This is an email that I sent to my subscribers originally in 2008, its worth a re-read:
Back when the bubble burst in the Florida real estate market (2006), our office received many calls from reluctant condo and home owners that had jumped on the real estate “profit wagon” only find the wagon dropping them off at a time of unparalleled inventories and very few buyers. In short these owners had a bit of an over inventory problem themselves. They have one or even worse, two homes
extra, perhaps one in Fort Myers and one in Cape Coral. This was was back in 2007-8. ( These are the folk that has to postpone their retirement plans!)
The extra home affected each investor differently, but it effected the retirees the gravest. I am normally answered the question, “What should I do?” with little or no background on the customer or the particular holding. In order to give sound advice I really need to know about both the property AND the investor. But let review the options and the consequences as I did back then.
You have three choices: Market; Hold, or Walk Away. If you are even considering the third option I suggest you consult a good attorney first. It is not a course that I recommend.
Let’s look at my first choice – Holding. When considering a hold strategy you have to make the assumption that the market will get better at some point in the future. By better, I mean the buyers will return and prices will stabilize. Perhaps the best advice I can give you is to look at your total cost of the home. This would include the acquisition costs and well as the carrying costs of interest, maintenance, insurance, condo fees etc. less any rental income you can capture and the tax benefits of owning. Once you have a good handle on that (we can help you prepare a summary) you will then have the basis for making the hold decision or not. (We would need to know your cost of money, your tax bracket, condos fees, insurance, etc.)
The hold decision must come with some assumptions. The most important relates to timing and how long you will have to hold and what the home will be worth after that time period. How long will you have to hold may depend on how well you bought. I have said it time and time again – you make your money when you buy, not when you sell. If you bought at the peak and prices have subsequently dropped 25%, your hold period may be very long. Does the community you own in have a few hundred “like kind” properties for sale or is your holding unique with little competition? Obviously the more unique (pool view, end unit, penthouse) the better for your resale prospects.
If you want a thorough and honest review of your particular situation, contact us. If we can help you make this decision, we will. If we can’t help you we will tell you so. I would suggest that you not be get into the category of reluctant holder. Don’t bother to put your investment on the market with no hope of selling. It will only frustrate you and your agent and get your property “market tired”. If on the other hand, the analysis tells you that you will lose a certain amount of money and you should not put more money in after bad, you may need to sell.
If you do hold should you rent? The answer here depends on you and the property as well. If you are only going to rent “for a while” until the market returns; forget it. In my opinion this not worth it. Only rent if you are prepared to do so for at least a few years, you are prepared to repaint and carpet at the end of the term, and you have realistic expectations on your rental income. Unless you are on the beach or golf course – go for an annual tenant. Seasonal rentals are tough on a property, are management intensive, and it normally takes about three years to get 100% occupancy on seasonal rentals. We can help you do the analysis but leasing properties is a specialty that we do not possess.
I have been involved lately in analyzing a few large apartment complexes. We have examined absorption, percentage of occupancy, rents, and features. I have recently learned the term “shadow market”. The apartment complex industry refers to all the new condos that are being rented by individual owners as the “shadow market”. Normally the shadow market is not well organized so new residents to an area are not as likely to rent from an individual condo owner. But once the resident is established in an area they discover that they can rent a much larger home for a lower price in a condo community. The market rate for apartments is about $900 to $1200 pre month, normally about 1100 square feet. Condos can be rented in the Fort Myers area for close to that same price, and they are bigger and normally have nicer amenities. Good for the renter. Bad for you. Figure about a dollar per square foot per month. Less for larger units, more for smaller ones.
Your second option is selling your unit. You may think you have to sell it. You have no choice. You can’t afford the payments; your spouse is going to shoot you if you don’t; or you simply are going into a money pit that you will never be able to climb out of. The first thing we will do is go though the full analysis that I mention above. We will determine together if selling is the best economic option. In most cases it is not. At least not right now.
If it is the best option, you have to be slapped with the new reality. Most of the new realty has to do with price and how long it will take to sell. Being the lowest price condo in the entire community will give you a much better chance of selling than any one else – BUT IS NOT A GUARANTEE THAT IT WILL SELL. Buyers now are waiting to see if prices will go lower. There is one strategy that I have seen in this market that has the broker lowering the price by $5000 a month until the condo sells. To me this is training the buyers to wait and it is not a strategy that I recommend unless the seller is very desperate.
I do have some tips if you are going to sell. Make your condo or home the best value on the market. This may mean upgrading, painting, wall coverings, window treatments, or even furnishing. This will also mean pricing at the bottom, the very bottom, of the tier if there are many like kind units. Make your home easy to show, have your agent visit once a week to make sure the air is working and the home is presentable. Hire a cleaning company to come twice a month. List with a Realtor that pays for premium positioning on www.realtor.com and has your home on the internet (We do). List with a Realtor that knows your project, has access to the condo docs, brochures and floor plans and knows the competition. You should not have to educate your agent about your community. You have the wrong agent. Now is the time to hire an agent to really market your home and this does not mean offering less of a commission by the way. Better to pay more and get the right service that pay less and suffer the consequences.
Have your agent give you comps, like he did when you gave him the listing, every month. We are in a very volatile market and prices are changing daily. I looked at a single family home in Cape Coral last month that was priced fully $80,000 over the same home a block away – AND it was listed by the same agent. To me this is unforgivable.
You may have to pair financing with your sales price. Buy down the mortgage for your buyer, for example. Market America can help you arrange this. You may also offer to pay closing costs or over other more creative incentives (Golf memberships, etc)
The bottom line is, however, if there is no traffic and there are no buyers this means that all your incentives and lower prices are for naught.