Tuesday, October 26, 2010

"Upper End Real Estate in Palm Coast, Florida"

50-50 Chance... Right?

80% Comes From Only 20%... Really?
When I was a kid, I had no concept of what "Upper End" might mean, other than we'd drive through the "rich people's neighborhoods" to be enthralled by their Christmas lights each year.  I mean I truly didn't understand that granite and marble and Italian tile and 30' ceilings and Viking stoves and Swedish dishwashers and walk-in refrigerators and temperature controlled wine rooms were required to get you there.  But 15 years of selling real estate in Great Falls and McLean, Virginia - home to Senators, Congressmen, Pro Sports Figures, and Corporate CEOs, opened my eyes. 

Then I came to Palm Coast, FL and Flagler County in 2000.  I brought the "Fastest Growing County in the USA" thing with me, as Fairfax and Loudon, Virginia had owned it for a while.  Prices started rising and places like Hammock Dunes, Ocean Hammock, and Hammock Beach soared into the $$Millions.  Palm Coast's salt water canals and gated communities like Grand Haven took off too.  A modest Maronda home for $70,000 in 2000, became $225,000 by the end of 2005.  It amazed me that there were no homes under $200,000 for sale in our MLS system!  Had our rate of appreciation continued through to the present time, our median price would have gone over $1,000,000.  I know it's bad right now, but thank God the inevitable happened when it did.  Had we gone even higher, the fall would have been even worse!

So what constitutes the "upper end?"  It's quite arbitrary, really.  When I bought my first home new from a builder in Tampa, FL for $25,000 in 1971, the upper end was rumored to be $100K.  When I left the Pentagon and my 20 year Army career for real estate in Virginia in 1986, the upper end was $300K.  by the time I left there in 2000, it was $1,000,000.  In Southern California and the Silicon Valley, $1,000,000 got you a quaint starter home!

For my purposes, I call upon the "80-20 Rule" (that's the Pareto Principle for you math junkies).  Loosely interpreted (from my MBA days at Georgia Tech) it implies that "80% of effects come from 20% of the causes."  This theory came from observations that 80% of the wealth was enjoyed by 20% of the people.  So I've always theorized that upper end property is the top 20% (loosely) in a given market.  Interestingly, this applies to an amazing array of circumstances.  For example, I've managed 5 different real estate offices in my career and, invariably, 80% of the sales are done by 20% of the agents.  On most sports teams, 80% of the "impact" or "points" or "tackles," comes from the top 20% on the team.

In Palm Coast and Flagler Beach, FL... and all of Flagler County, FL, we'll say the upper end in the 4th quarter of 2010, starts at $500,000.  Of the 1,340 detached homes (not condos or land) for sale today, 187 are priced at or above $500K. 

The numbers tell a real story about our market
  • Over the past six months, about 15% of the listings for sale are over $500K, but only 2% of the actual closed sales. 
  • In the "normal" range, 3% of homes listed for sale are bank foreclosures and 32% are attempted short sales.
  • In the "upper end," only 1% are bank listings and only 6% are short sale attempts.
  • Of the 699 homes sold in the past six months, only 14 are upper end (2% of the total market)... It's such a small %, that it's impossible to make inferences... except that it's not a great time to be for sale at the upper end!
  • Also, two startling facts, not tied to price:
    • Over 70% of homes listed never sell (because they are priced too high!)
    • Of those that do sell, nearly 60% are distressed sales.
What does this all mean? 
  • It's an amazing buyer's market. 
  • Homes are selling, but shoppers are seeking bargains.
  • The upper end is clogging the funnel, as sellers in this range are more reluctant to face the irrefutable reality of The Law of Supply and Demand... (even though better educated, on average, and probably sat through Economics classes in college)
  • Since 70% of listings don't sell... to be successful...
    • It's a Price War
    • and a Beauty Contest
  • When choosing a Real Estate Agent, do your homework.
    • a CLHMS is certified to help you in the upper brackets.
    • a CDPE is equipped to help you with foreclosures and short sales.
Call me with your questions.  My CLHMS and CDPE expertise, coupled with my Harvard certification as a Real Estate Negotiator... and my 25 years of Real Estate Sales experience... could be the formula to help you achieve success!
Frank Zedar
Parkside Realty Group, LLC

Tuesday, October 19, 2010

House Hunting - 2010 Style

 Saturday morning - Starbuck's Italian Roast - and the Daytona Beach News-Journal... My eyes catch "Shopping for homes when there's too much to buy!"  The author, Ilyce Glink, says there are "Eight things" you can do, as a buyer, to be successful in this market:
  1. Create a wish list.
  2. Create a reality check.
  3. Get pre-approved for your mortgage.
  4. Pick a neighborhood.
  5. Pick a Real Estate Agent (...Like Me!)
  6. Search the Internet to do elimination.
  7. Do "drive-bys" to eliminate more.
  8. Look only "at or below" your qualified price.

Now, I'll add a little to her take on things...  I'd combine #1 & #2.  Just make one list.  You'll know if your list is close to realistic or not.  If you can go to $200K here in Palm Coast, FL and you want a pool, we can make that happen.  And to think in 2005 there were NO HOUSES OF ANY KIND HERE UNDER $200,000!!!    But if you say you want "Direct Oceanfront, 5 bedrooms, pool, granite counters, etc." for under $200K, then you'd be joking, right?  Right?

On #3, I'd get more than "pre-approved."  I'd get "approved" for a mortgage.  Actually make your application and start the process.  Then, when I find you your new home, we just need an appraisal.

#4 - Agree.  Pick where you want to be.  If you want to be in Flagler Beach, then Palm Coast or Bunnell won't do.  If you want a salt water canal with Intracoastal access, then that's where we focus. 

Let's combine #5, #6, #7.  The right agent will make all the difference in the world.  Massive experience can really help if things get dicey.  Also, you won't get silly statements to try to "sell" you a particular house.  In 25 years of doing this, I know that you'll put it on your "no way, Jose" or your "possible" list within 2 minutes.  We won't waste time on houses you wouldn't buy.  The internet is not a threat to a good agent, it's an efficient tool.  And drive-bys are a great way to save boatloads of time.  A $99 GPS can save us three days of mind-numbing elimination.

I disagree with her on #8.  This quarter, 70% of our listings in Palm Coast, FL don't sell... because they are overpriced.  Maybe it's worth making an offer at the right price.  Plus, it's just a ridiculous buyer's market and there are bargains to be had.  If you qualify for $350,000, I'll ask you if you'd like to see up to $375K (maybe even $400K) if I can prove a price point of $350,000 or less.  But you are in charge of that decision.

Choices!  Choices!  Choices!
 Let's meet and talk about what you want!  I'll help you get it!

Wednesday, October 13, 2010

"Real Estate Update - Palm Coast, FL"

Every Class We Take... Now
Starts With "Short Sale."
  I do my best to update you on the main issues affecting real estate here in Flagler County, Florida.  This is a "snapshot" of the past 30 days in Palm Coast and Flagler Beach, Florida.  Included are zip codes 32164, 32137, and 32136.  The numbers this time are pretty much the same as they have been for the past few months.  We seem to be in a rut.  When we get to the end of 2010 - only 78 days from now - I'll do some trend analysis.  I'd like to be able to show how we're coming out of the woods, but know that is wishful thinking at this time.

So here we go:  (These numbers are for "Single Family Homes."  They do NOT include input for condos or land/lots or commercial transactions)
  • There are currently 1153 homes "For Sale" in Palm Coast.
  • They are priced between $45,000 and $2,600,000.
  • They have been on the market between 1 and an astonishing 1872 days!
  • 40% of the listed homes have been for sale for over 6 months... up to over 5 years!
  • Hint:  We have a serious mis-understanding of The Law of Supply & Demand.  My partner (in real estate and in life) Maritssa, ran some stats the other day and found that over 70% of homes listed... never sell!  The stark reality is that they are over-priced.  For every location and/or condition, there is a price, at which every property will sell.  In a market like ours, facing that price can often be a challenge.  To "Git er done" today, you need a Price Motivation Level of at least an "8" (on a scale of 1-10).
  • 34% of listings (391 homes) are short sales attempts.
  • Only 3.7% of our listings (43 homes) are bank owned foreclosures.
  • Hint:  We are caught up in the world of pre-foreclosures... or foreclosure avoidance.  But the foreclosures are coming, with over 300,000 notices issued per month for over 18 months in a row!
  • We have SOLD 111 homes, or 9.6% of available inventory.  9.6% is known as the absorption rate.  The implication is that if no new inventory came on the market, we could sell everything in about 10 months.  It's a fallacy, however, because 70% of our listings are over-priced and won't sell in the foreseeable future.
  • These homes sold between $55,000 and $840,000.
  • 67 of these sales were "distressed" sales - short sale or bank owned - almost all short sales.  That's an amazing 60% of all closings being distressed! 
  • Flagler Beach is more of the same.
    • 116 homes for sale at this time.
    • 5 sold in the past month.
    • With a lack of "comparables," appraisers at the beach have to get creative.

Five Year "Down Cycle?"
Come' on, Man!

These "Distressed Sales"
Are Now 60% of our Market!

Monday, October 11, 2010

Hey, Bank of America! Come'on, Man!

I know it's easy to blame the banks.  I mean they're big and rich and cocky and "above the law" and they foreclose on Grandma, etc.  But, COME ON, MAN!  Right when we might have been making some headway with clearing out the bottom!  For the past 60 days here in Palm Coast, Florida, our real estate closings comprised 58% "short sales" and foreclosures, while only 41% of our new inventory was distressed.

Nationally, banks have been issuing over 300,000 foreclosure notices per month for the past 18 months!  That's 5,400,000 Grandmas in the street!  As swiftly as the banks gave loans for $500,000 houses to families with household income of $35,000... Shhhhhh, you don't have to tell us what you really make... because this is a "No Doc" loan!...   They bang the gavel to take it back!  What a country!

Now we have a Bank of America (and others) moratorium on foreclosures!  They make it seem like an effort at compassion.  Hey, America, we CARE!  But what it really is... is a way to avoid law suits.  Why?  Because the bank's paperwork and admin is shoddy beyond shoddy.  It seems that some banks are taking houses... and they don't even hold the mortgage note - They can't find it!

A spin-off economic tragedy is that real banks can't make real loans on property, without said property for collateral.  Now we have a precedent that shows the system to be in jeopardy.  This could hurt commercial development and job creation - at a time when we need it most!  When banks don't lend $$, the fair market system grinds to a halt...

This is a story that is unfolding, as we speak.  The coming drama should be Bankalicious!

Friday, October 1, 2010

"Real Estate Investment in 2010"

You, too, can be just like
"The Donald!"

Are you a Real Estate Investor?
Would you like to be?

It used to be that anyone and everyone who bought property of any kind, fancied themselves as an "investor."  We were all so smart!  So you bought it from the builder for $180K and put it in the MLS for $240K as a "new build."  Simultaneous closings and pocket the difference!  Usually, "no effort in" is a "too good to be true" scenario.  It's just too risky!  And that's how that story ended in 2006, when the real estate bubble burst.  So many "investors" got caught with their hand in the cookie jar!

So here we are in the 4th Quarter of 2010... precisely 5 full years since we first noticed that "something was awry."  We've watched the market tumble here in Palm Coast and Flagler Beach, Florida to de-valuation of 50% or more.  Short sales and foreclosures comprise nearly 60% of our closings...  Inventory is large and prices are low...  Mortgage rates are extremely low.  An investor can find under 5% with 25% down.

In other words, It's a great time to invest.  If you have some cash and decent credit and are in it for a "hold," not a "flip," then your timing is good. 
Here are some of the issues to consider:

  • Use your head and a calculator, not your heart or your gut.  It's not like buying your personal home.  Heck, you don't even have to "like" it for it to be a good investment.  It's all about your ROI (return on investment) - Challenge your Realtor to demonstrate this to you. (Note: Land is a different beast.  Generally it generates no income, yet it does have associated costs of taxes, and maybe even upkeep and HOA fees, etc.  With land, it's "buying it cheap and estimating a hold period before a selloff.")
    • "Timing" the market can be elusive:-)
      Avoid overleveraging.    Debt can be a good thing, however you don't want to get caught making monthly payments "on your investment."  You want to "get payments from your investment!"  Accurate input into your Debt Service Coverage Ratio (DSCR) is important (garbage in=garbage out). 

      • In general, it is calculated by:

      • DSCR = (Annual Net Income + other miscellaneous expenses) / (Principal Repayment + Interest payments).

      • In a nutshell, DSCR helps to determine if an investment will cost you money or make you money!

  • Real estate investing is not a get rich quick concept (like the TV ads suggest).  We were smart from 1986-1989, but dumb from 1990-1993.  Smart from 2001-2005, now maybe dumb from 2005-2010.  That is yet TBD!  It's about your holding period and commitment.  Even factoring in the current mess, real estate has beaten the S&P 500 over the past 30 years.  It's a marathon, not a 100 meter dash.

  • Get good advice from professionals.  Not only your Realtor, but also an Attorney and a CPA would be great sources of legal and financial information.  Staying on the right side of the Law and the IRS are good things!

  • Have an investment goal.  Just buying a rental house because it was cheap is not a plan.  Market shifts, vacancies, tenant damages, chinch bugs/termites, hurricanes, etc., can have a huge impact, as well as expected cash flows and your desired benefit. Your Capitalization rate is calculated as: 

    • Capitalization Rate = Annual Net Operating Income/Cost or Current Value
   Calculating your Return on Investment will tell you if you are on track with your stated goal: 

  • ROI = (Gain from Investment - Cost of Investment) / Cost of Investment. 
(Note:  Residential investing is not in the same ballpark as commercial investing... different rules and risks, etc.  if you want consultation regarding commercial issues, Margaret Sheehan-Jones in our office is a CCIM candidate and head of our commercial department... I can put you together.)

Know your level of tolerance for risk!

Why read "Palm Coast Unplugged?"

"Palm Coast Unplugged" gives a "backstage pass" to locally focused Palm Coast, Flagler Beach, and Ormond Beach, Florida... Real Estate and other useful information:
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