door. They hire the common area maintenance contractors and deal with all items not associated with the individual homes.

LEVERAGE in Florida Real Estate

I received a call from an investor interested in buying real estate here in Southwest Florida. We talked about apartments, land, REOs and foreclosures and real estate investing in general. Then we got to the topic of leverage. I told Victor that the real estate properties he could buy with 10% leverage were better than deals he would have to put more cash into. I realize that most of us think we know what leverage is. What I would like to do, however, is get pretty basic and review just what leverage can do for you in real estate. This kind of leverage is almost impossible to get in other investments. In mechanics, a lever is a device that will enable you to move a large or heavy weight with a very small force. Leverage in real estate enables you to control an expensive piece of property with a small amount of cash. First, let examine a property you buy with no leverage. Let’s assume you buy a $100,000 condo. For simplicity's sake, let us also assume that there were no other costs in acquiring the property. Our third assumption is that the property increases 10% per year in value (appreciation). You buy the property on January 1 by investing $100,000. On December 31 the condo is worth $110,000. Your investment has earned you 10%. If you are able to rent that property out for $1000 per month, and we assume expenses of $167/month, we have additional income of $10,000. Now our investment earned a total of $20,000. For example:

 

Annual appreciation                                        $10,000 

Gross income: 12 months x $1000=               $12,000 

Expenses                                                           -$2000

Our net benefit                                                $20,000


Without looking at any tax advantages we have earned $20,000  ($10,000 appreciation and $10,000 income) or 20% on our $100,000.
This is pretty good!

Now let’s see how leverage works. Instead of paying cash for the $100,000 property, let’s put up $20,000 and borrow the rest.

 

Annual appreciation                                        $10,000 

Gross income: 12 months x $1000                  $12,000

Expenses w/o interest                                     -$2,000

Interest expense for $80,000, 7% loan

for 12 months is                                               -$5,574

Our net benefit                                                $14,426

In the leveraged, example we earned $14,426 on our $20,000 investment. This is a return of 72%.  This is what leverage is all about.  Now keep in mind we have not even considered that you are paying the mortgage down ($813 the first year) or the depreciation that you can write off ($2909 the first year).


The reason I mention this type of leverage is that you can now buy a condo in WCI’s Grand Isle and CONTROL that condo for only 10% of the list price for up to 1-½ years. In The Colony you can do it for 20 to 30%.  If the condo appreciates 10% a year, and you have no expenses (you will not – they are not built yet) your 10% will be worth, on paper, more than double what you put in.

 
If you want a spread sheet to play with your investments, just send me an email. I will see that you get one. Also, feel free to call me anytime to discuss your real estate needs.





July 11, 2010

Southwest Florida landlords make deals to fill commercial space

By Lindsay Downey
Special to news-press.com

From free rent to build-out incentives, practically nothing is off the table.

It’s a tenants’ market, and landlords across Southwest Florida are offering creative concessions in an effort to move commercial spaces.

At Andrea Commercial Center — a nine-building flex space on Andrea Lane in Fort Myers — Terris LeVan, president of LeVan Asset Group, is offering one-month free rent for new tenants who sign a year lease at a rate of $3.99 per square foot. The broker negotiates common area maintenance only for a certain period of time on some properties — meaning the lessee only contributes to the upkeep of shared spaces such as parking lots and lobbies. He also works with tenants on leases as short as a year.

“It’s sort of a condition of the market right now to do business,” LeVan said of incentives.

The level of commercial rent concessions in Florida increased 13 percent in the fourth quarter of 2009 compared to the previous quarter, according to the latest statistics from the National Association of Realtors. Only 3 percent of respondents in a national Society of Industrial and Office Retailers report said they’re experiencing a normal negotiation balance.

And in a cash-strapped market, landlords often try to negotiate rental discounts rather than spend out-of-pocket for build-out, said Chase Mayhugh of Mayhugh Realty in Fort Myers. Mayhugh has seen property owners offer two or three months of free rent and waive the last month due at move-in to get renters into commercial spaces.

Tenants view the sluggish market as their opportunity for a break in cost after years of high rates during the boom, said Bill Wolff, broker at Commercial Realty Group of Bonita Springs.

“They’re like, ‘I’m going to do it right this time,’ ” Wolff said. “ ‘I’m going to try to beat the landlord down as much as I can.’ ”

As a result, some landlords offer low rates that gradually increase over time and are forgoing triple net — meaning tenants don’t have to worry about rising insurance costs or real estate taxes, Mayhugh said. Tenants are signing year leases or securing deep rent discounts for longer periods.

“You take rates that are off anywhere from 25 to 45 percent and landlords are willing to lock that in for three to five years,” said Doug Olson, retail specialist at LandQwest Commercial, which represents approximately 5.2 million square feet of retail space in seven counties.

And with such low rates and so many incentives available, tenants who might otherwise be content in their spaces are looking around for better deals and higher visibility. Prime corner and outparcel spaces that in the past were almost guaranteed to go to national retailers are suddenly available to local businesses.

“Not only could they (local tenants) not pay the rent in the past, they also didn’t qualify from a credit perspective against corporate clients,” Olson said. “So with (national retailers) not in the market right now, there’s a real opportunity for the local operators to capitalize on great space that wouldn’t normally be available to them.”

Prime time

Gregg Fous, owner and broker at Market America Realty and Investment Group, said non-anchored retail and hospitality activity is slow, while office and medical spaces are faring better — especially in downtown Fort Myers and high-traffic corridors near U.S. 41. Fous recently secured financing to convert an old Wachovia bank on 41 into a plastic surgery center and spa for Dr. Ralph Garramone.

The plastic surgeon said he searched for a space to expand his practice, now located on College Parkway, for about six months. He chose the former bank site for its location and size. And market conditions may have worked in Garramone’s favor in securing such a high-visibility spot for his $2 million project.

“Perhaps that building wouldn’t have been vacant for as long as it was (if the market was better),” Garramone said.

Aside from raw land, it’s the industrial market — and particularly light industrial spaces that serve as ancillary support businesses for the construction industry — that is the most bleak. Mayhugh is representing approximately 60 industrial listings that aren’t moving.

“We’re knocking down the lease rates and offering incentives but there comes a point where things just stop,” Mayhugh said of industrial. “There’s just no demand.”

Overall, brokers have seen slight increases in activity in recent months. Summer is slowing things down again a bit, Olson said, but the rest of the year should pick up. Brokers expect even more activity next year.

“People who were locked into five-year leases in 2006 and 2007 will be coming out, so 2011 should be pretty good,” Mayhugh said.

For now, though, tenants are approaching landlords regularly for decreased rents or forbearance on late payments, Fous said. Commercial property owners have to negotiate the best deals they can and try to appease clients on a case-by-case basis.

And while the deals are sweet for tenants, securing the best possible incentives can sometimes backfire.

“I’ve heard of some places where they offered six months free rent. But then I’d find out a month or two later that the building then foreclosed,” LeVan said. “Sometimes a great deal may not be the best deal.”

Additional Facts

Attitude, Position and Posture

I am told that there is no such thing as a contradiction, and if I am presented with one, I should check my premise. I took a walk outside my office in downtown Fort Myers a while back, and I ran into two acquaintances.

 

I first bumped into Tim coming out of Quizno’s. “How are things going, Tim?” I casually remarked.

 

Tim then went into a litany of woes. He had to get rid of all of his people and was looking for any kind of work he could get. “This real estate market has killed me.”

 

An hour later I ran into Eric, chatting with a group of friends outside of the Morgan House. Eric greeted me with a big smile. “How are things going, Eric?” I ventured.

 

Eric was filled with excitement about how well business was doing. “The real estate business is keeping me hopping!”

 

What’s up? Is the real estate business good or bad. Can it be both? Yes, but not at the same time, in the same place or by the same measure.

 

 

The obvious answer is that Perspective, Positioning and Posture come into play here, not contradictions. Of my two friends, Tim was in new home construction, and he stayed there. He did not get into home renovation, medical building or asset preservation (big markets today). Eric was busy because he was handling bank REO’s, selling low and medium priced homes and working long hours to make up for lower margins.

 

Here is my version of the three “Ps.”

 

 

Perspective


The Real Estate Market is wonderful for the buyer and terrible for the seller. The Real Estate Market is terrible for the hapless agent that waits for the phone to ring or the customer to show up at his door. The Real Estate Market is wonderful and exciting for the agent who works all of the tools in his arsenal, has adjusted his business to the climate and is willing to work relentlessly for his clients. My message is this: if you don’t like the view from where you stand, MOVE. Change your perspective. Get out of the bottom of the hole and move to the top. There are good things happening in this market. See them.

 

Positioning


My friend Magnus at MK Construction is a builder. He had positioned his company in the medical market to cope with economic changes. MK did the build out, by the way, for Dr. Ralph Garramone’s new Cosmetic Surgery Center and Medical Weight Loss Spa next to the Carabas on Route 41. But then, I heard that BBL of Florida would be closing down their local offices soon. BBL was one of the largest builders in Lee County in the condo market. Some of us have the ability and resources to reposition - and the foresight. Look at Dr. Garramone: he expanded in a down economy by adding a medical weight loss program for his customers. The Doc “gets it.” It's not about the product; it is about the customer – knowing what the needs and wants are and adjusting your business accordingly.

 

Posturing


Posturing is about attitude - kind of a “believe it and it's true” feeling. I’m an optimist. There is just no other way to be. If you don’t believe you will be a success, you certainly will not succeed! Attitude and posturing are only different from positioning in that  positioning is the effect of attitude and posture.

 

I will repeat an old story about two salesmen that were sent to central Africa to sell shoes. The first salesman returns after two weeks with out a single order.

 

“Boss,” he said, “No one wears shoes over there, I quit.”

 

The second salesman came back after a month with truckloads of orders.

 

“Boss,” he said, “No one wears shoes over there, it’s the best sales territory you could possibly give me! Thanks.”

 

At Market America Realty and Investments, Inc, we see opportunity. We have grown in a down market due to excellent people, superior tools and our ability to reposition out business. I plan to continue growing, adding staff and agents and servicing more and more clients. I don’t see what is not selling; I see what is and go after that sector of the business. We will not tell you why something cannot be done, we will tell you how it will get done. If you ask me how business is, I am most likely to answer:  SLAMMING.

 

Attitude, Position, and Posture. I love this country!

Living in a “downtown” environment.

I am a big fan of Andres Duany, the urban planner and architect that has redesigned many Florida communities. (For more information, read Duany's Suburban Nation, The Rise of Sprawl and the Decline of the American Dream, North Point Press)

 

Imagine, if you will, living where all your needs are within your reach. You can walk to shopping, the theater, library, doctor, the pool, gym, the park, etc. Everything is pedestrian friendly. This form of living is a sustainable form of growth that is still the standard outside the United States, and it is a standard that I believe many people should return to.

As you age and your needs change, you lose the need to leave your familiar neighborhood. You and simply move to different accommodations  - perhaps even in the same buildings. The wealthy and those that serve them can live in the same neighborhood. The cost of infrastructure is borne by more dwelling units and hence, less costly per capita.

 

In my opinion, high density is good and low density is bad. Let us consume LESS land per living unit rather than more.

 

Suburban sprawl, however, is the standard here in the States and can be characterized by the following features:

 

  1. Housing Subdivisions. Many of these can be characterized by names that pay tribute to the natural resources they replaced  – i.e. “Pheasant Run,” “Shadow Wood,” Heritage Farms.” Most of these communities have a “choke point,” one of two entrances where automobile traffic must congest to.
  2. Shopping Centers. These you will recognize by their need for parking since you always have to drive to them.
  3. Office and Industrial Parks. This is where we work and park our cars during the day.
  4. Government and Public Buildings. Normally set apart and built rather plainly with limited budgets.
  5. Roads. This is where we "spend an unprecedented amount of time and money moving from one place to the next." The "amount of pavement (public infrastructure) per building is extremely high."

 

When Duany sees a community that “works” it includes:

 

  1. The Center. This is an obvious heart that focuses on commerce, culture and governance.
  2. The Five Minute Walk. All needed features are a mere, and often variable, five minute walk from each other.
  3. The Street Network.  A grid or web by design. The transportation network avoids a main, single through street and provides multiple avenues for traffic flow.
  4. Narrow, Versatile Streets. Because of the web design, each street can be small and consequently more intimate. On these streets you can live, walk, eat, converse, and shop.
  5. Mixed Use. No single purpose streets here. There are neighborhood restaurants, pharmacies and coffee shops, and many people will live above their stores. No strip zoning and no need to travel far.

 

There have been attempts by developers to recreate the city environment, but the homogenous costs of all of the space and standardization of design make it a tough feat to accomplish. Why not just rehab the cities and move back?

 

Fort Myers is undergoing such a transition. So is Sarasota. In both of these communities we are selling new condos as well as renovated apartments and homes that can afford all the amenities you need without the costs associated with planning and building them.

 

Library? Got it.

Theater? That too.

Water Views? Yup.

Hospitals, restaurants, recreation, shopping: all included, and you get low cost public transportation to boot.

 

And we will even throw in exceptional winters.

 

I have often said that over the past ten years, we forgot that Florida is a retirement destination, not an investment destination. The baby boomers may have been delayed, but they are still getting closer to retirement. (Why Retire to Florida? – eleven reasons to think about)

 

I can sell you a condo within walking distance of the heart of town for $38,000 or a two bedroom loft for around a $100,000. Small? Yes. Affordable? Yes. Lots of amenities included? Yes!

 

Here is one that I walked through this week in Ft Myers CLICK HERE. Or how about this with water view on the river? HERE

 

Here is a home I know intimately that has been totally renovated - I love this home: 1925 CLIFFORD. Want to larger and newer? TRY THIS.

 

To do your own search for downtown properties: GO TO ADVANCE SEARCH and put in your own criteria.

 

Best,

 

Gregg Fous

Mail@greggfous.com

800-439-1580