Rehabber · Lutz, FL · Member since 2012 · 26 posts · 13 votes
I am in the Tampa Bay area and Wall Street has completely screwed things up here. They have pumped so much money into homes here to rent them out that the inventory is now just crack houses. I am sitting on money but can't find decent single family houses to rehab. I need to start looking outside this area.
@David Weis I'd like to chime in here having been an active investor in South Florida for the past 6 years. You are not alone my friend. This market is overheated with new investors and deals are extremely sparse. This is NOT the right time to be investing, wholesaling or rehabbing in my opinion. Our prices have topped out and are starting to retreat. If we're hit with a large correction in the stock market (witness today's 300 point drop), home buyers will probably take a blow to their consumer confidence. This market is like any other. One day the buyers are everywhere, the next minute they've disappeared. You don't want to be caught on the wrong side of that curve (see @Giovanni Isaksen comments and graph above).
For the past 7 months my deal flow has dropped off a cliff. I'm also seeing inventory building once again which is a red flag for any investors. Newbie investors abound and property owners are demanding higher and higher prices. I've elevated my direct mail campaigns and online advertising to stratospheric heights with little results in Palm Beach and Broward markets.
Being licensed, I also have access to the MLS, and the below chart showing inventory tells the story. I've published this on more than one occasion in the BP forums in an attempt to warn my fellow investors from being too aggressive in this market. And by the way, I take this data directly from the MLS each day and chart it myself.
Now I'm not saying abandon ship, just warning about market changes and how quickly they can happen. I watched and warned in 2004. I'm seeing the same behavior from investors again. I'm fascinated to see how the memory of 2005 has faded from consciousness.
Have you connected with any local wholesalers? Those guys are really working their butts off marketing to distressed homeowners that the big boys on Wall Street would never catch wind of.
Couple weeks ago on a flight to Tampa, fellow beside me strikes up conversation, he was a builder, now he has a gig running the renovations for one of the hedge funds that is buying up a lot of properties in Bradenton, Sarasota area.
If you cant beat them maybe join them?
As the market is coming back, this former builder is also building one spec house at a time to get back in the new construction game. In many areas there seems to be a significant demand for new construction homes, bit different than rehabbing, but similiar skills and talents required that most good rehabbers could likely master.
The other option I would consider is direct marketing, hooking up with a good a marketer or two to find off market deals, @Sharon Vorholt, @Jerry Plucket, @Michael Quarles come to mind.
If you want to stay in your area I'd go with Dell's suggestion and do some direct marketing (mailers, door hangers, bandit signs, door knocking, etc) to find off market deals. No matter how much money hedge funds are spending in your market those deal are always there. Or if you are comfortable with it, go out of state or into secondary markets in your area where the hedge funds are not playing.
I feel your pain David. St. Petersburg, being your next door neighbor and part of the same Metro area, has suffered from the same hedge fund activity. I am a Commercial Real Estate Agent with a focus in the multi-family sector and I have seen small multi-families (properties more in my budget) go for the following
Duplex $650 rent each unit - $90,000
Multiple examples of these deals scattered all around St. Petersburg. You can find the occasional one for $60,000 but it normally has some baggage.
Typical Fourplex $650 rent each unit $180,000+
In the area where I live (rents are $700-$750) the fourplexes go for $275,000.
I'm just holding on right now. I can't find anything. I'm under contract right now but it took me 9 months to find a property that fits my criteria. I have more cash to spend but the multi-family deals are all outrageous either by sellers asking too much or buyers bidding over the list price.
In 2012 and 2013 Middle-class buyers in the greater St. Petersburg submarket had the option of either increasing the size of their down payment to compensate for the fact that the house didn't meet the appraised value (artificially high values due to hedge funds' massive purchases) or look for a different, less expensive, house.
SFHs were going for $400,000 for 2,000 square feet. Quadplexes were going for $250,000. Persons wanting to live in the neighborhood could if they took on the added responsibility of managing a building. Many unqualified person took this gamble and thus due to the exorbitant hedge fund SFH purchases in the greater Tampa Bay Area residential multi-family dwellings were artificially enhanced as well.
David Weis Get in touch with me David. I live in Kissimmee FL and have fix and flips that we can work together on or I can wholesale to you. I mainly work in the Disney area. Pretty active market right now.
A little food for thought... Maybe the market is telling you the cycle is peaking and you need to find a different strategy or a different market. As value oriented bargain hunters when 'everybody' is buying we want to be sellers and when they're 'all' selling we want to be buyers. Real estate is one of the most cyclical businesses on earth and paying attention to where your market is in its cycle is critical for long term success.
Sometimes you have to wait patiently or develop a second strategy that works from peak to trough to compliment your main up cycle strategy. I'm sure everyone knows or has heard of builders who have gone broke three or four times because they only know to build, build, build.
Matthew Gardner over at Gardner Economics (http://gardnereconomics.com/) has a chart that illustrates the cyclicality of real estate markets. Notice that demand typically tops out before supply:
@David Weis the rehab market in NJ is very competitive and high quality rehabs of SFR flips are selling very quickly. Deals are out there for cash buyers. I agree with @Giovanni Isaksen in his comments regarding cycles and alternative strategies & markets. Some of the most successful investors adjust their strategies over time based on the RE cycles and trends (look at @Will Barnard as a prime example!) , otherwise you will have to wait it out.
I know this isn't your niche as you noted, its just interesting to see that the demand for new housing is strong and will keep growing as the US housing stock is aging, less energy efficient, costly to upgrade, etc. vs new homes. Can you partner or JV with a local builder?
I agree that you must adjust to market conditions. That could mean you need to switch strategies all together, switch areas of focus, or simply switch acquisition strategies (one example would be to do direct marketing for motivated home sellers as opposed to shopping the MLS)
@David Weis I'd like to chime in here having been an active investor in South Florida for the past 6 years. You are not alone my friend. This market is overheated with new investors and deals are extremely sparse. This is NOT the right time to be investing, wholesaling or rehabbing in my opinion. Our prices have topped out and are starting to retreat. If we're hit with a large correction in the stock market (witness today's 300 point drop), home buyers will probably take a blow to their consumer confidence. This market is like any other. One day the buyers are everywhere, the next minute they've disappeared. You don't want to be caught on the wrong side of that curve (see @Giovanni Isaksen comments and graph above).
For the past 7 months my deal flow has dropped off a cliff. I'm also seeing inventory building once again which is a red flag for any investors. Newbie investors abound and property owners are demanding higher and higher prices. I've elevated my direct mail campaigns and online advertising to stratospheric heights with little results in Palm Beach and Broward markets.
Being licensed, I also have access to the MLS, and the below chart showing inventory tells the story. I've published this on more than one occasion in the BP forums in an attempt to warn my fellow investors from being too aggressive in this market. And by the way, I take this data directly from the MLS each day and chart it myself.
Now I'm not saying abandon ship, just warning about market changes and how quickly they can happen. I watched and warned in 2004. I'm seeing the same behavior from investors again. I'm fascinated to see how the memory of 2005 has faded from consciousness.
I am in the Tampa Bay area and Wall Street has completely screwed things up here. They have pumped so much money into homes here to rent them out that the inventory is now just crack houses. I am sitting on money but can't find decent single family houses to rehab. I need to start looking outside this area.