Wednesday, March 31, 2010
I have spoken with a couple of other real estate investors working in the Tampa Bay area the past few days. Needing advice on a rehab, I was able to ask someone that has specialized in that area of investing for a long time. A meeting with another investor and friend to catch up on a few shared deals led to looking at several houses in Tampa and dinner.
The rehab specialist works mostly in Pinellas county. He has not had any problems finding distressed houses for good prices. Buyers for the updated houses have not been a problem, either. This investor likes to do “complete” rehabs, replacing all kitchen appliances and cabinets, bathroom fixtures and tile and all floor coverings as well as any windows, doors, etc… that are not in good repair. He likes to sell “the nicest house on the block”, no matter what it looked like when he bought it. Most of the work is done by the investor himself.
The other investor works mostly in Hillsborough county and used to mostly wholesale properties. He has transitioned into rehabbing most properties during the past six months, seeing it as a way to make the same amount of profit while buying and selling half as many houses. He also sees no shortage of good deals on rough houses or buyers for the repaired homes. The plan for these properties, though, is to do the least possible work to make the house presentable to a buyer and keep the selling price in line with short-sales in the area. All of the repair work is hired out.
Both of these investors noted that good labor is available at bargain prices now. The virtual halt of new home construction has left a large and idle pool of skilled workers looking for a job. This will not last forever but is helping real estate investors now.
The two investors also noted fewer properties on the market. Buyer demand has increased and they thought the flood of new foreclosures into the market had slowed slightly. Realtors I spoke with have noted this smaller inventory, too.
Monday, March 29, 2010
Most sinkholes occur in areas underlain by limestone, gypsum or salt. These three minerals are all easily dissolved by water, which in wet areas leads to underground cavity formation. When the roof of the cavity can no longer support the weight of the surface material above it the surface collapses into the cavity as a sinkhole. Since the hydraulic pressure of underground water also helps support whatever is above it, removal of large amounts of ground water can also lead to settling of the surface and sinkholes.
Salt and gypsum are dissolved in normal water and quite porous, so any wet climate will lead to sinkholes where these two materials are the base. Limestone is quite hard and made up of 80% to 90% calcium carbonate, usually formed by the compaction of marine life such as coral and shells. It is also prone to fissures which allow the easy passage of water. Organic material in water can form carbonic acid which dissolves the limestone.
Development activity can often lead to the collapse of otherwise stable underground cavities, thus forming sinkholes. Placing more weight on the surface above a cavity, such as settling ponds and large buildings, can cause collapse. The vibration caused by heavy highway or railroad traffic can weaken the roof of hidden cavities and lead to sinkhole formation. Removal of high volumes of ground water by farming irrigation or other commercial activities can also lead to cavity collapse or just general ground subsidence.
Any form of surface subsidence can cause major damage to any structure, roads or rails in the area. This damage can often be repaired, but repairs are usually quite expensive. The repairs generally involve mechanically jacking the structure back to its original position and then pumping the sinkhole full of concrete or other solid fill material to once again support the surface. Unless very well built, any affected structures are often either not salvageable or require extensive and expensive repairs.
Sunday, March 28, 2010
Can the federal government really have much impact on the number of consumer mortgages that go into default? So far the answer would appear to be no, but the programs offered have been quite limited and not many homeowners have even qualified. The answer for the next round remains to be seen.
First there was the Making Homes Affordable program launched in 2008. Though the intentions were good the program showed the governments lack of grasp of the reasons home mortgages were going into default. The program targeted people with equity in their homes and who were current in their monthly payments. It encouraged lenders to refinance at lower interest rates and/or lesser principal amounts to lower payments to a more affordable level. With the drastic drops of property values and the rapid rise of the unemployed, most folks in mortgage trouble were left out in the cold. There was also very little incentive for the banks to take part in this program.
New provisions have now been added that try to make up for some of the original shortfalls. Eligibility now extends to properties valued at least 15% less than the amount of the mortgage. The unemployed are also targeted. Lenders are encouraged to refinance with FHA guarantees at a new principal of 97.75% of the actual property value, getting people above water on their mortgages again. Another goal is have maximum monthly payments of 31% or less of the borrowers income. Banks are also encouraged to offer up to six months on reduced or furloughed payments to help those who are out of work. Participation by lenders is still voluntary but some of the larger banks are showing signs of they think keeping people in their homes is better than foreclosing and trying to sell in today’s real estate market.
The problem of second mortgages, a large part of many lenders’ portfolios, remains unaddressed. Also not tackled is the problem of unaffordable mortgages on properties that have not drastically dropped in value. All of these loans will still go into default if the borrowers not find a job quickly or lose the job they currently have. The impact of the many commercial real estate loans about to come due is also ignored and could have a major impact on the whole economy. There are still interesting times ahead for all of us.
Friday, March 26, 2010
The Vice President and Liaison to Government Affairs of the National Association of Realtors, Vince Malta, mostly agreed with Geithner. Malta thought the basic structure of Fannie Mae and Freddie Mac were flawed. He saw them having a private profit structure but a public loss structure, putting money in the pockets of those in charge but taxpayers on the hook for losses. Instead, the entities should be self-sufficient and price risk effectively to cover potential losses. Any profit should be used first to establish capital reserves.
Fannie and Freddie were allowed to earn private gains for many years while at the same time being subsidized by taxpayers. Federally regulated banks are required to hold 4% capital against mortgages on the balance sheets. Fannie Mae and Freddie Mac were only required to hold 2.5 percent capital against held mortgages and only 0.45% against guaranteed mortgage derivatives. They made unwise risk decisions during the boom years by investing heavily in mortgage derivatives.
The Federal Home Loan Bank system also made unwise decisions. Heavy investment in sub-prime mortgage securities was part of their game plan as well. These risk decisions and lack of capital reserves to cover loans and securities gone bad are a large part of the present problem.
Everyone involved thinks the government needs to stay involved in the home lending industry. Federal government loan guarantees are seen as the only way out of the housing mess. Without some sort of government guarantees the private mortgage industry would shrink to the point of uselessness. The question is: how will things be restructured and will that really solve the problems that were exposed during the past few years?
Wednesday, March 24, 2010
Because the new murals were not really enough material for a complete article I started researching other murals in Clearwater. As with many things about Pinellas county that turned up many interesting twists and turns. There is a tackle shop on Ft. Harrison with game fish painted on the outside walls that I have driven past many times. I did not know that the fish are still there because the ACLU helped the shop’s owner sue Clearwater for violation of first amendment rights when the city called the fish an “advertising sign” and fined him for code violations. There were a few other murals that I did not know about. So now I will have a slide show to go with the article instead of just a single photo.
Tuesday, March 23, 2010
This is a great time for anyone that would like to buy a home. Whether shopping for a first home, wanting to trade to accommodate a growing family or downsizing to something more efficient the current prices are about as low as we will ever see. The true bottom of the real estate market might not be here yet but there are plenty of bargains available that will still be seen as bargains in the years ahead.
Some of the best values are on fixer-uppers. Many of these homes are foreclosures that former owners could not afford to maintain properly or just older homes that need a little TLC. The FHA has a little-publicized 203k program that helps people get into this type of home. This program allows prospective home buyers to borrow the purchase price plus a considerable amount more to be used for renovation. Work to be done needs must be documented and renovation must be completed within six months of the purchase date. Other FHA rule such as down payment amount, interest rate and term of the loan remain the same as on standard loans.
Anyone thinking of purchasing now should move quickly. The federal tax incentives for home buyers are set to expire on April 30. These now consist of an $8,000 credit for first-time buyers and up to $6,500 for many others purchasing a home.
Also, the FHA is set to tighten other lending regulations soon. Down payments will increase because the cap on seller kick-backs will go down from the present 6% to 3%. The up-front mortgage insurance fee is increasing by ½%. FICO credit score requirements will also be tightened with a 580 necessary to receive the lowest 3.5% down payment. Those scoring below 580 will need 10% down after these rules take effect.
This situation might be behind some of the increased sales activity seen in the Tampa Bay area in March. A secondary effect of the increased sales has been a reduction of inventory of for-sale houses. The result is being felt by potential buyers as reduced time on the market and sale prices close to or at the asking price.
Monday, March 22, 2010
Florida was the first state to allow on-line foreclosure auctions in 2008. This came about because of a lobbying effort by Lloyd McClendon, the man behind Realauction.com. This company was started to auction tax certificates and now also runs foreclosure auctions for ten counties in Florida. I expect this trend to grow rapidly as budgets shrink and staff is cut. Realauction.com averages $35 per sale and takes its cut from the buyer.
Pinellas and Hillsborough counties still have their foreclosure auctions the old fashioned way, at the courthouse. There are only a handful of regular sale attendees, minimum bids are disclosed just before the start of the sale and bidders know who is bidding how much because they are standing next to each other. With on-line auctions the minimum bids are announced well ahead of time, maximum bids can be placed in advance and bids are anonymous. Rather than just showing up at the courthouse, bidders must register in advance for on-line sales as well as place adequate deposits ahead of time. With courthouse sales the balance of a winning bid is due the following day but the Pasco County on-line auction requires the balance by 4:00 PM the day of the sale.
As the on-line foreclosure auctions spread to more counties it will radically alter the way real estate investors approach this process. The on-line system draws bidders from a much wider pool in the counties where it has been implemented. Miami-Dade county now has nearly 4,500 Floridians registered to bid and almost 750 more out of state or international bidders. It is time for investors that bid at courthouse foreclosure auctions to start making plans for the shift to on-line bidding.
Sunday, March 21, 2010
There is a lot happening on the real estate scene in the Tampa Bay area. The residential and commercial markets continue to evolve and there is an undercurrent of life just going on. I am going to touch briefly on a list of items that have caught my eye over the past few days.
Commercial real estate shows signs both good and bad. Two large new projects are moving ahead in Clearwater that will replace years-old eyesores with new senior housing, upscale apartments and retail and restaurant space. The Tampa East Industrial Park had one tenant renew their lease for 100,000 square feet of space. But Tampa area hotels saw average daily rates and revenue per room rates drop much more sharply than the state or national rate. I am seeing more empty retail space in Pinelllas county strip malls every time I go out.
Residential single family home sale numbers are strong, mostly on foreclosed properties priced at $125,000 and less being snatched up by first-time home buyers taking advantage of the $8,000 tax credit and the bargain prices. On the down side, Tampa Bay’s average home price continues to drop more quickly than state or national rates and foreclosure rates remain the highest in the nation. More bad news recently came from FEMA, which refused Florida’s request for federal emergency money to deal with high rates of toxic Chinese drywall in all 67 counties.
For investors the low prices and foreclosures make finding good properties easier than it has ever been before. The low prices and foreclosures also mean that profit margins are very thin. But even with depressed rental rates it is not difficult to find properties with good positive cash-flow. The near stand-still in new construction starts means a lot of unemployed construction workers which translates to a discount labor pool for rehab investors. The still dropping prices mean that properties must be turned around quickly or bought at huge discounts, though.
For anyone involved in real estate, adaptability is absolutely necessary. Many of the old game plans no longer work very well and there are opportunities that did not even exist a few years ago.
Saturday, March 20, 2010
Two substantial commercial real estate developments have been approved during March by the City of Clearwater, Florida. Both involve additional housing. One project also brings more retail and restaurant space. Both developments will transform sites that have been unused for several years and are considered eyesores.
Pine Berry Senior Limited Partnership plans to build 85 units of affordable senior housing on the site of the former Rainbow Lanes bowling alley at 1225 S. Highland Ave. This will be a four-story building with laundry room, community room, library, computer resources room, picnic area and emergency call service. Total project cost is estimated at $15,859,959. Clearwater is putting up $545,000 for 30 years at 3% and 5 years of deferred payments. Other funding comes from a variety of sources. Expected completion is the summer of 2011. Estimates of tax revenues from the project ranged from $13,000 to $70,000 per year. Pine Berry is experienced at building senior housing.
Nickel Plate Properties, Inc. plans to develop the former Lakeside Mobile Home Park. This 30-acre site fills the area between Gulf-to-Bay and Druid on the west side of Belcher. The plans, backed unanimously by city officials, call for 240 apartments and 83,000 square feet of retail and restaurant space. Because of its size this project also needs the approval of the Pinellas County Commission and the Florida Department of Community Affairs. The proposal is significantly smaller than the maximum allowed under current zoning for the property. The retail space would get one new entrance on Gulf-to-Bay and one new entrance on Belcher. The apartments would get three gated entrances along Druid. Shoppers would not be able to exit onto Druid. Cost of this project has not been made public.
Thursday, March 18, 2010
A lot is heard lately about “green” home construction and houses that are “eco-friendly”. Most of the homes in question use conventional frame construction with more insulation, more efficient electrical appliances and low-flow water fixtures. Truly earth friendly house construction goes well beyond these measures.
A popular “green” construction method in the western US is the straw bale house. This technique is starting to gain popularity across the country and worldwide because of its ease of construction and use of an agricultural waste material. More states and cities are adding straw bale construction codes every year.
Straw bales used for home construction must have less than 20% moisture content and be tightly compacted(they should not bend if lifted by one string). This also makes the bales quite fire resistant, as they contain little oxygen, especially after being encased in plaster and/or stucco. A bale home has approximately three times the thermal insulation of a conventional frame home. Sound insulation is also much better that with typical frame construction. Another advantage of straw being a natural material is no off-gassing, which can be a problem with many insulating materials for sensitive people.
People often wonder about the durability of straw bale structures. Because they are encased in waterproof stucco on the outside and “breathable” plaster on the interior, the bales are fully protected from water and do not rot. The highly compacted bales have low oxygen content and are much more fire resistant than conventional construction. Bale homes survive well in high-wind and earthquake zones. Many straw bale homes from the 1800’s are still standing in Nebraska and Europe.
Many resources are available to learn about straw bale home construction on-line. Many books have been published on the subject as well. Straw is an agricultural waste product in many parts of the world and is often burned, adding to the greenhouse gas problem. More bale-friendly building codes could help both the earth and home owners.
Tuesday, March 16, 2010
In December of 2009, Florida’s Supreme Court required the 20 state judicial circuits to sponsor mediation between lenders and homeowners. This was supposed to ease the mortgage crisis. But it was a totally new program and each circuit had to design it from scratch. Pasco and Pinellas will start offering the foreclosure mediation in June and Hillsborough does not know yet when it will be able to start. There are now more than 50,000 mortgage default cases clogging the judicial system in those three counties alone.
First the borrower is contacted. The borrower then meets with a foreclosure counselor. Then mediation is scheduled. The best case scenario is that it would take at least a month after a program begins before the first case would get to mediation. Those with other mediation experience in Florida estimate only half of the eligible homeowners would sign up. Real estate investors without homestead exemptions would not even be eligible for the program.
The entire program of foreclosure counseling for the borrower and then mediation costs $750. This fee is paid by the lender. Sessions are set for no more than three hours.
This just does not sound like a useful or practical program. Three hours to work out an alternate solution to foreclosure with a bank? Really? Has any of these Supreme Court justices tried to convince a bank to do a short sale recently? Have they timed the process?
Another requirement: mediation sessions must be scheduled between 60 and 120 days after the foreclosure filing. How is this going to help any of the cases currently in the system? Does the Supreme Court think there are that many more foreclosures yet to come? Why not find a way to help some of the people that are being foreclosed on right now? Many of the foreclosures now in the system have been dragging on for much longer than 120 days.
A further requirement of the court: bank representatives at the mediation sessions must have full authority to modify the mortgage. The problem is that many of the banks filing the foreclosures are only servicing the loans. The mortgages are often owned by investing companies across the state or across the country. How is that ever going to work? The justices are again showing a severe lack of knowledge of how the modern mortgage system works.
So here is the way I see it. In the face of a poor economy and strangled budgets, the state Supreme Court has forced every judicial circuit in Florida to start a large new program from scratch that is not going to help any homeowners. There is no incentive for the banks to cooperate and it is another colossal waste of taxpayer money.
Sunday, March 14, 2010
The land was the Taylor family homestead and John Taylor III was the last family member to live on the property in 2006. The Taylors came to Pinellas in 1868 to grow citrus and raise cattle. The original John Stansel Taylor was Pinellas County’s first state senator and the county park on 8th Avenue SW in Largo is named after him. There are still 18 acres of orange groves in the park that will be maintained along with the 1929 tow-story family house. Amenities at the new park include a dog park, ball fields, playgrounds, wetlands with boardwalks, nature trails and parking for almost 300 cars.
I live near the intersection of Belleair and Highland and am really excited to have a new alternative to the Largo Central Park Nature Preserve for the wildlife photography that I love. Pinellas County took a step by going ahead with this park in the face of difficult economic times, severe budget problems and often extreme criticism from some residents. This is valuable real estate but another park is much more important to the county than more houses or stores.
Saturday, March 13, 2010
2010 is looking very much like more of the same all over again. Florida citizens are hurting badly from years of stiff premium increases caused by hurricane damage, some of the highest unemployment in the nation and astronomical numbers of foreclosures because of the inability to refinance Adjustable Rate Mortgages(ARM”s). What better time for Big Insurance to go on the offensive? The insurance industry is backing Bill 1447 this legislative session. This bill would limit the insurance payout for sinkhole damage claims to 25% of the total available coverage. A more expensive “catastrophic” policy would be needed to provide adequate coverage in sinkhole-prone areas(which covers a large part of Florida). Lack of catastrophic coverage could mean many more families and/or investors losing properties because they cannot needed afford repairs.
SB 2044 is also backed by the insurance companies. This bill would allow payment of “Actual Cost Value” for any damage claims rather than the currently required “Replacement Cost Value”. Instead of collecting repair funds from their insurance based on estimates of material and labor and then proceeding with the work, the proposed bill requires home owners to pay for the repairs out-of-pocket and then be reimbursed by their insurance only for the amount they can prove with receipts. So the insurance companies would not only get to keep the money longer but would also get to pocket any difference between ACV and RCV if the property owner found a bargain on material or labor.
Yet another proposed rules change would allow insurers to impose limited rate increases without review by state regulators. An attempt by some legislators to give the Consumer Insurance Advocate’s office greater power over insurance rate increases has already been shot down.
Let’s all hope the legislature finds some backbone and a little sympathy for the citizens they were elected to represent. Usually it seems our elected officials pay a lot more attention to the money the lobbyists can contribute to their re-election funds than to their obligations of office. It will be an interesting, and possibly expensive, year for home owners in Florida.
Friday, March 12, 2010
Thursday night is Tampa Bay Real Estate Investors Association meeting night at Perkin’s Restaurant. Last night’s meeting featured speaker Jenna Waites on the topic of internet marketing for business. I just started pursuing this avenue to build business a few weeks ago based on the number of people I talked to that saw huge increases in revenues after giving it a try. It was a very interesting and informative evening.
Jenna covered all the basics: the huge numbers of people now on the internet, why they were using the internet, why it was important for any business to have a presence on-line, the avenues available for businesses to capture more customers and how to develop a strategy to make best use of internet resources. The why’s and how’s of using traditional web sites, blogs, social media such as FaceBook and Twitter, networking sites like LinkedIn and other resources like Google Local Search were all touched upon. Local groups with regular meetings for this purpose were also brought to our attention.
I just started this blog with a business slant two weeks ago, opened a Twitter account 1 1/5 weeks ago and put up a FaceBook page for my business last night immediately after the meeting. The blog and Twitter have already driven significantly more traffic to my business web sites and my on-line real estate column for Examiner.com. For 1-2 hours per day of effort, and less time in the future as I figure out how to better streamline and integrate the different pieces, I think this will be a very profitable addition to my business marketing strategy. It was all very quick and easy to get started and all 100% free except for the time involved and I would highly recommend exploring this approach to everyone.
Thursday, March 11, 2010
There has been a spate of big banks acting badly recently and the leader of the pack has been Bank of America. Seems they just made so many bad mortgage loans that it’s impossible to keep track of all of the addresses. Last summer a Massachusetts couple had B of A take over the Spring Hill, Florida home they paid cash for four years earlier. It took more than six months to straighten out and the couple is now suing the bank. They lost a good tenant and the house suffered water damage after pipes froze because of B of A’s actions. A Pittsburg, Pennsylvania woman also had her home seized by Bank of America. Personal property was damaged and the woman’s pet parrot was impounded. This action resulted in another lawsuit against B of A alleging the bank has no policy in place to prove the validity of foreclosures or to prevent improper property seizures from occurring. As Bank of America too big to learn from its mistakes as well as too big to fail?
To even things out a bit, Bank of America is not the only big bank to make these mistakes. Citi and a few others have done the same thing on a few occasions as well. Let’s hope they can keep better track of our money than they do of our addresses.
Wednesday, March 10, 2010
This approach is backwards and wasteful for several reasons. The intended market is investors that are highly skeptical of the government. They are currently buying at foreclosure auctions for pennies on the dollar and getting good rents after fast and cheap rehabs. The work gets done quickly and at a discount because so many skilled construction workers are available, no longer employed on new construction. Most investors would not pay a premium retail price for a “green” rehab, especially if the work was done by the government. Investors usually also have a ready pool of renters on tap and often don’t like to buy properties with tenants already in place. And most investors are small and would not be interested in multiple properties at one time.
The idea is sound in a modified form. Government “green” credits to investors that upgraded properties to “green” standards would have much more appeal to the investors. They could buy their own materials, use their own contractors and supply their own renters without government interference as long as everything met agreed upon standards. The properties would return to the market more quickly and more cheaply than the FHA could manage. Investors would have more valuable and marketable properties than without the government “green” credits.
Tuesday, March 9, 2010
We are now well over a year into the bank/financial institution bail-out. Trillions of dollars of taxpayer money have gone to huge companies that knowingly took very foolish risks with other people's money in order to enrich themselves. The people whose money was lost have gotten nothing and by government decree have been forced to give even more. Meanwhile the foreclosures roll on and more and more lives are ruined.
The entire mess started with home owners unable to afford the increased monthly payments on the adjustable rate mortgages(ARM's) their broker or bank talked them into(probably many could barely afford the low introductory payments). Facing the possibility of that many mortgage defaults the banks got nervous. Then the mortgage insurers(AIG, etc...) got nervous. Then the companies backing and depending on the insurers(Lehman, Goldman Sachs, etc...) got nervous and the whole house of cards started to come down.
Since the problem started with individual home owner's inability to meet an increased monthly mortgage payment, shouldn't the solution start there also? How many people would have remained in their homes and current on their mortgages if the government had offered them a few hundred dollars per month until a refinance solution could be worked out by congress and the banks? Would everyone have been so panicked if all those mortgages were getting paid by the government? Would simply keeping peoples' mortgages current have been any more expensive than the actual bail-out? How differently would our government be seen if all those trillions of dollars had been used to keep people in their homes instead of keeping huge, greedy companies afloat?
It is too late this time but this or a similar problem will happen again in the future. Next time I hope our government has the backbone and the common sense to look for solutions that address the real cause of the problem. The current financial crisis was not caused by huge banking and investment companies facing bankruptcy. The current crisis was caused by home owner’s inability to pay escalating monthly mortgage payments and this cause was never adequately addressed by any part of the bail-out.
Monday, March 8, 2010
My latest Examiner.com article outlines how short sales might be a viable alternative to foreclosure for some home owners in financial distress. I will also work on another article for tomorrow continuing the theme of "green" housing with a local Florida slant. Will have an article on the Belleview Biltmore later in the week and possibly a real estate investing book review for the weekend.
I also want to write a few photography articles tomorrow to update the Florida Image Tools web site, which has not gotten enough attention lately. One subject will be my recent switch from Minolta/Sony DSLR cameras and lenses to Canon equipment. A second article will be on the subject of photography contests.
Speaking of contests - I just received the new issue of the National Resource Defense Council(NRDC) magazine OnEarth in this afternoon's mail. They are running a nature photography contest using only photos posted on Flickr.com. Since I have quite a few images on Flickr already it was a simple matter to add the required tag and enter a half dozen shots. Prize is simply publication on their web site and in the magazine(with photo credit, of course) but it sure beats a poke with a sharp stick. Last weekend I was notified of a full-page photo on the 2011 USDA/APHIS "Biodiversity for Birds" calendar.
So far I have written all of my own web site content. This includes both a real estate site and a photography site. If something off-topic gets my attention I have been known to write pieces for UselessKnowledge.com as well.
While real estate is a fairly new endeavor for me and the kitchen has been my main career, writing and photography have been lifelong best friends that I still enjoy spending a lot of time with.
For now, I am going to take some time to learn about the options available for this blog so I can take advantage of them and make a better experience for readers(hopefully there will be some).