Happy Independence Day

Happy Independence Day - Yesterday, as I cruised down the Banana River from Cocoa Beach to Port Canaveral and the ocean, I considered the recent changes in our river shoreline. Beginning in south Cocoa Beach on the river we passed five condo developments under construction and 3 others yet to break ground. As we headed north we saw to the west on the eastern shore of Newfound Harbor in Merritt Island, dozens of large new homes and one new, 3-building condo project. Under the 520 bridge and north to the Port, we saw 4 new developments on the shoreline in Cape Canaveral. There are over 600 new units in just these existing riverfront projects in Cocoa Beach and Cape Canaveral. Add the planned projects, unfinished new oceanfront and non-waterfront developments and the supply of new units beachside is well over 1000. That's a lot of supply for a market that recorded 39 units sold in the last 2 weeks. Where is the disconnect? There are two distinct sides to the new supply market. One is the pre-construction market which is dominated by investors who rarely plan to live in the units. These sales most often don't show up in our MLS. The secondary market, on the other hand, are the buyers who are purchasing for residences or for second homes. These sales do show up in the MLS and are reflected in the numbers I report here. Draw your own conclusions. Noteworthy this week; sales in the over $500,000 range have ticked upward significantly. Also of note is the fact that mortgage rates continued their fall. Here are the numbers for July 4, 2005.

contracts last 14 days

condos over $500,000___ 8
condo under $500,000__ 31

homes over $500,000____ 5
homes under $500,000___ 3

active listings

condos all prices______417
condos over $500,000__ 124

homes all prices______ 53
homes over $500,000__ 31

Have a safe 4th, use sunscreen and drink plenty of fluids. It's hot out there. Remember, it's a $200 fine for possessing fireworks in Cocoa Beach.

The Swamp Ape & Negative Cash Flow

Negative Cash Flow. I get a lot of requests for "a good beachside investment property that will break even or generate a little cash". Folks, that has become the swamp ape of the Florida coast. In other words, they are rumored to exist, some sightings have been reported but no actual photos can be found (except for the one below and it is somewhat suspect). 

With recent years seeing unprecedented buying of second homes and investment property on or near the beach, the supply of rental properties is huge. Rental rates have barely budged in years while selling prices have headed for the stars. What that means for investors is that income can no longer be a criteria for making your buying decisions. If you must have positive cash flow, you haven't been and won't be buying beachside unless you are paying all cash or making a substantial down payment. Don't let the dreaded phrase, "negative cash flow" scare you away. There are some extreme exceptions to this such as high-occupancy, short-term rentals that are owner-managed combined with interest-only loans. At any rate, let's explore a real world example. 

 Example; an oceanfront condo in Cocoa Beach that just sold for $380,000 this month is next door to an identical unit for rent at $1350 per month. That's $16,200 in income before any management fees. This particular unit can expect about $8800 in condo fees, property taxes and insurance. If the new owner has an 80% mortgage at 5.75% for 30 years his annual mortgage expense will be $21,288. That boils down to cash out of pocket at $13,888 per year. There are other variables such as tax savings, repairs, vacancies, damages but the fact is that this new owner had better have around $1157 per month of extra money to take care of his new investment. Does that make this a bad investment? Not when you consider that this same unit according to tax records has appreciated at 38% per year since it was last purchased in 2003 and stands a good chance of continuing to appreciate. These rates of appreciation can't possibly continue, you're probably thinking. I agree except that all the new supply of oceanfront condos approaching and exceeding a million dollars has pushed a large number of buyers down into this lower price range and continues to do so. There is a far greater supply of buyers willing to pay $500,000 for a unit than there are buyers for million dollar units. Building has not slowed and demand is still high so I expect a reduced but substantial rate of appreciation to continue for select price ranges. 

Any investment in real estate at this stage of the game has risk. Interest rates could skyrocket, the so-called "bubble" could burst and everything will have been a bad investment. However, if you choose your targets carefully you can mitigate that risk and enjoy healthy returns on your investment barring a catastrophe. Make sure you know what areas of the market are moving, what areas are not and don't walk away from an otherwise good investment because of negative cash flow. In our example above, this owner will make over $20,000 a year after debt service and expenses if appreciation cools to 10% and will still make money at only 5% appreciation per year. He also has the possibility of having another 38% year in which case he stands to make a healthy six figure return in one year. I measure all my investments by comparing risk and reward. The possibility of making six figures on the high side and breaking even on the low side meets my criteria. 

Do your own due diligence and if you're buying in another market, find a guy like me who understands and studies his market and use him to help you select your properties. If you're buying in Cocoa Beach or Cape Canaveral, you've found your man. Email me at larry@southcocabeach.com or call me at 321.917.5786 and I'll help you locate the perfect property.

June 14 Update -

An early tropical storm was all over the news last week but turned out to be an anti-event. Hurricane season is high on everyone's radar and should be on buyers' minds as they select properties. Storm damage was inconsistent and there were quite a few properties that suffered NO damage during last year's active season. The market has not rewarded these storm-tested properties with a price premium but they should, in my opinion, command a higher price than properties that suffered storm damage. Be sure to ask your agent about a property's performance during last year's storms before making your offer.

There has not been a lot of change in our activity since my last update. Rate of sales is pretty constant and the activity is still concentrated in the under-$500,000 range. We have a 48 week supply of over-$500,000 condos at the current sales rate and a 17 week supply of under-$500,000 units. Mortgage rates dropped once again last week to their lowest level of 2005 at an average of 5.66% nationwide for a 30 year fixed rate. Our strong appreciation rate continues for the lower priced properties but we are seeing some resistance to ever-increasing prices in the high end.

MLS statistics for Cocoa Beach and Cape Canaveral

Active listings:

Condominiums______418
__over $500,000____120

Single family homes___55
__over $500,000______34

Contracts in the last 14 days

__condominiums_____40
__over $500,000______5

Single family homes___4
__over $500,000______4

If you have specific questions about our market or properties, you can email me at larry@southcocoabeach.com or call me at 321.917.5786. Be aware of the sun and the heat when you're out there in our beautiful Florida outdoors and take cover at the first sign of an approaching thunderstorm. A lightning strike will ruin a good day at the beach or the golf course.

Here's one of our new buildings in south Cocoa Beach. Oceanfront penthouse, 3 bedrooms, 4 baths, 3400 sq. ft. with rooftop deck; $1,700,000.

Memorial Day Report - HOT!

What a beach day it was yesterday. Light offshore winds and family picnics up and down the beach. Did I say HOT? It was hot. Certain areas of our market continue to be red hot, as well.

I can't seem to turn on the news or pick up a magazine without being confronted with the phrase "real estate bubble". For an investor in a hot market such as Florida, that phrase is sure to increase the heart rate. I just purchased another waterfront property myself this month. Am I crazy? Perhaps. I'm a little different from most of the profiled flippers in the money magazines in that I live and work in my market as an active real estate agent and know from first hand experience the trends of supply and demand in my market. I have access to statistics and I deal with buyers and sellers every single day. I think I have mitigated my risks by identifying the areas of my market that are most likely to give me a good return with the least risk. All property types in my market are not equal in their risk and likely return. Having said that, I could be wrong.

Mortgage rates took another drop this week and the national average is now at 5.65% for a 30 year fixed rate as reported by Freddie Mac. That's lower than the point at which we began the year. The predicted rise in mortgage rates is taking it's sweet time to happen.

MLS statistics this Memorial Day in Cocoa Beach and Cape Canaveral.

Active listings:

Condominiums______422
__over $500,000____112

Single family homes___54
__over $500,000______35

Contracts in the last 14 days

__condominiums_____43
__over $500,000______3

Single family homes___9
__over $500,000______3

I don't want to keep repeating the same message in every update but the statistics keep pointing to the same thing; the under $500,000 range is where the action is right now in our market. We have a supply of 147 properties over $500,000 and had 6 sales in that range in the last 2 weeks. At that rate it will take almost a year to sell our current supply. Contrast that to our supply of 329 properties under $500,000 selling at a current rate of 23 per week and you see that we have less than a 15 week supply. If you're on top of numbers like this, it's easy to make decisions about where to invest your money here. You can still purchase very nice direct river condos with beautiful views of the islands like this for just over $300,000.



I could be wrong, but, I believe that condos in this price range in good locations are your best bet for continuing returns on your investment. If you'd like to know what's available out there, shoot me an email at larry@southcocoabeach.com I promise to freely share my knowledge and perceptions of our market with you as my buyer in a completely unbiased manner. Cocoa Beach is small enough that, if you buy here, I'll probably be bumping into you in the grocery store, so, I want you to be happy to see me. Enjoy the holiday and don't forget the sunscreen.

Incidentally, updating an ongoing story, there are 35 MLS-listed, assignment-of-contract units active in Portside Villas today. Prices continue to rise at the same time that supply is increasing. This anomaly can be explained by the unprecedented under-pricing of these units at last years pre-construction prices and the ongoing optimism of the investors. Those who have already flipped have made incredible returns on their investments but the remaining sellers continue to increase asking prices. Is $262,500 too much for a brand new 1168 sq. ft. 2 bedroom condo walking distance to the beach and the Port? I'll keep you posted as this story unwinds through the end of the year.

May 10 update - Cocoa Beach

May 10, 2005

Even though mortgage rates continue to drop, the supply of homes and condos in Cocoa Beach and Cape Canaveral, according to MLS records, has changed little in the last 14 days. New projects are adding supply at an even pace to units sold. We have had 42 condos go under contract in the last 14 days; 3 over $500,000. Stats as of this morning, May 10 are as follows:

Active condominiums_______ 433
over $500,000____________ 134
built 2004 or later__________163

Active single-family homes____ 60
over $500,000______________ 38

Contingent last 14
single family homes________3
condos_________________42
over $500K______________3

Construction of new condos is continuing at a strong pace, especially in the extreme southern end of Cocoa Beach where the island is at it’s most narrow part. This is where I live and is my favorite part of Cocoa Beach. We have the Banana River on the west side of A1A and the Atlantic Ocean on the east. The low population density here keeps the beach uncrowded. There are currently over 200 condos under construction or planned in this 3/4 mile stretch. Considering how many high-end condos sit empty for out-of-town owners, I suspect I'll still be able to stroll an uncrowded beach even after the build-out is complete. I foresee a short-term crunch in the sales of new condos here with all the new supply, but, long term, this area will always be special. This is the time to be aggressive with offers as sellers severely outnumber buyers in this predominantly over-$500K market.

If you’d like a list of current projects, email me or give me a call at 321.917.5786.

As always, these opinions are mine alone.

Real estate boom: Will a bust follow? - May. 4, 2005

Real estate boom: Will a bust follow? - May. 4, 2005: "NEW YORK (CNN/Money) - The number of U.S. metropolitan areas experiencing booms in real estate prices spiked 72 percent in 2004, according to a report from the Federal Deposit Insurance Corporation (FDIC).

Still, that represented just 15 percent -- a total of 55 -- of the country's 362 metro areas, leading some to question whether the reports of a real estate bubble have been greatly exaggerated."

Real Estate Weekly - U.S. mortgage rates edge lower

Real Estate Weekly: Real Estate Weekly -- April 29 - General News - Personal Finance: "U.S. mortgage rates creep lower

U.S. mortgage rates edged lower in the week ending Thursday, marking the fourth straight week of declines, Freddie Mac said."

Pre-Construction Sampler

I'm deviating a little from my normal general take on the market with today's post. I get so many inquiries about pre-construction that I thought I'd present a sampling of what's out there in Cocoa Beach and Cape Canaveral. From low to high, here are a few. Only one of these is my own listing. Most of these can be held for 10% of purchase price until building is completed. Some will probably not be completed until late in 2006.

Portside Villas - 3 BR/2 BA - 1523 sq.ft. $289,900


Maddison Caye 3 BR/2.5 BA - 1618 sq.ft. $449,000


Ocean Waves 2 BR/3 BA - 3000 sq.ft. $595,000


Mystic Vistas 3 BR/2 BA - 1994 sq.ft. $629,000


Un-named 4 BR/3.5 BA - 3610 sq.ft. $895,000


Almar 4 BR/3.5 BA - 2713 sq.ft. $800,000


3800 Ocean Beach 3 BR/2.5 BA - 2433 sq.ft. $975,000


Crescent Palms 3 BR/3BA - 2293 sq.ft. $649,900


Ocean Club 4 BR/3.5 BA - 3904 sq.ft. $1,279,900


This is only a sampling of what's out there. If you'd like a more complete list or info on specific projects email me or call me at 321.917.5786