Why Real Estate Investing Makes Dollars and Sense.

Why Invest In Real Estate?

One of the basic principles of real estate investment lies in this fact: everyone needs a place to live. But there are other reasons why real estate is a great investment choice:

1. Appreciation 

Appreciation is the increase in your property’s value over time. History has proven that over an extended period of time, the value of real estate continues to rise. That doesn’t mean recessions won’t occur. The real estate market is cyclical, and market ups and downs are natural. However, in the vast majority of markets, the value of real estate does grow over the long term. 

2. Hedge Against Inflation 

Inflation is the rate at which the general cost of goods and services rises. As inflation rises, prices go up. So the money you have in your bank account is essentially worth less because your purchasing power has decreased. Luckily, real estate prices also rise when inflation increases. That means any money you have invested in real estate will rise with (or often exceed) the rate of inflation. 

3. Cash Flow 

One of the big benefits of investing in real estate over the stock market is its ability to provide a monthly cash flow. If you choose to rent out your investment property to a tenant, you can expect to receive a rent payment each month. If you’ve invested wisely, the rent should cover your debt (i.e. mortgage payment), as well as any repairs and maintenance that are needed. Ideally, you will have some additional cash left over each month to supplement your income. 

4. Leverage 

Leverage is the use of borrowed capital to increase the potential return of an investment. That means you can put a small amount down, take out a mortgage to finance the remainder of your investment, and profit on the entire combined value. That’s the power of leverage! 

5. Tax Advantages 

One of the top reasons to invest in real estate is the tax benefit. There are many ways a real estate investment can save you money each year on taxes. Be sure to consult a tax professional, but if structured correctly, the profits you earn on your real estate investments can be largely shielded from liability. Just another reason to choose real estate as your preferred investment vehicle.

Types of Real Estate Invesments

While there are numerous ways to invest in real estate, here are the top three methods we’ve helped our clients use to start making money as investors:

1. Remodel and Resell 

Commonly referred to as a “Fix and Flip,” investors purchase a property with the intention of remodeling it in a short period of time, with the hope of selling it quickly for a profit. Investors need to understand the risks involved and be prepared financially to cover additional expenses that may arise. 

2. Traditional Rental 

One of the more conservative choices for investing in real estate is to purchase a rental property. The appeal of a rental property is that you can generate cash flow to cover the expenses, while taking advantage of the property’s long-term appreciation in value, and the tax benefits of investing in real estate. It’s a win-win, and a great way for first-time investors to get started. 

3. Short-term Rental 

Platforms that facilitate short-term rentals, like Airbnb and HomeAway, are booming. Their popularity has spurred a growing trend toward dual-purpose vacation homes, which owners use themselves part of the year, and rent out the remainder of the time. There are also a growing number of investors purchasing single-family homes for the sole purpose of leasing them on these sites. 

Texas 5th Cir. Federal court says FHFA structure unconstitutional

July 23, 2018 – A federal appeals court in Texas ruled that the leadership structure of the Federal Housing Finance Agency (FHFA) – the caretakers of Fannie Mae and Freddie Mac – is unconstitutional.

The U.S. Court of Appeals for the Fifth Circuit in Texas agreed with shareholders that the FHFA was “unconstitutionally insulated from executive control” with its single-director structure. The director cannot be removed by the president except for cause. If the court’s decision is upheld, the FHFA’s actions could be rendered void, American Banker reports.

“We hold that Congress insulated the FHFA to the point where the executive branch cannot control the FHFA or hold it accountable,” appeals court judges wrote in the opinion.

Unlike other federal agencies, the FHFA does not have a bipartisan commission, which helps to insulate it from executive oversight, the judges said. The court called for a change in the law to allow for the president to remove the director at will.

The lawsuit was brought by Fannie and Freddie shareholders, who also raised concerns that the U.S. Treasury took 100 percent of the profits from the two government-sponsored entities rather than a 10 percent dividend. The court, however, rejected that complaint and validated the agreement that requires Fannie and Freddie to continue to deliver nearly all of their profits to the Treasury Department.

The FHFA has yet to comment publicly on the case.

Courts across the country continue to focus on appropriate checks on independent regulators. In less than a year, a federal court has ruled twice that the Consumer Financial Protection Bureau (CFPB) isn’t constitutionally structured, also citing its single-director format.

Source: “FHFA Leadership Structure Is Unconstitutional: Judges,” American Banker (July 17, 2018) and “Government Caretaker of Fannie and Freddie Is Unconstitutional, Federal Court Rules,” Washington Examiner (July 17, 2018)

Foreclosures down 78% since 2010 peak

July 13, 2018 – ATTOM Data Solutions’ Midyear 2018 U.S. Foreclosure Market Report found a total of 362,275 U.S. properties with foreclosure filings – default notices, scheduled auctions or bank repossessions – in the first six months of 2018.

That number is down 15 percent year-to-year and down 78 percent from its recession-era foreclosure peak in the first six months of 2010.

Unlike earlier years, Florida is barely mentioned in ATTOM’s latest report. While its foreclosure rate remains No. 4 nationwide (0.37 percent), the top three states are now South Carolina (0.39 percent), Ohio (0.37 percent) and Nevada (0.37 percent).

In a look at metro areas, Miami is mentioned only because its foreclosure activity has dropped 55 percent below pre-recession averages – but 55 percent of the metro areas studied have also seen their foreclosure activity drop to a level below the “normal” level they had before the recession.

Florida does, however, continue to rank high for the number of days it takes for a home to go through the foreclosure process, ranking second nationwide. States with the longest average foreclosure timelines for foreclosures completed in the second quarter were Hawaii (1,553 days), Florida (1,166 days), New Jersey (1,161 days), Utah (1,108 days) and Indiana (1,054 days).

A handful of U.S. metro areas (12 percent) saw an increase in foreclosure activity rather than a decrease, however – but none of note in Florida. They include Houston (up 10 percent), Dallas-Fort Worth (up 11 percent), Cleveland (up 4 percent), Phoenix (up 5 percent) and Indianapolis (up 2 percent).

© 2018 Florida Realtors®

Pending sales inch 0.5% lower in May

June 27, 2018 – Pending home sales decreased modestly in May and have now fallen on an annualized basis for the fifth straight month, according to the National Association of Realtors® (NAR). A larger drop in contract activity in the South offset gains in the Northeast, Midwest and West.

The Pending Home Sales Index (PHSI) – a forward-looking indicator based on contract signings – decreased 0.5 percent to 105.9 in May from 106.4 in April.

Lawrence Yun, NAR chief economist, says this year’s spring buying season will go down as one of unmet expectations.

“Pending home sales underperformed once again in May, declining for the second straight month and coming in at the second lowest level over the past year,” Yun says. “Realtors in most of the country continue to describe their markets as highly competitive and fast moving – but without enough new and existing inventory for sale, activity has essentially stalled.”

The problem, Yun says, is largely a supply issue and not due to a lack of buyer demand.

If the recent activity slowdown was due to waningbuyer interest, price growth would start slowing, inventory would begin rising and homes would stay on the market longer, according to Yun. Instead, the underlying closing data in May showed that home price gains are still outpacing income growth, inventory declined on an annual basis for the 36th consecutive month, and listings typically went under contract in just over three weeks.

“With the cost of buying a home getting more expensive, it’s clear the summer months will be a true test for the housing market,” says Yun. “One encouraging sign has been the increase in new home construction to a 10-year high. Several would-be buyers this spring were kept out of the market because of supply and affordability constraints. The healthy economy and job market should keep many of them actively looking to buy, and any rise in inventory would certainly help them find a home.”

Citizens reopens more than a third of Hurricane Irma claims

TALLAHASSEE, Fla. – April 2, 2018 – More than a third of Hurricane Irma claims filed by customers of state-run Citizens Property Insurance Corp. have been reopened, the company said Wednesday.

More than 24,500 of 66,400 claims – about 37 percent – have been reopened at some point since the September hurricane for additional payments and to allow policyholders or their representatives to provide additional information related to their claims, Citizens said in a news release.

So far, Citizens has paid out $604 million to policyholders, and 54 percent of claims filed with Citizens have been closed with payments. These are among the claims that have been reopened, Citizens spokesman Michael Peltier said.

Claims that remain open are likely to have extensive damage, are the subject of disputes over repair costs, or are still awaiting a contractor’s repair estimates, the release said.

Across Florida, Hurricane Irma has so far generated 900,228 claims to all insurance carriers, according to the state Office of Insurance Regulation. Of those, 479,673 have been closed with payments and 293,229 were closed with no payment, primarily because the damage value did not exceed policyholders’ hurricane deductibles. About 14 percent of all claims remain open.

Total value of insured Irma losses is estimated at $7.9 billion.

“We want to reinforce to people that what we have provided them is an estimate, and that estimates may change as repairs begin,” said Jay Adams, Citizens’ chief of claims. “The initial estimate and payment does not necessarily mean your claim has been concluded.”

The company issued initial payments immediately after the storm to policyholders whose losses exceeded their hurricane deductibles, the release said, adding those initial payments were based on the actual cash value of damages caused by the storm. Additional payments to cover replacement costs are paid as repairs get underway, Citizens said.

Supplemental payments are available when additional Irma-related damage is discovered as repairs are made, or if the cost of labor or materials to make repairs has increased since the initial estimates.

“As repairs begin, policyholders should contact Citizens before beginning repairs for damages not included in our initial estimate, or if the contractor gives a higher figure for the repairs described in the initial estimate,” the release stated.

Citizens’ representatives can be reached to answer questions and address concerns by calling the Citizens Claims Resolution Unit at 866-411-2742, ext. 7794, or by emailing ResolutionUnit@citizensfla.com.

Copyright © 2018, The St. Augustine Record, Ron Hurtibise. All rights reserved.

Mortgage rates up for 8th week; 30yr now at 4.43%

March 2, 2018 – Long-term U.S. mortgage rates crept higher this week, marking the eighth straight week that it cost more to borrow to buy a home.

Mortgage buyer Freddie Mac said Thursday that the average rate on 30-year fixed-rate mortgages rose to 4.43 percent this week from 4.40 percent last week. The new average for the benchmark rate is the highest since January 2014. The 30-year rate stood at 4.10 percent a year ago.

Mortgage rates have risen steadily in January and February, as interest rates generally have increased in response to higher levels of government debt and expectations of rising inflation. In addition to discouraging potential home buyers, rising rates also may prompt potential sellers to hold on to their homes, which are financed through lower interest rates.

Testimony to Congress on Tuesday by the new Federal Reserve chairman, Jerome Powell, conveyed optimism about the economy’s strength and held to the Fed’s projection of three hikes this year in its key policy rate. Many private economists say they now expect the central bank to boost rates four times this year rather than three.

Home affordability has become increasingly problematic for a growing number of would-be buyers. The recent jump in mortgage rates has increased their monthly costs, limiting how much they can pay for a house. Average home price increases are eclipsing wage growth. And the shrinking number of homes for sale is leaving more of these potential buyers dismayed at not being able to find a property that works for them.

The pace of Americans signing contracts to buy homes fell 4.7 percent in January to its lowest level in more than three years, due to a lack of homes for sale, higher prices and rising mortgage rates, the National Association of Realtors reported Wednesday.

The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. The fees on 30-year and 15-year fixed-rate loans were 0.5 percent, unchanged from last week. Fees for five-year adjustable mortgages also held steady, at 0.4 percent.

More states want to be exempted from drilling

WASHINGTON – Jan. 11, 2018 – Coastal states opposed to drilling off their shorelines clamored to be excluded from the Trump administration’s massive oil and gas expansion plan less than a day after Interior Secretary Ryan Zinke announced he would exempt Florida because of its “unique” status.

The “us, too” chorus included officials from California, Delaware, New York, Oregon, New Jersey, Virginia and Washington who are eager to make their case to Zinke like Florida GOP Gov. Rick Scott did in a face-to-face meeting Tuesday in Tallahassee.

“We’d like a word,” Democratic Gov.-elect Ralph Northam of Virginia tweeted.

“I’m going to request a meeting with SecretaryZinke to discuss the Trump Administration’s offshore drilling plan – and the risks that offshore drilling pose to #Delaware, the state’s natural resources, and our tourism economy,” John Carney, the Democratic governor of Delaware, chimed in on Twitter.

“New York doesn’t want drilling off our coast either,” Democratic Gov. Andrew Cuomo tweeted. “Where do we sign up for a waiver SecretaryZinke?”

Zinke announced last week that he proposed opening 90 percent of the Outer Continental Shelf off the U.S. coast – including Florida – to oil and gas exploration in the largest single expansion of offshore drilling activity.

The drilling plan, covering 2019 to 2024, includes 47 potential lease sales in 25 of the 26 areas identified as potential drilling regions: 19 sales off the coast of Alaska, seven in the Pacific region, 12 in the Gulf of Mexico, and nine in the Atlantic region.

Zinke called it a starting point and said the process to come up with a final list “will take months,” involving public hearings and meetings with stakeholders. The secretary said his agency would work with states and members of Congress who represent coastal communities to allay concerns.

He moved quickly on Florida after pushback from a number of state officials, including Scott, a Trump confidant and likely Senate candidate this year, who said he would oppose drilling off Florida’s coasts where tourism and coastal military installations are important to the state’s economy.

After flying to Tallahassee to see the governor whom he praised as “a straightforward leader that can be trusted,” Zinke announced he removed Florida from consideration because Scott convinced him “Florida is unique, and its coasts are heavily reliant on tourism as an economic driver.”

That spurred a pitch from Democratic Attorney General Xavier Becerra of California, who tweeted that his state also is “unique” and relies heavily on beach tourism.

Heather Swift, a spokeswoman for Zinke, said the secretary is willing to listen to other governors – and frequently does on a host of agency-related issues.

Copyright © 2018, USATODAY

NAR says Senate tax package ‘bad news for homeowners’

WASHINGTON – Dec. 4, 2017 – The U.S. Senate passed tax reform legislation over the weekend that the National Association of Realtors® (NAR) believes puts home values at risk and dramatically undercuts the incentive to own a home.

NAR President Elizabeth Mendenhall offered strong concerns over the bill and said Realtors will continue to work with members of the House and Senate as the process moves forward into a conference committee to reconcile differences between the two versions of the bills.

“The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country,” says Mendenhall. “When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas.”

Speaking for NAR, Mendenhall says that Realtors favor tax cuts done “in a fiscally responsible way,” and that current efforts in Congress produce some winners. But “millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase. In exchange for that, they’ll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.

“That’s a poor foot to put forward, but this isn’t the end of the road,” she adds. “Realtors will continue to advocate for homeownership and hope members of the House and Senate will listen to the concerns of America’s 75 million homeowners as the tax reform discussion continues.”

© 2017 Florida Realtors

How FCC plan to end net neutrality is the wrong thing to do.

Nov. 22, 2017 – The Federal Communications Commission released a plan Tuesday to reverse net neutrality rules, a move that the National Association of Realtors® is concerned will make it harder for real estate companies, multiple listing services and property data aggregators to provide their services in a cost-effective way.

“We are looking carefully at the FCC’s plan to reverse net neutrality, which has been an effective and proven way to ensure a level playing field for businesses that depend on a neutral online playing field,” NAR President Elizabeth Mendenhall said in a statement. Small and large players in the real estate industry could be affected if internet service providers such as Comcast and Verizon create fast and slow lanes of web traffic based on financial arrangements they’ve made with content providers.

NAR is part of a coalition of business interests that support existing net neutrality rules as the most fair and competitive form of internet regulation. Current rules prohibit internet service providers from throttling or slowing web traffic to some sites while giving faster services to other sites that have entered into financial arrangements with them. The FCC is expected to vote on the plan – which was proposed by its chairman, Ajit Pai – in mid-December. Should the commission vote to reverse current rules, proponents of net neutrality are expected to sue.

NAR sent comments to the FCC in July urging it to maintain net neutrality.

“NAR supports open internet rules that protect American businesses and consumers by preventing Internet Service Providers (ISPs) not only from blocking, throttling, or discriminating against internet traffic and prohibit paid prioritization arrangements, but also interconnection issues and other anti-competitive practices,” NAR said in its comments.

Source: Robert Freedman, Realtor® Magazine

Fla. claims for Irma damage top $5 billion

TALLAHASSEE, Fla. – Oct. 24, 2017 – Six weeks after Hurricane Irma ripped through Florida, claims for damage have now topped $5 billion.

More than 23,160 property owners in Southwest Florida have filed claims for insured losses from Irma, according to an updated report Monday from the state Office of Insurance Regulation. That is 700 claims added since last week from Sarasota, Manatee and Charlotte counties.

The state agency said 772,934 owners of residential and commercial properties statewide had submitted claims to insurers as of the end of last week.

Total losses have now climbed to $5.31 billion, up by $740,000 from the previous week.

Homeowners account for 66 percent of the claims so far, the agency said. Another 11 percent come from other residential properties and 6 percent were filed by owners of manufactured homes.

Those claims do not include flood damage, which is not covered by homeowners’ insurance. Data analyzer CoreLogic has said flood losses in Florida and elsewhere could hit $38 billion, and up to 80 percent of the damaged homes might not have flood coverage.

The combined destruction of property from Irma and Hurricane Harvey, which struck Texas in late August, could range from $150 billion to $200 billion, according to a preliminary estimate from Moody’s Analytics. Moody’s said the U.S. could suffer an additional $20 billion to $30 billion in lost economic output from the two storms.

More than 40 percent of the damage claims from Southwest Florida have been closed, although nearly half of the closed claims were rejected for payment.

In Sarasota, 9,536 property owners had filed claims in the latest report. Some 1,929 have been paid and 2,061 were closed but not paid.

Manatee reported 7,302 claims, with 1,808 paid and 1,415 closed without payment.

A total of 6,323 claims came from Charlotte, with 1,297 paid and 1,162 closed without payment.

The three counties account for about 3 percent of the total Florida damage claims filed with insurers, the agency said.

Miami-Dade County reported the most claims, followed by Orange, Broward, Lee and Collier counties.

© 2017 Sarasota Herald-Tribune, Fla., John Hielscher. Distributed by Tribune Content Agency, LLC.