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Florida Real Estate has always been boom and bust. This is an odd place, we have little agriculture (too much sand too little soil), little industry (not a lot of natural resources and not very close to the northern markets), and lots of hype. Florida is a good place to live and a great place to visit and retire to, so our growth is mostly dependent on tourists, retirees and speculation.

Florida was the site of the largest and most devastating real estate bubble in US history. I grew up in Dunedin in the 60s and the town was still paying off debts from the 20’s real estate bubble, call the Florida Boom. The street I lived on was a nice brick street with granite curbs that ended in the woods where piles of bricks and granite that were intended for more streets had been collecting vines and growth for 40 years. Prices in the 20s made such a run up that in some cases land prices did not recover to their peak values until the 90s. So be care down here……

Florida Real Estate Bubble
From http://www.stock-market-crash.net/florida.htm

The 1920’s, in America, were a time of great prosperity. Skilled and educated working Americans had jobs providing numerous fringe benefits, paid vacations and pensions. In addition, automobiles were becoming commonplace for the wealthy and middle class allowing cross country travel. This good fortune set the stage for the Florida real estate bubble.

Starting in 1920, many Americans became enamored by the materialistic and prosperous lifestyle of the time. During this time, the stock market was moving forward at an extremely fast pace. Many investors were becoming quite wealthy. Florida became a hot spot for these newly rich people, who didn’t enjoy the cold. Many whole families took vacations to Florida. It was at this point that tourism started booming and land prices were skyrocketing. Many astute investors took notice and started buying Florida real estate. The population in Florida was growing exponentially and housing couldn’t meet the demand. Florida became the “playground of the rich and famous”. Illegal casinos and drinking parlors became widespread in Miami.

At this point, almost anybody could invest in Florida, even without much money. Credit was plentiful and soon everybody in Florida was either a real estate investor or a real estate agent. In 1922, the Miami Herald became the heaviest newspaper in the world as a result of its humongous real estate advertisements. People in the North heard about the real estate prices “doubling and tripling”, causing a snowball effect. Capital was rapidly pumped into the real estate market. Whole golf communities were developed, such as Temple Terrace. Resorts and retirement communities were developed almost overnight. Mansions were sprawling in every area, as were swimming pools. As always, waterfront property was the most desirable. Florida was seen as a veritable Utopia.

Real estate prices quadrupled in less than one year. An elderly man invested $1,700 in property and by 1925 the property was worth over $300,000! It seemed you could do no wrong by just buying any property in Florida and become a millionaire. By 1925, real estate prices had become so exorbitant that buying land wasn’t affordable any longer. New investors failed to arrive and old investors started to sell. Panic arrived, as it always does, and the real estate market crashed. Prices kept moving downwards as heavily indebted investors tried to sell to avoid bankruptcy. In most cases, no buyers arrived, and the investors were bankrupt from the enormous mortgages.

To make matters even worse, a highly destructive hurricane ravaged South Florida in September 1926. The 125 mile an hour winds eventually turned Palm Beach County into swamp lands. After the storm, a huge tidal wave crashed upon the towns of Belle Glade and Moore Haven. Due to these horrible turn of events, over 13,000 homes were destroyed and 415 people died. Additionally, the arrival of the Mediterranean fruit fly obliterated the large citrus industry. It took years for Florida to fully recover, even through the highly prosperous time from 1925 to 1929. Florida was barely affected in the stock market crash of 1929 and the Great Depression, because of its poor financial state from the start.

Market crashes always occur in the same manner. Regardless of the market, the same simple psychological underpinnings are always at work. People who are caught up in a bubble never look back for historical examples. For this folly, they become paupers.

“Those who cannot remember the past are condemned to repeat it.”

What are people buying and making $ on? How does an investment in single family homes as rentals compare to multifamily dwellings?

I want to go into the real estate business with my son. The idea is to buy a couple of rentals and then see how it goes. If we work together well and make money we might want to expand. My question is how do we go about structuring the business?

I have some capital, enough to finance the purchase of the first couple of properties, my son has none. Down the road if we want to borrow money, I would look a lot better on a loan app. than him. His credit is good, but he is young and does not have a high income. My son is a hard worker, very excited to do this, and I am sure will be putting a lot more time into this venture than I will. I don’t want to give him money, I want him to earn it, but I am certainly willing to take a bit more risk with him than I would with someone else, and he is quite trustworthy. I financed his first home and he repaid me never missing a payment and refinancing as soon as he could afford it. Long term I would like him to have a good business, but until I pass on he needs to earn his piece of it.

I see a lot of issues here from taxes to liabilities to who owns what, and I am a loss as to how to begin. I know how to buy and rent properties, but not how to set up the business. I have owned a few rentals over the years, but I have never taken on a partner or incorporated or anything so this is new to me. Any suggestions as to where to start would be much appreciated.