Any investment scenarios that make sense?

[Beachgirl]

I think the only ones who should be buying into the market are folks who love the area and want to reserve their piece of the beach. This is not a suburban Dallas rental house -- cash flow is not the main reason to buy here. I have learned firsthand that even a decent rental season results in very little after all is factored in. Increased supply has actually driven many rates down. It is what it is.

If you really want to buy, then buy! Don't invest, be an end user. If you don't want it bad enough, then buy a suburban Dallas rental house and become a landlord.

If investments here (in the Internet age where everybody knows everything about everything) were cash flow positive, EVERYBODY WOULD BE BUYING HERE! If everyone wanted to buy here, then prices would go up. Prices are always going to be high for precious coastal real estate.

We have our piece of the beach and are very happy about it. Some people value different things. Those people should not buy.

And hey, if the only people who buy are end users, values are bound to go up, because no one will want to sell!

Unfortunately, some of us don't have the luxury of reserving our piece of beach without it making financial sense. Not really interested in suburban Dallas . . .

 

[TooFarTampa]

Unfortunately, some of us don't have the luxury of reserving our piece of beach without it making financial sense. Not really interested in suburban Dallas . . .

I used suburban Dallas because that's where my SIL lives, and where she and her ultra-fiscally conservative husband purchased a house and became landlords a couple of years ago. It is cash flow positive. They are happy with it.

We're not interested in that kind of thing either, but I would not equate owning a piece of the beach as always being a "luxury." It is a cash-sucking vortex, actually, but long term it is where we want to be, so we made it work. My point was just that, barring a complete rearranging of our economic system (peak oil, etc.), coastal real estate is always going to sell at a premium. If it gets to a point where you can afford what you want, and you feel the compelling need to not let the opportunity go by, by all means jump in, even if you know you won't be making a profit on it anytime soon. I do agree that watching the trends carefully is very important. Keep an eye on those 30-A Shopper Charts ?.

 

[SHELLY]

Unfortunately, some of us don't have the luxury of reserving our piece of beach without it making financial sense.

Renting a vacation place at the beach makes more financial sense than buying. If you take into account the PITI and monthly maintenance costs, utilities, HOA fees and management costs, one can rent a palace year-after-year for several weeks in the summer (and much longer in the off-season) for much less that it would cost to purchase a 1/1 condo box. (Just for starters: 400K w/20% down--that's 80K off the bat, 30 year @6% fix =$1870 per month PI +$300-400 monthly HOA + Taxes + Utilities)

Renting also gives you the flexibility to take your cash and go to another area of the US, or the world, if you choose--and never worry about hurricane season.


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[AAbsolute]

John....how big a house could be build for 500k on that lot in Bridges ?

I already posted a couple weeks ago that we are not looking for custom home jobs at this time. We have had 5 customer jobs go into 1 form or another of mortgage loss mitigation in the past year and I'll stick to building homes that we own for sale.

There are more builder's than just us who would build you a home in Watersound for 500,000. They are hungry for your business. This is what I will do when our next home sale is finalized if someone doesn't pick up this opportunity first.

Buy lot 2, Watersound Bridges lakefront for + or - 499,000. Build a 2 story, 2500 square foot 4 bed/4 bath. I'd put the living upstairs. You can see the beach and the lake from standing on the ground. I'd put a screened dining porch on the 2nd floor SouthWest with a wood burning fireplace. I'd put the living on the SouthEast 2nd floor with a wall of glass. I'd locate a wide open kitchen behind the living. You can't build a Tower on that lot per the Patterns Book. Maybe the house would be an amplified version of the Cooper Robertson plan that JOE gave us for Watersound West Beach. You can put in your kayak in your backyard from a boardwalk.

The only thing blocking your unobstructed view of the beach is a coastal dune lake. I boomed up on the lot with my bucket truck and took extensive panoramic photo's. Camp Creek Point to The Crossing's condo's is the view corridor. The only home for sale on that row is someone we all know well with a similar home for 3.5.

SkeetSkeet, please remember this day in 2 years and tell me if I was incorrect. A person can be all in for 1,000,000. By the way, that 40% was 40% on total project cost, not 40% on down payment for those of you who play margin. I'm not that bold. Keep it simple.

 

[Pirate]

I'm curious, was the net rental income 49K on average, or is that a peak in income? I've heard of numbers like this, but it's usually a one time "great year" number, not the average.

I bought it in November 2006, so that was the first 12 months number. It loks like it is going to do a tick over 50k for the second 12 months. Other properties I have usually ramped up after the first year but this one ran out of weeks in the year.

www.vrbo.com/114195

 

[Pirate]

I'm just curious if that factors in utilities, maintenance, and long term maintenance?

It does. No mortgage of course but you can do those numbers many different ways to check cash flow.

 

[ClintClint]

AAbsolute, my point stated inarticulately, was intended for the person not as familiar with real estate as they should be---- and not directed at you per se. Anyone that infers a 40% return and says they would buy it themselves but conveniently can't for one reason or another, is stretching credibility. I hope it works for the buyer, but I wonder if the previous 5 customers who are in morgage loss mitigation expected the same kind of return. I hope that the "desperation" on the part of builders that you stated exists, doesn't drive them to raise unrealistic expectations in the consumer.

 

[30ashopper]

It does. No mortgage of course but you can do those numbers many different ways to check cash flow.

Pirate, you mentioned you felt gulf front was key, is it your feeling anything that is not gulf front couldn't be cash flow positive? Say north of 30-A in Rosemary or Seacrest (for comparison sake, assume the same purchase price / carry costs)?

 

[AAbsolute]

AAbsolute, my point stated inarticulately, was intended for the person not as familiar with real estate as they should be---- and not directed at you per se. Anyone that infers a 40% return and says they would buy it themselves but conveniently can't for one reason or another, is stretching credibility. I hope it works for the buyer, but I wonder if the previous 5 customers who are in morgage loss mitigation expected the same kind of return. I hope that the "desperation" on the part of builders that you stated exists, doesn't drive them to raise unrealistic expectations in the consumer.

In each case that I sited of mortgage loss mitigation the borrowers were extremely upside down before they ever contacted us. Example: 950,000 lot purchase and encumbrance on property valued at 350,000. Lot purchase and encumbrance 575,000 on property valued at 250,000. Lot purchase and encumbrance 850,000 on property valued at 325,000 etc.

At least 1 party had an interest reserve during construction that when it was depleted they simply made no payments of their own. Meanwhile the lender felt they had no fiduciary duty to us to inform that the loan was in default and this individual felt it best to not inform us either. We obtained CO, couldn't get our final payment and had to write a check for 6 months payments and obtain the homeowners policy to get the property back out of default. The alternative was to be in second position behind a terrible mortgage encumbrance. These (consumers) knew exactly what they were doing. Roll the dice with someone elses money.

As for builders current pricing, if a party knows exactly what they want in a home before they start and will clear the way, there are numerous builders who would take a job in Watercolor or Watersound for 200 per sq. ft. I talked to an Architect the other day who told me he had a home built for less in Watercolor.

 

[Pirate]

Pirate, you mentioned you felt gulf front was key, is it your feeling anything that is not gulf front couldn't be cash flow positive? Say north of 30-A in Rosemary or Seacrest (for comparison sake, assume the same purchase price / carry costs)?

I sure wouldn't say that, but in my experience gulf front rents substantially better than anything else in dollar amount and number of weeks. The number of rental weeks almost seems to directly correlate to distance from the beach. Rosemary and Seaside may be exceptions to this, but nothing in those areas has a chance of cash flowing. Smaller properties book all year and larger properties only book seasonally. I think another key is keeping your place very, very nice. If your place is a little nicer than the one next door it will always book first and people are happy to pay a little extra for a well kept rental.

As a rental investment I would prefer a 2 bedroom gulf front condo in Seacrest to a 4 bedroom house at the back of Rosemary. I am sure there are some rental agents here that would give their opinion.