Property investment in Florida
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Only a couple of years ago, one of the hottest property investment destinations was Florida. Always extremely popular among US and foreign (especially Brits) lifestyle buyers, thanks to its superb climate, peerless infrastructure (Disney’s flagship theme park complex being only the most famous of a plethora of world-class holiday facilities) and comparative affordability, when the US property boom moved into top gear Florida made itself one of the country’s most dynamic investment hotspots, with high capital growth spurred on by easy access to credit, ferocious investor-friendly construction and a number of tax incentives at state level.
Underpinning much of Florida’s acceleration was a different, much earlier boom: the baby boom. With some 25 million of the post-war generation (the richest national demographic group in human history) preparing to retire, Florida – long established as America’s retirement destination par excellence – anticipated the arrival of literally trillions of dollars, much of that invested into real estate, brought by new well-off immigrants from the rest of America. Add in the regular stream of buyers from outside the USA and it’s easy to see why the Floridian construction and real estate industries looked set to enjoy a period of unparalleled prosperity.
Unfortunately the US property boom has since come to a rather sickening halt and parts of the Sunshine State have been hit as hard as anywhere. The causes of the market downturn are manifold and ongoing (with the collapse of the USA’s sub-prime (high-risk) mortgage market continuing to pose problems within and beyond the property market) but the consequences have been relatively simple: price slowdowns, or in some cases decreases; a marked decline in construction rates; an increase in foreclosures; and, of course, a drop in gross sales. Work on some hitherto promising developments has been halted; some smaller builders have gone out of business; and, most worryingly of all for UK investors, appreciation has declined at a time when rising interest rates on both sides of the Atlantic have increased financing costs.
Another issue creating problems is more specific to Florida, in particular but not uniquely the key Central Florida/Orlando property market. For a long time buyers were able to pick up homes in this region at comparatively low cost and pay for financing through rental returns. It was not unusual for even 100 per cent mortgages to be covered by rental payments, such was the demand among holidaymakers – especially families - for commodious accommodation within easy reach of the Disney parks and Orlando itself. But the surge in property prices came alongside a massive increase in the number of rental homes on the market and, even more so, in Orlando’s hotel portfolio. Rental rates therefore moved extremely sluggishly as costs soared and development stretched further and further away from the entertainment complexes. It is now very rare to find a suitable property whose financing can be entirely covered through rental returns.
With all this in mind, then, is it the case that Florida is dead in the water as an investment destination? The answer is a firm “No” – but putative investors now need to be infinitely more discerning than they were only a short while ago, and need to adopt a longer-term strategy. Despite all the current doom and gloom, the fundamentals that have made Florida such an attractive destination historically remain intact. The climate (the odd hurricane aside) remains outstanding, the tourist infrastructure is without equal (especially in the vital golf sector) and visitor numbers are consistently eye-popping; more importantly, the baby-boomers are still pouring in. Just as is the case on the troubled Costa del Sol at present, the market may be sluggish but it’s still a great place to live and it’s all but unthinkable that there won’t be a significant return to form over the next few years.
But investors must now think outside what had become a rather complacent box. In the first place, the traditional archetypal British favourite of a single-family home with pool within half an hour of Disney World may still make a great holiday home but it almost certainly won’t generate the kind of returns that get investors aroused. A number of other options are currently more appetising.
“With such fantastic golf courses, condos make a good investment for rentals for bachelor-style breaks. Another recent trend is growth in commercial property where running costs are low once tenants are installed. Many businesses are relocating to Florida so this may be another option for the savvy investor,” says Valerie Davies of Feltrim International, who adds: “If you have invested in Florida treat it like running your own business. Choose a good management and rental company and make sure you keep the property in good condition for repeat business. The location is important so think about your target market when advertising.”
Smaller apartments suitable for retirees (perhaps within a designated retirement complex) could be difficult to rent out but much easier to sell, so buying off-plan for a quick sale could be extremely lucrative. Meanwhile condo-hotel (aparthotel) units in Orlando and the Miami coastal area provide high-value hassle-free ownership and a good way to tap into the short-term-stay market without the overheads and exertions of marketing an individual home.
“Condo-hotels are ideal hands-off investments,” says Brigitte Hunt of Bridgemon International Realty, “and can generate significant returns very quickly. Buyers should look for attractive units in areas frequented by high numbers of tourists, in resorts run by big-name brands with an international marketing reach.”
On a different level, affordable urban homes, particularly apartments, providing accommodation for the growing number of young professionals coming onto the state’s job market currently make excellent buy-to-lets where yields are much greater than those now able to be gleaned from single-family units – indeed, this last sector is exceptionally appealing and, if investors can make the mental transition from seeing Florida as the sunseeker’s market that it always has been, and begin to look at it (or at least its relevant zones) as an urban market like the continental European cities with which they may be more familiar, the potential rewards could be very tasty indeed.
It’s also the case that the market downturn itself has, paradoxically, created numerous new opportunities. Developers keen to shift existing inventory are now offering increasingly tempting incentives (while trying at all times not to reduce values – but what’s haggling for?); meanwhile, agents scrabbling for custom are also throwing in numerous added extras, as well as being forced in many cases to drop fees. So many Floridians jumped on the realty bandwagon during the boom, training as agents and brokers when the going was good, that there is now effectively an oversupply of property professionals in the Sunshine State and playing one off against the other – staying within the parameters of Florida’s tight regulatory framework, of course – could also yield great rewards.
Finally, oversupply in the more traditional sense can also provide investors with some pretty interesting advantages. A number of areas, such as the Tampa region on the Gulf Coast, which saw construction shoot up towards the end of the boom, are now facing a glut of properties, typically affordable high-density homes: two- or three-bedroom apartments. Without the lure of the theme parks or the cosmopolitan appeal of Miami to support values in these oversupplied areas, prices are being forced down as developers and primary investors seek either to maximise returns or minimise losses; good negotiation skills and a belief in the buyer’s market could see patient investors making great gains in these areas once the market recovers, which it most surely must in time.
The bottom line is that the heady days of the boom are over – but Florida retains its place as a sought-after destination and as one of the most populous states (and largest economies) in the Union. Those looking for the quick bucks which could be found here a few years ago will be disappointed; but for those willing and able to get in now and ride out the slump the sunshine hasn’t gone out of the Sunshine State. The great times may have gone for a while, but that doesn’t mean there aren’t good times ahead…
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First published in Homes Overseas Magazine October 2007.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.
