My dad used to tell me a story about a man that walked up to a fruit stand at a farmers market. The man asked the vendor, “How much are your tomatoes?”
“Fifty nine cents a pound”, replied the vendor.
“What!?” exclaimed the shopper, “The farmer on the other side of the market has priced them at thirty nine cents a pound!”
“Well, go buy them there then,” the vendor quips.
“But he doesn’t have any more.”
“Hey, if I didn’t have any more, my price would be only twenty cents!”
I thought of this story when I read in the paper today that fixed thirty year mortgage rates have dropped to 4.43%. (MBAA HERE), and 15year rates to under 4%. But these great rates don’t mean much if there is no money to lend or you can’t qualify for a mortgage. (To see a helpful mortgage calculator, click here) Now, to borrow $100,000, monthly payments will be below $500 per month!
When I was a young teen I remember my uncle driving me past some mansions along the water. “Gregg,” he then took a deep breath and said in a wistful tone, “When I was a young man I could have bought those lots on the water for under $4000 a piece.” (Million dollar homes were sitting on those lots now).
“So why didn’t you?”
“I didn’t have the money. $4000 back then was a fortune.”
So it is with prices on some well located home now in Florida.
Prices are low and money is cheap.
Sometimes in this market I feel like the guy that showed up at a “Free for all you can carry” give away, and find that my hands are tied behind my back. I have a strong feeling I am going to be driving a kid around here some day and saying things like, “ Back in 2011 I could’a bought that house for………”
But homes are selling, certainly many at the low end of the market. We have almost 300 homes in our pipe line with about 215 on the market and we turn our inventory about four times a year. Seventy percent are still for cash, though. But more and more buyers are end users. Prices are creeping up and as banks get their houses in order you will see more second home buyers and retirees buying. Florida is an affordable place to retire again. (WHY RETIRE IN FLORIDA? CLICK HERE)
If you are looking to buy a home and you have good credit and some cash to put down you need to be able to compete with cash offers on the good deals so you need to get your financing in line before you go shopping. This means getting pre APPROVED, not just pre Qualified. (To have us help you do this FILL OUT THIS FORM). Once you get a pre approval you can shop in this market and compete with the cash buyers. Some of our bank sellers actually give preference to end users over investor cash buyers. Market America Realty and Investments also offer HomePath financing (INFO HERE) on many of our Fannie Mae listings.
If you don’t have cash to buy in this rather over heated market, what are your alternatives?
Ø Buy a new home from a well backed developer like Lennar or Pulte. Last Wednesday at our weekly sales meeting, Judy Welker from Lennar, Moody River Estates, gave our sales team a presentation on Lennar’s new homes. In fact they have sold six in the last three months just in Moody River. Prices for these new homes are extremely attractive. I believe Lennar must have picked up the lots very inexpensively. Gail and I toured the models last week. In fact Deb Krikorian brought one of her clients in ion Thursday and they were able to pick one of the homes up and by Saturday has an executed contract. The key here is not only does Lennar have an excellent product and an excellent price; they are able to facilitate the financing. Often the developer is able to make a deal with a lender to get a block of money available for the project with more attractive underwriting . (LENNAR SITE).
Ø Buy with partners. It’s better to have a small piece of pie than no pie at all. Get some friends together and buy that beach house or investment property. I have done it in the past – informally under an LLC and formally with a private placement memorandum. Do consult an attorney (I can hook you up with a few good ones) before you take this step.
Ø Hard Money Lenders. I have never really liked this term, but hard money lenders will lend you money based on the soundness of the deal, not just on your credit worthiness. A typical hard money lender will charge three percentage points up front and at least a percentage point per month. Many will also want part of profits. I do know a few lenders I can put you in touch with.
Ø Think small. Ok, you want to participate in this market, get in small, forget the mega deals and buy a few small single family homes. This will limit your exposure, and give you a track record.
Ø Think hard. And Long. As my brother Bill says, talk is cheap. You need to find the deal FIRST. Yeah I know I said to get pre approved first, but you need to convince yourself and perhaps your kinder or investor that there is real estate out there that you want and are able to buy. One of my agents came up to me after a meeting where I talked about working with investors and he asked me how I get my investors. I asked him if he was a fisherman. He replied that indeed he was.
“What do you use for bait?”
“Why do you use shrimp?” I asked.
“Because that’s what the fish eat and it works.” He replied
“Exactly,” I said, “ You need to find the deals first and be able to show them to your investors.”
Finding the right properties, even in a target rich market like we are in now, takes a great deal of work. If you look at a lot of deals, put a pencil and a spread sheet to a lot of deals, so when a good one presents itself you will know it, because you did the home work and are ready to move. Do not move precipitously.
Ø Alternative money sources. I do not like to suggest this one, but some folks are tapping in to their retirement funds ( IRAs, for example) . They feel that the money is not working well in the stock market, why not put it into real estate? There are advisers out there that will tell you how to do this and again I can hook you up. But please be careful about this strategy .
If we can help you in your property search please do not hesitate to contact us. For a good map search click here.