Saturday, April 05, 2008

How many times do I hear the same questions? How long it's going to take? What is my forecast on Florida real estate?

I deal every day with different types of buyers: the investor, the vacation home buyer, the first-time home buyer, the luxury home buyer, the curious, you name it.

They will all have different approaches. For example:

Ideally, the investor would like to rent and cover totally or a significant part of his monthly mortgage costs, his insurance, maintenance or condo fees, and his taxes.

The vacation home buyer wants to keep his monthly payments under control, because by definition he is looking to have fun with his purchase, and not to create himself a new source of headaches. He adds the mortgage payments, the condo fees (because they are usually interested by condos), and the property taxes. And he will compare that to renting a good hotel room or suite for a couple of weeks or even a month.

The "empty nesters", which are in retirement age, and trying to downgrade to a smaller place, once their kids are gone, are a special case. They have been helped by the "portability" feature now added to their 'save our homes' protection. Typically they will pay less property tax if they move. However, many of them have lived in homes where they can somehow control their maintenance expenses. Moving to a condominium building means monthly charges as a lump sum, plus eventual "assessments" charges for repairs or upgrades to their condo building. These "condo fees" have sustained a relentless inflation during the last decade.

The first- time home buyer makes his calculations and unless he and/or his wife hold really great jobs, they could quickly find out that, after paying the mortgage, the insurance or condo fees, the property taxes, a purchase is simply out of the question. Renting is a much better deal.

Let's play with some figures.

You graduated five years ago from a good college; you hold a decent job. You are married, with a child, and your spouse is employed and brings some money to the table. Between both, you are making around $ 5,500 a month and that means that, after tax, you net about $4,600.

You have grown in a middle class family and are used to a certain level of comfort. But you have made your mind and your first home is just going to be a crowded two-bedroom condo. What's available in a decent neighborhood, (and I am not talking great luxury or new buildings on the beach) will cost you around $ 280,000. You were lucky enough to land a mortgage loan with only 3% down, and your savings allowed you to pay all the closing costs, and that's fine.

When you calculate your total home related monthly payments, you reach a figure of $ 2,500 per month. That doesn't include your electricity, phone, cellulars, and other utilities. Let's calculate all these in about $220. You won't have TV cable or internet at home. You can't afford it and after all, TV is not good for the kid, and you have enough internet exposure at work.

On the other hand, even though you have a health insurance plan, subsidized by your employer, you might have to fork out your part of about $250 or $300 a month. From time to time, you must pay a $10 charge to see a doctor, or something called "deductible", and even these expensive medicines for your kid's sore-throat infections; but we won't count that.

You also need two cars, because you both work, and these cars need insurance, tires, and other goodies. You have been reasonable, nothing fancy, but you still have to pay the monthly installments on both. So let's say that this would mean an additional $ 600 or $700 for both cars, all included. - except, of course, the gas. I was about to forget that! And at three dollar +, even for two small cars, it will mean another $150? $200? Ok. Say it's only $ 150. And you will change the oil and do minor mechanics yourself, and run on flat tires, not to overwhelm the budget. By the way, we forgot the college loans that, after all these years, you settled up to pay at about $200 a month.

We're already passing the $ 4,000 mark and we're just starting the month. You haven't eaten any food, you haven't bought any clothes or shoes; you haven't thought about vacations, restaurants, movies, continuing education, children birthday parties, or anything that can bring a little fun to your life, you haven't bought any furniture, gadget, nothing…And you haven't even put aside a penny.

While watching the shaky image of your antenna-powered TV, your spouse is ironing your shirt and the dress that you will wear at work tomorrow , trying to ignore the screams of the dear child who has spent all day in your mom's house –you can't afford private pre-school- and while cooking dinner, you are thinking that it's already the 20th of the month and in 10 days you will get a new batch of bills and invoices in the mail.

Should you have thought twice before buying this condo, instead of renting for around $1000 or 1200? You bet.

Now, how many young couples I know, are making more money than our friend? How many do you know who have a lower income?

The fact is that real estate is not only an investment. It's not a share bought in the stock market. It's not an IRA account, an annuity or a bond. It happens to be an essential part of the day by day life of our population. And, during the so called real estate boom years, there has been a greedy, unreasonable and unbearable raise in home prices which has not at all been matched by salary raises or income increases.

Remember before the last stock market crash in the year 2000, how new technology companies which had never earned a penny, saw their shares selling at incredibly high prices? The madness went on until eventually everything went back to normal and people went back to common sense. (or did they?). Can we compare that to what's happening with real estate? Why not?

Isn't it what we are seeing now? With the difference that so many homeowners who bought at high prices are stuck with high mortgages and can't even sell their little piece of heaven?

And the other half who refinanced and cashed out for a few years to maintain their lifestyle, only to found themselves with a negative equity?

Our local governments, our cities and counties have aggravated the problem by unrestricted spending, and while they affirm that they are seeking ways of easing the property tax burden without affecting anybody (which is of course impossible), home insurance premiums have skyrocketed, and no big relief is in the horizon, no change. Except for home prices. Because hardly anybody can buy them any more. Now you ask me when these prices are going to go up again; when people will start buying homes again, when we will be back to normal. Do you think I can perform magic?

Now let's take the vacation home case. There was a time when Florida was a place you bought a nice condo for sixty or a hundred thousand dollars. You paid some maintenance fees and taxes at a total of around two or three hundred dollars a month and you were all set. Today, you buy a two fifty or three hundred thousand little condo, you're stuck with assessments and condo fees of five hundred a month, then the taxman comes and it's another five thousand dollar bill to pay, and it just doesn't make so much sense. You will just look somewhere else or just forget about the idea.

Last but not least, our investor studied the case of the $200,000 dollar condo he was looking at, and pondered if the thousand dollars a month he would gross in the best case, if all things ran smooth and he had a great tenant, would be a suitable return when he must pay $1800 per month between mortgage, maintenance, taxes and assessments.

Pessimistic? I wouldn't be doing this real estate job if I didn't have some hope. Now if our legislators could mandate some hope in the people who buy, it would definitely help.

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.
Visit my website:
where you can search for Aventura Condos, Florida Condos, Sunny Isles Condos.
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