Will we ever get tired of hearing that real estate prices are falling? Not really, especially if you are looking to take your cash and jump into the landlord game. Need to finance your investment? Then the condo game in Florida may not be worth your while.
In this new environment where the sales of single family homes are dictated by short sales and foreclosures, market values have taken a total beating. Across the U.S. condominium prices fell nearly a quarter (24.8%) as reported by The Wall Street Journal. Condominium sales are rebounding in cities like New York and Miami where foreign, cash buyers are purchasing these properties in droves.
But are condominiums a good investment?
It depends. Investors look to maximize the return on their investment, from the onset. Regardless of the length of time that an asset (like real estate) is held, investors need their investment to “yield” (commonly known as a capitalization rate: net operating income /sales price) of at least 5-6% annually. In the heyday I knew of conglomerates passing on deals that did not result in yields of at least 8% annually! The tide has certainly turned. The supply of available condos has increased at crippling speeds and demand has waned due to the “new” static and dreary economic environment. The result; yields have suffered, and dollars are chasing investments that can simply cover costs.
In Naples, where demand for condos is split between seasonal and annual renters, finding a true investment opportunity can be tricky, but not impossible. As of November 1, 2010 there were 434 condos and villas available for sale under $100,000. Demand for quality residential accommodations during the blissful months of January to April is alive and well, as indicators point to increased numbers of domestic and international visitors arriving ahead of last years’ schedule. Landlords have a variety of on-line options for connecting with renters, websites such as vbro.com and homeaway.com have proven to be beneficial as visitors can view property images, maps and read past reviews.
The challenge becomes locating a property to purchase for cash in an ideal location which requires minimum renovations. To ensure you achieve the “yield” you seek, a cash flow model of the property is essential; research the neighborhood, rental rates, vacancy rates, calculate annual revenues, and itemizes costs such as maintenance, taxes and utilities. A beach front condo may rent out every day of the year but if the taxes and HOA fees don’t cover the rental payments, you may be paying people to live there. With this type of negative cash flow, your “investment” is really a money pit.
Select a property based on the rental opportunities that currently exists. Purchase a property only when the cash flow meets your investment return requirements. Don’t buy on what may happen, instead buy based on what is actually occurring today!
For a detailed consultation identifying lucrative residential investment in today’s market in Naples, Florida contact us : Enquiries@NaplesMeridian.com