Rental Restrictions Follow-up

As a follow-up to conversations I had with a couple of prospective condo buyers this week, I'm going to repost an article below that I wrote in 2009 about rental restrictions in condos and how they affect an owner's use of the property and her potential income. It is just as relevant now as it was when I wrote it twelve years ago. 

How about that moonrise Friday night? As seen in south Cocoa Beach (left). ___________________________

In this post I'm going to address an often-overlooked, yet very important issue that condo buyers need to understand before they begin their search for the perfect condo at the beach. If you're already a client, you know the drill and have heard the sermon, so, you can just skip to the quote.

In addition to amenities, view, association health, building condition, parking and all the other items that a condo purchaser should review, a prudent buyer also needs to understand the implications of rental restrictions and how they will affect his use and cost of ownership. Cocoa Beach and Cape Canaveral condominiums evolved in a different direction than many coastal Florida communities with the vast majority of condos here restricting rentals to a minimum of at least one month and ranging up to 12 months. The number of ocean complexes allowing weekly rentals in Cocoa Beach and Cape Canaveral is only about a dozen. The rental habits of our visitors makes these particular complexes the overwhelming best choice for owners who want the most flexibility for mixing personal use with income or for investors who want the maximum income possibility.

We have two distinct visitor seasons here, snowbirds in the cold months and vacationers in the summer. Our snowbird visitors typically stay for periods from a month to several months. Our summer guests are predominantly one-week vacationers. For condo owners in a 3-month minimum rental building, chances are high for finding a renter for three months or more in the January through April period, but finding a 3-month renter during the rest of the year can be difficult if not impossible. An owner of a weekly rental can usually count on renters during the entire year although much slower in the Labor Day to Christmas period. For owners of units with a six month or longer minimum, the choice is usually between a long-term tenant, which takes away the personal use option, or not renting at all to leave it open for personal use, which takes away all income.

For those not wanting or needing income, complexes that have longer rental periods may be preferable as they are typically quieter with more permanent residents and less visitors and the facilities like pools and tennis courts are less crowded.

If you're looking for a condo, determine in advance what your needs are for income and/or personal use and narrow your search to those complexes that match rather than finding out after purchasing that your plan of having a great beach getaway that also spins off a little income isn't realistic. If your buyer's agent hasn't asked you about your needs in regard to use and income or hasn't briefed you on the implications, fire her immediately. Why work with Eliza Doolittle when you can have Marie Curie?

You know, it occurs to me that the best way you hurt rich people is by turning them into poor people. ___Billy Ray Valentine

Depletion Impending

 

That didn't take very long. This morning we have a total of 107 existing residential properties listed for sale in the Cocoa Beach and Cape Canaveral MLS. Ninety of those are condo or townhouse units and 17 are single family homes. Median price of available condos is $339,000 and buyers looking for a single family home in our two cities for less than $500,000 have three from which to choose. Fifteen homes have closed since January 1. I have no idea how this rapidly worsening inventory crunch will resolve itself but the immediate effect is rising prices. 

Cocoa Beach residents age 65 or above are able to receive a Covid vaccination at one of the Publix supermarket in Cocoa Beach with an advance appointment. Appointment reservations are usually available at 7 AM Mondays, Wednesdays and Fridays at this website. The website will refresh every 60 seconds until a position is available at which point a screen will appear asking for information. Medicare recipients will need their Medicare number which is on the red, white and blue Medicare card. It may take several tries as Brevard County only has a couple of thousand doses available on each day. Good luck.

"The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality."  __JFK

Approaching 100 - The Long Decline

Today the MLS inventory of condos and townhouse units for sale in Cocoa Beach and Cape Canaveral will likely hit 100 total units. The decline from 1200 units in May of 2006 to 100 today has been relentless. The flush of sales that began in late 2006 had the supply down to 500 units by 2010 and below 250 by 2015. The decline never slowed. The story for the single family home market has paralleled that of condos and we have a grand total of 20 existing homes for sale today in the two cities, only three of those asking less than a half million dollars.

What does this mean for the 2021 real estate market in Cocoa Beach and Cape Canaveral? At the current rate of sales the single family inventory will be gone in less than 60 days and the condo supply will last 48. We will add supply with new listings but unless the trend reverses, new listings will continue to lag sales. With this type of supply and demand imbalance, lacking some currently-unknown macro issue, prices will continue to climb. Those hoping to purchase can expect multiple offers on desirable, fairly-priced new listings. Know that sellers are taking advantage of the market conditions to swing for the fence with almost all new listings asking well above fair market value, some of them ridiculously so. Buyers should consider the possibility that they may have to overpay for a desirable property. It's an unfortunate situation but one that can't be ignored. There are buyers in our market who have been looking for years but who have been unsuccessful in their search because they can't bring themselves to pay current fair value because it is higher than when they began their search. Those who pinched their nose and overpaid last year have been vindicated as market value caught up with their, at the time, too-high purchase price. 

In the last sixty days about half of all transactions were cash deals and a third of all listings sold in less than two weeks on the market. The fast and flexible buyers are winning. Those hoping to purchase a condo here who plan to use a mortgage need to talk to their lender before starting the search. The down payment requirement may be higher than anticipated. A low down payment condo loan will eliminate many condos from consideration as some won't satisfy lender requirements. As always, be prepared with finances first and know enough about our current market to be able to estimate fair value. Identify the target property type as closely as possible and be prepared to move quickly once a target has been acquired. Decide before the search begins what criteria are non-negotiable; if you must have a garage, if you'll be bringing a pet with you, if rental restrictions matter, the type of view you must have and if a particular location within our two cities is off-limits. Prepared and informed buyers will continue to be successful in this difficult market. Best of luck in your search.

Melbourne aircraft company, Alerion, is to begin production of a supersonic passenger jet at their new Melbourne facility. 

"A Covid test nurse asked if I've had a sudden loss of taste.  I told her, "No, I've dressed like this for quite a while." __Ruth Buzzi

The Demand Is Increasing

Roseate spoonbill, snowy egret and wood stork in Cocoa Beach

We begin 2021 with a record low inventory of residential properties for sale in Cocoa Beach and Cape Canaveral. There are a total of 108 MLS-listed condo and townhome units for sale in our two cities. That's exactly the number of units closed in the last 55 days with over half of those sold in less than a month..

Single family home inventory is equally depleted with a total of 23 existing homes for sale on the MLS. We closed that many homes in the last 52 days.

Despite low and declining inventory throughout the year, 2020 saw a remarkable number of sold properties. There were 209 single family homes closed in Cocoa Beach and Cape Canaveral during the year. A quarter of those sold in their first week on the market, most with multiple offers. Over half the sold homes sold in less than a month on the market and only 13 closed for less than $300,000. Top price of the year was $2.3 MM for a direct ocean 3 year old beauty in downtown Cocoa Beach.

The story was much the same with condos with 730 units closed during the year, half of them selling in 35 days or less. Seventy five units sold for more than a half million dollars with the top price of 2020 being $1.6 MM for a 7th floor penthouse unit at Ocean Oasis downtown Cocoa Beach. Only 43 units out of the 730 closed for less than $100,000.

About a third of the existing inventory has been on the market for over 100 days, a sure sign of over-pricing in this fast-paced market. Those of you hoping to purchase in 2021 need, more than ever, to have your ducks in a row and have a good idea what you're looking for. If your competition is more prepared they will have an advantage when the perfect property hits the market. The time to talk to a lender is before you start looking at properties. You will be at a disadvantage to those who are paying with cash so make the other terms of your offer as attractive as possible if you must get a mortgage. An experienced buyer's agent in our market is another huge advantage. Your cousin who is an agent in a nearby town is probably not your best choice for a Cocoa Beach property search. She may be perfectly experienced with contract particulars but lack of local knowledge will put her at a disadvantage against local agents in our competitive market.

While we're talking about agents, people, please stop letting your agents pick your pockets with transaction fees. The title company is entitled to a transaction fee but I have yet to see a situation where an agent deserved a transaction fee on top of his commission. I closed a deal a couple of weeks ago with an agent who did the bare minimum during the transaction and still had the audacity to charge his client a $395 junk "transaction" fee on top of the commission they were already paying him. It's not an accident that the agents who rob their clients with transaction fees are often those who are the slackest. That was my experience again in 2020 as it has been my entire career. DO NOT PAY transaction fees to your agent. They are usually being handsomely compensated with commission and don't deserve a transaction fee or whatever else they may call it. Except in rare circumstances, an agent charging a transaction fee is not acting in the client's best interest.

"We've heard that a million monkeys at a million keyboards could produce the complete works of Shakespeare; now, thanks to the Internet, we know that is not true." _Robert Wilensky

Into the Home Stretch

We began 2020 with a record low inventory in Cocoa Beach and Cape Canaveral. There were 185 existing condo and townhouse units listed for sale in our two cities on January 1, 2020. It seemed we couldn't go any lower at the time yet we've dropped by a third since then. The total this morning is 120. We have closed that many units in the last 52 days. Even with our depleted inventory, closed sales have not declined by any significant amount. This has only been possible by new inventory appearing at almost the rate of sales. At our current rate of decline, we will be below 100 total units for sale by the end of January. 

Single family home inventory is equally scarce. Someone looking to purchase a single-family home in Cocoa Beach or Cape Canaveral has 22 existing homes to consider. We have closed 199 homes since January 1 making current inventory enough to get us to about the middle of January.

The tight supply has continued to push prices higher with multiple offers being the norm for any new listing that is priced remotely close to fair value. Appraisals are a crap shoot. People are willing to pay more for desirable properties than appraisers are able to justify in many cases. Because of this, cash offers are even more attractive than ever. A contract contingent upon a mortgage could leave a seller faced with having to either cancel or renegotiate the contract price late in the process.

Those looking to purchase should keep in mind that there is competition for every property type and much of that competition has the advantage of having already lost out on a previous listing. Those one-strike buyers are being aggressive with their offers with both terms and price. A potential buyer hoping to find a "deal" is living in the past. The time to bottom fish was ten years ago. The 698 condo buyers who purchased already in 2020 paid fair or above market value. That is an unfortunate condition of the 2020 real estate market in our area but one that any prospective buyer needs to come to terms with. Best of luck to those looking. There are attractive properties available, just not as many as we have been used to in years past.

"Just because you lost me as a friend doesn't mean you gained me as an enemy. I'm bigger than that, I still wanna see you eat, just not at my table." —Tupac Shakur

We Salute You

 Veteran's Day Nov. 11, 2020 and a heartfelt thanks to all who serve and have served.

We now begin the broken record report of current market conditions.

Our single family home inventory is down to 19 existing homes for sale in Cocoa Beach and Cape Canaveral. Only three of those are asking less than $500,000. A third of them are in the sweet spot between $500,000 and $600,000. Consider that 23 homes closed in the month of October over half at prices below $500,000. The lower priced inventory has been almost completely absorbed.

Condo and townhouse inventory is at 127 existing units at the moment, up slightly from my last post. Over half that number, 64 units, closed in the month of October with the bulk in the price range between $250,000 and $400,000. Sales are brisk with 26 units going under contract in just the first ten days of November. At this rate, we are likely to enter 2021 with an even more depleted and critically low inventory. Buyers, my advice to move quickly and offer aggressively has never been truer than right now. The timid and the bargain hunters will not be successful in this market. Cash rules. Those planning to get a mortgage are at a significant disadvantage to the cash buyers as are those with other contingencies complicating their offers. The cleaner one can make their offer, the better it's chances of succeeding. Those getting a mortgage need to talk to a lender, preferably local, before starting the search.

The wind has been blowing hard onshore for several weeks without a break. Everything within a couple blocks of the ocean is coated in salt. My late season chili peppers are toast. The AC industry must love these conditions. We woke up this morning to see that tropical storm Eta had changed course and is now projected to closely brush us as it crosses the state from the Gulf. Hopefully the wind pattern will change after the passage and we can wash everything down.

Our second manned mission from SpaceX is scheduled for this Saturday aboard the Crew Dragon spacecraft, destination; the International Space Station. Godspeed to our brave astronauts.

"Working under close supervision from ground controllers more than 200 million miles away, the robotic arm on NASA’s OSIRIS-REx spacecraft has begun placing specimens collected from an asteroid last week into a return capsule to bring the material back to Earth in 2023, officials said two weeks ago." 

Slim Pickings

The last week of October 2020 and the Cocoa Beach real estate market is struggling to function with an eroding just-in-time inventory resupply. Our years-long, persistently declining inventory is approaching a critical level. We began the year 2020 with 185 existing condo and townhome units listed for sale in Cocoa Beach and Cape Canaveral. That was already down sharply from the 265 units that we began 2019 with. Fast forward to October 2020 and we are looking at 118 total units for sale. For perspective, that is less than the total number of units at Sandcastles in Cocoa Beach. About half that number of units (57) has gone under contract in just the first three weeks of October. New inventory has been appearing at a slightly slower rate than the sales so, unless something changes, we could begin 2021 with less than a hundred available units. I would have called that prediction insane had it been suggested as recently as a year ago. Refer to our history of over 1000 units for sale at the peak of the mid-2000s bubble. Any talk of a current bubble conveniently ignores the inventory elephant. Markets respond to supply and demand imbalances and ours is skewed heavily to demand. Pricing tends to favor demand so those hoping to buy should expect continued upward pressure on prices and structure their strategy accordingly. If I don't buy the slightly over-priced unit I want today, what can I expect to pay for a comparable unit next year if I can find one? 

The high end of our condo market has been particularly active with eleven units from $499,000 to $969,900 finding buyers so far in October. Over 20% of the current inventory has been on the market for six months or longer, a strong hint of over-pricing. That means the actual, close to fairly priced inventory is already below 100 units. Buyers, don't be shy with your offers if you can find anything you like.

Things are much the same with single family homes. We are sitting today with only enough homes to accommodate 29 families. Only three of those are asking less than a half million dollars. I'm reminded of the Tribe Called Quest lyrics; "All you poor folks, you must go."

The developer of the new Surf of Cocoa Beach luxury oceanfront condo is expecting to break ground in the very near future. Nothing physical has happened yet with the Yen Yens property across the street nor the Bernard's property but I am optimistic that after the Surf begins construction we may see some activity. We'll probably get all that shiny new construction completed at about the time we are forced to put up a "No Vacancy" sign at the Cocoa Beach city limits.

"Tell people what they want to hear and you can be wrong indefinitely without penalty." _____Morgan Housel

How Far We've Come

How has the market in Cocoa Beach and Cape Canaveral changed in ten years? In 2010 we were into our third year of collapsing prices and 56% of the sales that year were either short sales or foreclosures. Two thirds of the sales in our two-city market in 2010 were cash deals. Lenders, having been wiped out in the bust, were still figuring out effective risk management in the new landscape and were erring to the side of caution. Prices had retreated to pre-2000 numbers for existing properties and new construction condos were selling at less than half the cost to build them. MLS inventory had dropped from a peak of 1200 condo units in mid-2006 to around 500. Buyers with the cash and courage to purchase picked up condo units that have tripled in value in some complexes. In October 2010, five year old, still-unsold developer units at Mystic Vistas in Cape Canaveral were sold by the bank as low as $130,000 for a 2nd floor 3/2 in the B building and two 4th floor 3/2 units in the A and B buildings closed for $150,000.

The same month, small condo conversion 1/1 units in Cape Canaveral closed as low as $13,500 at Beach Club and $18,500 at Jeannie by the Sea. A 2nd floor, four year old Portside Villas 2/2 sold for $89,000. In south Cocoa Beach, a 2nd floor Beach Villas ocean view 1/1 sold for $81,500 and a 2/2 Sutton Place on the ocean closed for $85,000. Diplomat 2/1 units closed as low as $64,000 the same month.

How about a Harbor Isles of Cocoa Beach lakefront 2/2 for $120,000? Or a 2nd floor direct ocean Royale Towers 1/1 with a garage for $150,000? A four year old Perlas del Mar 3 bedroom 2.5 bath with a two car garage and 2424 square feet closed for $161,000. A Cocoa Beach single family waterfont home sold for $210,000.

Jump to the present, October 2020, and there are 108 existing condo and townhome units for sale in our two cities. Add 34 single family homes and there are 142 total existing residential properties for sale in Cocoa Beach and Cape Canaveral. So far in 2020, 708 properties have closed, of those five were foreclosures and one was a short sale. Three hundred of the total closed for cash. 

Interesting tidbit: There were 362 different listing agents for the 708 properties sold so far in 2020. Only 98 of those agents have an active listing in the market at the present. I'm thinking someone's going to go hungry moving forward considering the inventory. To paraphrase Chuck D, "If you're a gunslinger, you can't start crying about getting shot."

Buyers, keep this low inventory in mind as you look. You will probably not have a lot of choices in any certain property type and being too specific with must-haves will reduce your choices. There are plenty of others looking for the same property that you are. Good luck in your search. It isn't impossible if the criteria aren't too limiting but it may require patience to find your place in Cocoa Beach. 

"It makes sense to dance while the music is playing." __Maynard G. Krebs