Sunday, January 28, 2007

Property Taxes and Home Affordability in Florida

Property Taxes and Home Affordability in Florida.
Impact of property taxes on homeowners in Miami and South Florida.
By: Henry B. Nathan
A key factor in the present Florida real estate troubles is home affordability. Many other issues exist and can be considered part of the normal market fluctuations. However, affordability is invariably the essential element.
Comparisons of Home Prices and Family Income in 1980 and 2005
Let's use Miami-Dade's median home price and Florida's median family income statistics for this purpose.
Median Home Price in 1980 - $75,000.
Median Home Price in 2005 - $372,000.
1989 Median Family Income in Florida = $ 21,355.
2005 Median Family Income in Florida (estimated) = $60,000.
Increase of Median Family income in the same period = 181%.
Increase of Median Home Price between 1980 and 2006 = 396%.
Note: These figures have not been fully verified. They have been taken from different sources, and could reflect some inaccuracy. They are used to graphically explain a tendency, and only in this context, will they serve the purpose of this essay.
Average property tax for new buyer (including Homestead exemption) in 1980: $ 850.
Average property tax for new buyer (including Homestead exemption) in 2005: $5,899. (Approximate figures)
Homestead exemption grants a $ 25,000 deduction on the home assessed value for homeowners who qualify and register with their county appraiser.
What is Save our Homes?
In 1992, Florida voters approved an amendment to the Florida constitution that limited the amount of value a homestead property could increase for tax calculation's purposes.
The law limits assessment increases to 3% percent or the increase of the Consumer price Index - whichever is less.
Non-Homestead property is assessed at the full market value annually.
Home Affordability as considered through FNMA guidelines
$36,588 Minimum Yearly Income, as per FNMA guidelines, was necessary to cover Median Home purchase in 1980, assuming 90% financing @ 12.5% annual interest, 1% insurance annual rate, (PITI= $854). Note the very high interest rates prevailing in the 80's.
(PITI = Principal + Interest + Taxes + Insurance)
$134,086 Minimum Yearly Income as per FNMA guidelines, was necessary to cover Median Home purchase in 2005; assuming a 90% financing @ 6.5% annual interest, 1% insurance rates, (PITI=$3,152)
Roughly, FNMA basic guidelines require that no more than 28% of the buyer's gross income should be dedicated to pay for his monthly PITI (Principal + Interest + Taxes + Insurance).
To be noted is the dwindling affordability despite the fact that mortgage rates in 2005 were half of what they were in 1980.
Impact of Property taxes as compared to median home values in 1980 and 2005
Property Tax for new buyers as a proportion of median home value in 1980 = 1,133%
Property Tax for new buyers as a proportion of median home value in 2005 = 1.586%
The heavier burden is partly due to the decline of the homestead exemption as a proportion of home value.
The $25,000 exemption represented 33.3% of the median home value in 1980.
It represented a measly 6.7% in 2005.
Percentage of Median Family income dedicated to Home Property Tax in 1980 = 4%
Percentage of Median Family income dedicated to Home Property Tax in 2006 = 9,83%
However, this increase is only valid for new buyers in this market. The Save our Homes
Tax break unfairly burdens new buyers, vacation-home owners and investors, and protects Old Homestead Owners with the limitation to 3% yearly increase in their property taxes.
Fact: Even though Median Home Values have increased proportionally more than double the Median Family Income, and substantially increased the tax base, Counties and Cities, as beneficiaries of property taxes, have found their way to increase their mileage (or tax rate), further aggravating the cost of owning a property in Florida.
Do we fully understand the message that these irrefutable facts are sending to all parties?
To old homeowners in Florida: Do not ever, ever move from your house or condo. You will be punished by an unsustainable raise in property taxes, even if you downgrade to a smaller and more affordable home.
Do not try to add space, build or remodel. Every added square foot will be taxed at the full market value, because it would not be covered by the Save Our Homes exemption. You would be surprised by how much it could raise your tax bill.
To Owners of second homes or vacation homes in Florida: Congratulations, your equity has tripled in the last 10 years. Now, take your money and run. From now on, you are being hit with taxes three or four times higher then 10 years ago; while you are not taking advantage of schools and other infrastructure designed for permanent residents, you are paying the highest bills. Conclusion: Sell
To Investors who have held their property for more than 5 to 10 years. Congratulations; time to take your profits and find a better investment. Your tax expenses are 3 or 4 times what they were when you bought the property. You have tried to raise the rents you collect to cover your rising costs, but you have not been able to keep up to tax and maintenance fees increases. The fact is that renters cannot afford to pay a rent that would make sense for your investment.
To Investors who bought recently. Good luck. You have paid the high price. Your property taxes are high and relentlessly increasing. Your rents barely cover your taxes, maintenance fees and a tiny part of your monthly mortgage payments. The message: Cut your losses, sell and run... But this is the sticky situation of thousands of other "lucky" investors. As a last recourse, just try to rent it, take a monthly loss and hope for the best.
To New Homebuyers. Good luck. You are paying the highest prices. You are paying the highest property taxes. Your expectations of a quick valuation of your new home will have to wait for better times. Meanwhile, just clench your teeth, take the hit and hold on.
To Renters. You are already experiencing a strong pressure on rent prices and it will persist for some time. Your American dream of homeownership is being crushed and is almost unattainable now, but what you are paying in rent is almost a bargain. But expect progressive and unavoidable raises.
And the message that Florida residents are increasingly sending:
To Local Governments: You have been running wild with our dollars. You are fat and rich but you would not give up; you keep wasting our money and you keep increasing our taxes, and today you are the only beneficiaries of the real estate mayhem that is threatening our state. What about some legislature-mandated spending limits?
Correcting the problem:
Whoever is now a beneficiary of the Save our Homes taxation should not tolerate any intent to take away this privilege. After all, 3% cumulative annual increase (as allowed by the Save our Homes rules) is more than fair.
Cost of living has not on average increased more than this percentage during the last 10 or 15 years. So, why accept to be taxed on hypothetical sales value of your homes by greedy local government? We all know that county and city services have not improved in any way to justify three and four times larger tax bills.
Therefore, their expenses should have increased at the same rate as the national inflation rate. Unless they have chosen to mask their inefficiency at taxpayers' expense.
To the contrary, we can even argue that the mushrooming new constructions have already increased their tax base in such a way that the common homeowner should have expected a reduction in tax rates.
Legislators should better consider new regulation to transfer these Save our Homes advantages, when homestead owners switch properties of the same of lesser values. This would surely reactivate the real estate market.
There is no doubt that the present level of property taxes should face a serious examination in order to place them back at their historical levels, as a reasonable proportion of median family incomes, as opposed to their now almost confiscatory levels. I am talking about reduction of tax bills.
The present real estate recession is not due to circumstantial or accidental factors. There are deep economical reasons which can and should be corrected. Affordability of homes is part of our government responsibility and should be addressed accordingly. Unfair and abusive property taxes are one known issue and voters should put pressure on their representatives to correct it.
We are not talking about tentative and timid measures. I have heard of a motion to increase the Homestead exemption from $ 25,000 to $50,000. This will not solve anything. It would just be a symbolic and political step.
What about a real study of what 25 years of inflation have done to nullify the economical and social effect of this exemption? Shouldn't we roll it back to be the same proportion of basic home values as was in its original intent?
Wouldn't a $ 100,000 exemption be closer to reality? Wouldn't that help the first time home buyer achieve the American dream? Wouldn't that be a real injection of reality to our real estate market and our economy in general?
Affordable housing for Floridians is an urgent necessity. No doubt that million-dollars homes and condos have contributed to our economy, but will there be any economy left when working people start leaving the state because of unsustainable home values?
The "save our homes" laws have somehow protected a portion of our homeowners. However, they are an incomplete and unfair arrangement. A complete revision to maintain this protection and also protect new homebuyers, vacation home buyers and investors against abusive property tax increase would be welcome.
Of course, soaring property tax issue is not the only element in home affordability. Interests and financing costs, inflation, salaries, cost of building, land values, are also determinant factors.
But property taxes are a cumulative burden on the homeowner and they will haunt him year after year. It is time for local governments and our legislators to address this issue that is vital for the survival of our battered middle class.
Disclaimer: This article represents the personal opinions of the writer and are not related to any firm, association or business with which this writer maintains any kind of relationship.

Please visit my website: where you will find the most advanced tools to search for a home, or a condo, as well as review hundreds of preconstruction projects.
Our condo search tool will allow you to browse through many buildings in South Florida, and find all MLS listings for these specific locations.

Monday, January 15, 2007

What is mold? An introduction.

As a Real Estate professional, I have understood the importance of answering my customers’ questions about different related subjects. One of them is mold.
Molds are microscopic organisms that produce enzymes to digest organic matter. They are nature’s way of getting rid of plant and organic debris.
They reproduce through spores. They are basically fungi, as are mushrooms, mildews and yeast.
They are the essential part of the process of cheese making. Penicillin is originated in mold. So there is nothing wrong with them except in very specific situations: for example, when they get their way into our homes.
They usually begin growing when they find moisture on carpets, wood, paints, and insulation.
Excess moisture will build up from a flooding episode, high humidity, a leaky bathroom or a damaged roof. As soon as mold spores settle in a house, they feed on the moisture that they digest to grow.
Once mold spores settle in your home, they need moisture to begin growing and digesting whatever they are growing on.
How do they affect you? Mold spores, released into the air, will be absorbed through respiration or by skin contact to the affected area. They can also get in your body when you eat moldy food or by mouth contact after manipulating moldy materials.
For a healthy person, being exposed to common mold is not a great risk. People suffering from asthma, allergies, and lung diseases will aggravate their condition due to infections caused by molds. A common disease is caused by the mycotoxins, produced by molds. The effects can be respiratory, migraines, nausea, fatigues, cough and eye irritation.
Detecting mold:
Odors can be a first sign. A musty smell, added to white grows or clusters of black specks in damp locations are definitely something to worry about. But there are many cases of hidden mold that cannot be detected so easily. Try areas with water damage, or furnishing that have suffered from flooding or leaks. Places where warm and moist air has condensed on a wall, behind a headboard, furniture and closets. Kitchen, bathrooms, laundry rooms with high usage of water are the most suspect.
Fixing moisture and leakage problems in your house are the first step. Ventilation and good air circulation will help. Periodically aerating your house with fresh outside air. Use of air conditioning and dehumidifiers will definitely help.
Furniture against outside walls should be placed a few inches away from the wall
Verify that your bathrooms, kitchens and laundry rooms are ventilated with exhaust fans. Install fans if missing or damaged. Thoroughly clean or replace dirty or damaged carpets, curtains and upholstery immediately after a flooding incident.
If you attempt to clean mold, only do it if you are free of allergies or asthma. Even in this case, only do it in small areas and be careful not to stir and spread mold spores, which would only worsen the problem.
If the area is large, hidden under carpet or floors, between walls, you should definitely call a professional. If you do small cleanups, protect yourself with goggles, gloves, breathing mask. Ventilate the area by opening windows before starting. Seal off the area from the rest of the house to avoid spreading the mold spores. Cover ventilation grills. Remove your furniture to a clean area and inspect it for a later cleanup.
Bag and discard carefully all residues and moldy debris.
After cleaning, scrub all surfaces with mild detergent and warm water. If possible use a bleach solution.
Finally apply a borate-base detergent. Do not rinse. The surface will be protected from new mold. Borate-base detergent can be found in many stores. To finish, clean thoroughly the whole area, vacuum the floor, wash bed sheets and clothing that have been exposed.
Heavily affected furnishings should be discarded and replaced. If you decide to keep the least damaged, let them ventilate outside and check for remaining odors.
Watch during a few weeks for recurring odors or moisture.
This is just an introduction. You will easily find specialized professionals who can give you a more complete and educated advice on the subject. And it would be advisable to ask their opinion when buying an older home where you suspect that mold could be present.

Henry B. Nathan is a Realtor at International Realty Inc. - Please visit my website:

Renting vs. Ownership. A changing Reality

Renting vs. Ownership. A changing Reality
by Henry B. Nathan

Most studies point to the fact that rising house values in metropolitan areas, are supported by low mortgage rates, and changing demographics.

One concern, however, is the growing gap between rental and ownership possibilities.
The real estate boom that has substantially increased house values, plus the inevitable rise of interest rates is affecting home-buying affordability.

There is a disturbing new sign: Rental looks suddenly like a bargain. There is a disturbing change in the usual pattern of rentals and real estate values moving in tandem. A few years ago, the monthly cost of renting a Florida condo was about 80% of the cost of buying it. This ratio has moved down to less than 60% in many cases. The fundamentals considerations between renting and owning are not close to what they have historically been.
Two things could happen to restore this ratio: Reduced home values or higher rents, or a combination of both. We are already seeing rents going up after years of stability. In many markets, the demand of condos is still strong and despite the large inventory of new construction, we have not seen rents dropping.
The cost of owning, however, is still going up, due to higher interests.

An alarming sign, though, could be the unusual amount of Florida real estate purchased by investors. A recent study by the National Associations of Realtors revealed that perhaps 25% of residential real estate was bought last year as an investment. This is much above historical ratios. Investors are betting on rents increase and price appreciation to go hand in hand. But that is not guaranteed and it is known that, in a declining-prices market, investors are more likely to sell than homeowners.

Salaries, on the other hand, have not kept pace with real estate values. And that could also mean pressure on expected increases in rents. However, except in a few metropolitan areas, and when we compare it to other countries, home affordability as a ratio between salaries and either rents or cost of ownership, is still favorable, although rapidly eroding.

What we have noticed is that the large amount of Florida Condo Conversions will certainly reduce the amount of rental units offered in this and that could be a factor in the near future.

Of course low mortgage rates have been a huge factor in the red-hot real estate market.
What will exactly happen to long-term interests cannot be predicted by most economists and will be an important part of the equation. But real estate has always been cyclical and this should be taken into account by all investors.
Henry B. Nathan is a Realtor at International Realty Inc. Please visit my website at:

I specialize in Condominiums in South Florida and I assist local buyers and sellers as well as foreign real estate investors.