Opinions requested regarding SoWal real estate pricing...

[Beach Dad]

:roll: I'm living out my lifelong dream of relocating my family here from Tx June 1st and am working through the pros and cons of the current market conditions. I'd love to hear from some of you regarding an objective view of pricing. I'll admit my mindset has become very jaded due to a number of factors. Side note: If you live in Rosemary Beach, don't even bother reading further, you are either retired, independently wealthy, or mortgaged out the wazoo and this lengthy post will bore you.

I'll preface this by saying I don't think I've ever seen so many real estate agents in one particular locale than I've seen here. And with all due respect, I don't expect any one of them to voice anything but optimism about how pricing and demand is right on the verge of taking off. (I'm very skeptical due to the fact that I read that there are over 11,000 listings right now along the Emerald Coast - supply is considerably higher than demand.)

I want someone to tell me what they would tell their son, friend, or business aquaintance they would do, if they were in my shoes. Not try to sell me on the area, just talk honestly about how to get the best value for my housing dollar.

That being said, I think that I am a great prospect for a home purchase. My income is above average, my credit excellent, and my job allows me to live anywhere along the Panhandle. My preference is to live as close to water as possible (and know that waterfront is out of the question). I don't want to have to drive across the causeway or Mid-bay bridge to get to the beach. Bluewater Bay is nice, but not my cup of tea.

However, it now seems that every mudhole with a trailer in this area has been listed at $300K. And I've been coming down here for 40+ years and I've never seen that kind of seller optimism. The number of homes in the $300K to $400K range is disappointing. And my view is that if I'm going to spend $500K for a 3 bedroom 2+ bath home here, I'll definitely build what I want, not buy a 70's home that somebody is trying to flip for a big profit because their agent has convinced them they can get it.

Am I the only guy in the grit eating world that thinks that a price correction is still yet to come? I understand that there is a lot of money coming into this area, but with homeowner's coverage and property taxes rising, I've got to believe that there are a number of folks in Atlanta, Bham, Memphis, etc, who have overextended themselves. If your taxes and insurance are $700/month, that can seriously impact your monthly mortgage note (escrow).

Am I nuts in my thinking? Is this California? I hope this area has not become unaffordable for the average family fortunate enough to live in this incredibly beautiful area. I'm seriously considering renting for a year to watch and wait. I'd love to hear what you would do if you were in my shoes. Thanks for allowing me to type this novel.

[00seer00]

Mr Beach Dad,

You are right to think more correction is coming, in PCB you can find much more for your money. Sowal is different from most markets, it has had astronomical appreciation but for many good reasons and some bad. You must remember that there is a 4story building height on condos or what ever also this area is 95% new construction not a mix of junk, trailors,and older unkept property. The super Rich will continue to buy high end properties because of this and the FACT that these are the most Beautiful Beach in the States if not the World. Sowal Has limited space and the New International Airport will bring more super rich to this area a they will buy the high end units. The correction is everywhere in the USA except for a few areas and it should get very nasty soon in most markets. The enormous amounts of realtors is from the enormous amounts of money they were making on the way up and they told a friend and so on. Only 1 person buys at the bottom and only 1 person sells at the top. The deals are out there now and I don't think this area will come down to PCB prices.
Properties are close to cash flow in some cases over here in PCB but Sowal does have allot of Realtors and others who got caught holding to much land as well. We will soon have unbelievable press on the Airport and the Companies coming around it creating 10s of thousands of jobs. I heard the Highest price home in Sowal sold to the CEO of FEDEX for 9.2M and this will continue .Just my opinion for what its worth.

[iqueequeg]

My opinion is rent until 2008 or 2009. I don't know if a correction will come between now and then or not, but I doubt there will be much appreciation.
Another option is rent or lease with option to buy with first right of refusal. In a buyer's market such as this you might find a seller willing to go along with it (if the house is sitting empty there's not much downside for the seller).

Good luck.

[fisher]

I assume from your post that you are not super wealthy with money to burn. If I'm correct in that assumption, I would recommend that you keep your powder dry and rent for the time being. Prices have been falling for the past year or so and are likely to continue to do so given the huge amount of inventory on the market.

However, if you really want to own rather than rent, you might want to consider buying a lot and building a home. Raw land prices have fallen much faster than home prices. House prices have been slower to retreat but they are likely to take a hit as investors and builders get more and more desperate to unload excess inventory.

Come on down, rent for a while and keep a close eye on the market. You can watch average prices by looking at the real trend reports that are posted once a month in the Walton Sun and you can view actual pricing by going to the Walton County property appraisers website. When it appears things are beginning to turn the corner, snatch up something you like and enjoy your new home in SoWal.

Good luck.

PS--It will be very interesting to see if you get any recommendations to jump right into the market now with the appropriate data to back up the recommendation to buy versus rent for the time being.

[SHELLY]

B-Dad,

Another vote for "renting now and taking your sweet ole time looking around."

I see you're coming from the Texas Hill Country (very nice out that way). You'll need time to adjust from the "wide-open spaces" to the "expensive cramped places" and, I'm assuming, you'll need some time to sell your primary in Texas (unless you want to get slammed with non-homestead taxes in your Florida second-home).

As far as finding a rental, you'll have the pick of the litter if you don't try to get a place during high-tourist season (lock in a contract early or wait until August). And with your money from the sale of your Texas home in the bank, a great credit score and income to cover the mortgage--you'll have your own entourage of Realtors following you around like a Rock Star (you may never have to buy your own lunch for a year).

In the end, you may find out that you won't want to live here when you see the SoWal you've come to know and love over the past years might not be the same after, like OOseerOO points out, the new airport will unleash a flood of affluent folks onto 30A in the not-too-distant future along with 10s of thousands of low-paid laborers needed to service the said masses
<Cough: fat chance>.

No need to rush--it's not 2005 anymore.

[beachmouse]

Another vote for renting in the short term. Not only because I see prices pretty flat to declining for the next 2-3 years, but also if you're talking dream home, it gives you time to really look around and figure out what the perfect place is for you.

I suspect there are plenty of people willing to rent long term right now after discovering that they can't flip like they'd thought, and that the short term rental management fees are pretty horrible.

[Indigo Jill]

Beach Dad - I'm going to break ranks here with a different opinion - and no, I'm not a Realtor (but was one ;-) ). I think, if you want to move here and stay for a while (5+ years - and once you are here, I think you'll see you will NEVER want to leave because it is a wonderful life living in this amazing area), you won't be disappointed in your investment. The area is stagnant, yes, in real estate like SO many other places in the country. But there are some amazing deals right now, and like some of the other optimists on this board, I believe it will turn around. It's like shopping at TJMAXX - you have to sift through a lot of stuff, but there are some incredible buying opportunities and if you spend the time and effort, you can find a great deal. The real question you have to ask yourself is how bad do you want to be here? I rented for 8+ years and I can tell you, it was a real pain in the you-know-what. You could move here, have to move your family into a rental (no equity being built) and "hope" that a better deal will come along. Do your homework and I think you can find that "deal" now.

Just my 2 cents. Good luck.

[fisher]

Beach Dad - I'm going to break ranks here with a different opinion - and no, I'm not a Realtor (but was one ;-) ). I think, if you want to move here and stay for a while (5+ years - and once you are here, I think you'll see you will NEVER want to leave because it is a wonderful life living in this amazing area), you won't be disappointed in your investment. The area is stagnant, yes, in real estate like SO many other places in the country. But there are some amazing deals right now, and like some of the other optimists on this board, I believe it will turn around. It's like shopping at TJMAXX - you have to sift through a lot of stuff, but there are some incredible buying opportunities and if you spend the time and effort, you can find a great deal. The real question you have to ask yourself is how bad do you want to be here? I rented for 8+ years and I can tell you, it was a real pain in the you-know-what. You could move here, have to move your family into a rental (no equity being built) and "hope" that a better deal will come along. Do your homework and I think you can find that "deal" now.

Just my 2 cents. Good luck.

Please let Beachdad and the rest of us know some the real deals that are available right now.

[Indigo Jill]

Please let Beachdad and the rest of us know some the real deals that are available right now.

As I said, I'm not a Realtor anymore so don't have access to the MLS to quickly pull some data - and I'm not going to sift through public records ... Beach Dad can do that.

That said, I've heard of homes in WaterColor selling around $600-$700K and people getting incredible deals at auctions. And there is a lot on my block here in Point Washington that was just recently listed for $99K (or around there). That to me is a steal. Maybe some Realtors could quickly share some data with us?

[fisher]

As I said, I'm not a Realtor anymore so don't have access to the MLS to quickly pull some data - and I'm not going to sift through public records ... Beach Dad can do that.

That said, I've heard of homes in WaterColor selling around $600-$700K and people getting incredible deals at auctions. And there is a lot on my block here in Point Washington that was just recently listed for $99K (or around there). That to me is a steal. Maybe some Realtors could quickly share some data with us?


It won't be a steal in hindsight if prices keep falling.

[Indigo Jill]

It won't be a steal in hindsight if prices keep falling.

You are 100% right - if you buy without doing your homework and in an area where prices are free falling. But not all areas in SoWal are doing that, fisher.

I truly believe there is property out there right now that won't go much lower - like the lot on my block. As it's been said before here, there are areas where buyers may want to hold out a while. But there are other areas that are great areas to buy into now, especially if you are buying as a long term investment, such a someone who wants to move here.

It may just be me but I don't see any point of moving to an area where you know you want to live for a while and going through the hassle of renting on the chance that prices may fall a few thousand dollars (because there are buys right now where IMO they are priced to sell and won't lose much more value). If I buy wisely today, and plan on keeping the investment over the long term, I personally would feel that I have made a great investment decision.

Is the glass half full or half empty??

[Here4Good]

I'll fall in with the rent first voting bloc - not just because of the current prices, but also because this area can be pretty tricky to figure out. You might think, "Oh, I want to be as close to 30-A as possible", and then discover that the traffic and being surrounded by tourists is not the paradise it might be, and decide that Point Washington is the place to be (not that I'm prejudiced, but Point Washington is the place to be! :clap_1: ).

There is a couple who just purchased a home in our neighborhood, for example - they had actually lived in the area before, and they were working with a realtor to find a home to move back down. The lady got lost, took a wrong turn off of Bay Drive, followed the open house signs our neighbor had posted, and found our neighborhood, which she had no idea even existed. They were familiar with the area and were working with an agent, but would never have found this lovely home if she had not gotten lost!

In a market like this, there are bargains and there are mistakes waiting to happen. I would want to be here, looking every week, checking every nook and cranny, before I plunked down my money.

[full time]

When just about everyone says the real estate market sucks, that's about the time to buy. By the looks of this thread, it's a good time to be a buyer. Good call Indigo Jill.

[goodwitch58]

Beach Dad, I agree with Indigo Jill and I am a Realtor.

If you were my Dad or my brother, or any of my customers, I would say to you: find a Realtor you are comfortable with and one whom you trust. Interview your Realtor the same way you would your Doctor or Lawyer--get references, and establish a rapport.

Since you are relocating to the area to establish a home, you are different than someone who is looking to make money from real estate investment.

That said, decide where you want to live; how much you want to pay; and have your Realtor find it for you. If your primary motivation is living in SoWal, and you stay within your budget, and find the house you love, then it is a successful venture.

Good luck!

[Indigo Jill]

Another vote for renting in the short term. Not only because I see prices pretty flat to declining for the next 2-3 years, but also if you're talking dream home, it gives you time to really look around and figure out what the perfect place is for you. .

Even if you bought wisely today and prices stagnate for the next few years, if you have purchased as a long term investment, according to history, things will swing up again.

More importantly though, if you rent for 2-3 years, you have lost that time to build equity - and helped the owner of your rental build theirs! There are many "what if's" in life ... this is an AMAZING place to live and we all have to be thankful we can afford to be here because many who would like to move here can't. Do your homework and you will see there is a perfect place for you RIGHT NOW to buy and call "home".

[Indigo Jill]

If you were my Dad or my brother, or any of my customers, I would say to you: find a Realtor you are comfortable with and one whom you trust. Interview your Realtor the same way you would your Doctor or Lawyer--get references, and establish a rapport.

IMO everyone needs to use a Realtor when buying or selling - with the litigous nature of our society these days, you'd be foolish not to have a Realtor.

That said, you have to be proactive in your search. Your Realtor doesn't actually wear your shoes. Even if you tell them in great detail what you are looking for, only you, the buyer, knows what you really want (which can change in the process of looking!). I had the best Realtor in SoWal on my team when we looked for our house...and I was the one who found the one we ended up buying.

Buyers have access to every single tool they need to find a property themselves. When you hire a Realtor as part of your team, there is no reason why you shouldn't find your "dream home" first time around, making renting a moot point.

[fisher]

Even if you bought wisely today and prices stagnate for the next few years, if you have purchased as a long term investment, according to history, things will swing up again.

More importantly though, if you rent for 2-3 years, you have lost that time to build equity - and helped the owner of your rental build theirs! There are many "what if's" in life ... this is an AMAZING place to live and we all have to be thankful we can afford to be here because many who would like to move here can't. Do your homework and you will see there is a perfect place for you RIGHT NOW to buy and call "home".


A couple of points. First, prices are not stagnant right now, they are falling. It's one thing to buy in a stagnant market and another to buy in a falling market with no bottom in sight. Second, if you buy a house and the price falls after you buy, you are not building equity, you are losing equity.

[Indigo Jill]

A couple of points. First, prices are not stagnant right now, they are falling. It's one thing to buy in a stagnant market and another to buy in a falling market with no bottom in sight. Second, if you buy a house and the price falls after you buy, you are not building equity, you are losing equity.

Again, difference in perspective. I'm looking at the perspective of buying in the long term, you in the short term. What you say is totally correct and should be considered if you are buying in the short term. What I say is totally correct and should be considered if you are buying in the long term. We aren't on the same page, fisher, making it a moot dialogue.

[Indigo Jill]

A couple of points. First, prices are not stagnant right now, they are falling. It's one thing to buy in a stagnant market and another to buy in a falling market with no bottom in sight. .
I don't agree ... I don't think all areas in SoWal are the same and there is a bottom in sight to the price reductions.

[/quote] Second, if you buy a house and the price falls after you buy, you are not building equity, you are losing equity [/quote]

True - but if you buy wisely, you won't be buying a house that falls in price. And if you do, and you've bought for the long term, history has told us things swing up again. Just like stocks - up and down, up and down.

[destinsm]

Even if you bought wisely today and prices stagnate for the next few years, if you have purchased as a long term investment, according to history, things will swing up again.

More importantly though, if you rent for 2-3 years, you have lost that time to build equity - and helped the owner of your rental build theirs! There are many "what if's" in life ... this is an AMAZING place to live and we all have to be thankful we can afford to be here because many who would like to move here can't. Do your homework and you will see there is a perfect place for you RIGHT NOW to buy and call "home".


I am really tired of hearing this line of crap...

If you buy, you are building equity...

If you rent, you are throwing money away...


Lets actually look at this simplistic mainstream idea a bit deeper...

Lets assume as you have stated that the market will stagnate for a few years and I am looking to buy or rent next week...

Well if I looked to buy a home in South Walton and say as example I picked Village of Blue Mountain I would be looking to pay anywhere from $700k to $1.5M depending on the size....

Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million...

So say I bought it at $1.25 million and I even put down 20%(doubtful to have $250,000 cash on hand for a down payment... but I am giving the benefit of doubt in this argument toward the buying side... I also won't even use this downpayment against you as far as the opportunity you have wasted by putting $250k into the house rather than letting it grow in a mutual fund or even a high yield savings) my mortgage with insurance taxes and interest would be no cheaper than $7000/month... This is assuming annual taxes at $7500/year and Annual Insurance at $2500/year... pretty low assumptions...

So knowing that very little of your PITI payment each month for your mortgage actually goes to Principal for the first 5 years of the loan... why would I want to spend $5000/month more to live in the same type of home...

Assuming you even had $7,000/month to spend on a mortgage would you not rather pay $2,000 per month to rent and save the difference ($5,000/month in even a high yield savings account???)

In this scenario with house prices stagnate and the difference from price to rent in five years that person could have saved and grown his savings to close to $350k in a simple high yield savings account with absolutely no risk... or he could fork over $7,000 per month and hope and pray everynight that his house appreciates like it was 2005 all over again...

I also left out maintenance costs, HOA dues, and maybe some other small things to again give the benefit of my math to the buyer.... But in the end, in my opinion you would be crazy not to rent for a few years and see how this thing shakes out...

[Beach Dad]

I am so glad I posted my message. Thanks so much for your comments. I was counting on the wisdom of this board and points made by all have confirmed my gut feel. You folks didn't dissapoint.

Here4Good... from what I have seen and what I seek, I agree with your assessment of Pt. Washington. It seems to offer all we desire in an area (I have a 10 and 6 year old so I still need to do some research on the local schools). I have a free place to stay with relatives here, so my family will be joining me following the school year end.

I think if I had to make my decision today, I would rent for a year as close to the beach or Pt. Washington as possible, and think seriously about building in your area. However, I am meeting tomorrow with a good friend who is a realtor in the area that I trust and respect. The intention of my post was to make myself think about all angles before outlining my search goals.

Funny thing, my brother in law is an architect here (McWhorter Architects... got to give him a cheap plug). We used a plan he designed for the HGTV Dream Home in Rosemary Beach and built in New Braunfels, TX in the hill country. My home sits on an acre of land and I have it listed for $335K, hoping it will sell. What a difference in markets huh?

[Indigo Jill]

I am really tired of hearing this line of crap...

If you buy, you are building equity...

If you rent, you are throwing money away...




I'm not talking about a $1.25M home located in an area that is seeing free falling prices. I'm talking about purchasing a home in an area that isn't seeing free falling prices. You can create scenarios to support your rationale, I can create scenarios to support my rationale.

And you know what? I'm really tired of hearing this line of crap too!:D

[full time]

"Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million..."

Post some pictures of that "1.25 million" rental home. If that's really the price, good chance you ain't renting it for a year at $2,000.00 a month. Katrina gifts don't count.

[pgurney]

Lets assume as you have stated that the market will stagnate for a few years
So say I bought it at $1.25 million and I even put down 20%(doubtful to have $250,000 cash on hand for a down payment... but I am giving the benefit of doubt in this argument toward the buying side... I also won't even use this downpayment against you as far as the opportunity you have wasted by putting $250k into the house rather than letting it grow in a mutual fund or even a high yield savings) my mortgage with insurance taxes and interest would be no cheaper than $7000/month... This is assuming annual taxes at $7500/year and Annual Insurance at $2500/year... pretty low assumptions...

One other thing to consider in this analysis is mortgage interest deduction. I'm not saying that it works out with these numbers quoted, but it's always made the difference for me when deciding whether to rent or buy.

[destinsm]

"Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million..."

Post some pictures of that "1.25 million" rental home. If that's really the price, good chance you ain't renting it for a year at $2,000.00 a month. Katrina gifts don't count.


Village of Blue Mountain Home 4 Bed 3 Bath...
$2,000/month with $1,000 of first months lease with a signed 1 year lease...
http://www.emeraldcoasthomesonline.com/(lgormwndeim4lf3zqxhcpa45)/propertyDetails.aspx?mls=451173

Village of Blue Mountain Homes for sale...
http://www.destin123.com/Village_Of_Blue_Mountain.htm

[John R]

Village of Blue Mountain Home 4 Bed 3 Bath...
$2,000/month with $1,000 of first months lease with a signed 1 year lease...
http://www.emeraldcoasthomesonline.com/(lgormwndeim4lf3zqxhcpa45)/propertyDetails.aspx?mls=451173


404 - Not Found
The page your requested could not be found on this server.




Village of Blue Mountain Homes for sale...
http://www.destin123.com/Village_Of_Blue_Mountain.htm

none of the homes listed on the page referenced match the specs of the rental home described.

[Here4Good]

I think if I had to make my decision today, I would rent for a year as close to the beach or Pt. Washington as possible, and think seriously about building in your area. However, I am meeting tomorrow with a good friend who is a realtor in the area that I trust and respect. The intention of my post was to make myself think about all angles before outlining my search goals.

Funny thing, my brother in law is an architect here (McWhorter Architects... got to give him a cheap plug). We used a plan he designed for the HGTV Dream Home in Rosemary Beach and built in New Braunfels, TX in the hill country. My home sits on an acre of land and I have it listed for $335K, hoping it will sell. What a difference in markets huh?

Well, coming from Texas, at least you are used to high real estate taxes! Your home in Texas sounds dreamy.....is it on the market yet? Any links you can post? Maybe someone will want to trade!

[pgurney]

I think this is it: MLS 451173 on emeraldcoasthomesonline.
http://www.emeraldcoasthomesonline.com/(xfkxtm45hnzn5a2ykcfg1p55)/propertyDetails.aspx?mls=451173

Seems to me that would list for more like $850k to $900k when comparing to the second link.

[destinsm]

I think this is it: MLS 451173 on emeraldcoasthomesonline.
http://www.emeraldcoasthomesonline.com/(xfkxtm45hnzn5a2ykcfg1p55)/propertyDetails.aspx?mls=451173

Seems to me that would list for more like $850k to $900k when comparing to the second link.

I was just looking for a quick neighborhood comparison for rental and home purchase... It can be done for almost every neighborhood in Okaloosa, and Walton county and the same results would be found...

I apologize for not getting an exact match, but I thought same neighborhood, all new construction and roughly same size would have been enough to make my point...

[Camp Creek Kid]

Beach Dad, I think building is a great idea, especially since you are related to a great architect. Lot prices in certain areas are very competitive and construction costs have gone down considerably from the last 2 years. Materials costs are way, way down and you will be able to find a local builder who will give you a fair deal because they have to be competitive now that the market has slowed.

IMO, Point Washington is the place for you to look because it is centrally located in SoWal. You kids can walk to Bay Elementary (great, small school) and it is near Seaside Middle and the South Walton High School. Also, Point Washington is near Helen McCall Park where the football and baseball fields are located.

[Here4Good]

Here is a link to my home in New Braunfels....

http://realtor.com/FindHome/HomeListing.asp?snum=8&mlsttl=&frm=byzip&pgnum=1&mls=xmls&js=on&target=&ct=&st=&sbint=&sbls=&sblo=&stype=&zp=78132&areaid=78132&mnsqft=&fid=so&vtsort=&mnprice=325000&mxprice=350000&mnbed=0&mnbath=0&typ=1&poe=realtor&x=20&y=12&sid=07B515BD199BC&snumxlid=1072323449

If you look closely, you can see my big screen TV calling out my name during tonight's football game. I miss it terribly. Almost as much as my wife and kids. :-)

Looks like another break for you - you are not used to having a garage. :funn:
Every shack in the county has granite countertops, but garages are hard to find!

[Beach Dad]

Well, coming from Texas, at least you are used to high real estate taxes! Your home in Texas sounds dreamy.....is it on the market yet? Any links you can post? Maybe someone will want to trade!

I tried to post a link to my home in New Braunfels but I didn't succeed. Let me try again... (this site must be childproof and kept me out)

http://realtor.com/FindHome/HomeListing.asp?snum=8&mlsttl=&frm=byzip&pgnum=1&mls=xmls&js=on&target=&ct=&st=&sbint=&sbls=&sblo=&stype=&zp=78132&areaid=78132&mnsqft=&fid=so&vtsort=&mnprice=325000&mxprice=350000&mnbed=0&mnbath=0&typ=1&poe=realtor&x=20&y=12&sid=07B515BD199BC&snumxlid=1072323449

Click on the virtual tour and you will see why we are really going to miss this home. And not only do I have a beautiful wife and two kids, I am also married to a 60" big screen TV that no doubt misses me terribly. :-)

Side note: Check out the built in bunk beds upstairs - the boys sleep there when we have guests. It frees up their rooms and I don't have to have a forth bedroom sitting idle. I give my Brother in law an A+ for that creativity.

You are right about the taxes. My property taxes are right at $4K per year. My homeowner's coverage with Nationwide is only about $1100 per year - no hurricanes in the hill country thankfully.

[fisher]

I am really tired of hearing this line of crap...

If you buy, you are building equity...

If you rent, you are throwing money away...


Lets actually look at this simplistic mainstream idea a bit deeper...

Lets assume as you have stated that the market will stagnate for a few years and I am looking to buy or rent next week...

Well if I looked to buy a home in South Walton and say as example I picked Village of Blue Mountain I would be looking to pay anywhere from $700k to $1.5M depending on the size....

Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million...

So say I bought it at $1.25 million and I even put down 20%(doubtful to have $250,000 cash on hand for a down payment... but I am giving the benefit of doubt in this argument toward the buying side... I also won't even use this downpayment against you as far as the opportunity you have wasted by putting $250k into the house rather than letting it grow in a mutual fund or even a high yield savings) my mortgage with insurance taxes and interest would be no cheaper than $7000/month... This is assuming annual taxes at $7500/year and Annual Insurance at $2500/year... pretty low assumptions...

So knowing that very little of your PITI payment each month for your mortgage actually goes to Principal for the first 5 years of the loan... why would I want to spend $5000/month more to live in the same type of home...

Assuming you even had $7,000/month to spend on a mortgage would you not rather pay $2,000 per month to rent and save the difference ($5,000/month in even a high yield savings account???)

In this scenario with house prices stagnate and the difference from price to rent in five years that person could have saved and grown his savings to close to $350k in a simple high yield savings account with absolutely no risk... or he could fork over $7,000 per month and hope and pray everynight that his house appreciates like it was 2005 all over again...

I also left out maintenance costs, HOA dues, and maybe some other small things to again give the benefit of my math to the buyer.... But in the end, in my opinion you would be crazy not to rent for a few years and see how this thing shakes out...


You are absolutely correct, but you will have a hard time getting many people that ignore logic, reason and facts to understand your post.

[fisher]

I don't agree ... I don't think all areas in SoWal are the same and there is a bottom in sight to the price reductions.

Second, if you buy a house and the price falls after you buy, you are not building equity, you are losing equity [/quote]

True - but if you buy wisely, you won't be buying a house that falls in price. And if you do, and you've bought for the long term, history has told us things swing up again. Just like stocks - up and down, up and down.[/QUOTE]

Again, please be specific. I'm sure there are lots of people on this board that are looking for one of these sure fire investment opportunities that you refer to.

Hyperbole and tired old sayings won't get you very far in a market like the one we are currently experiencing.

[Indigo Jill]

Second, if you buy a house and the price falls after you buy, you are not building equity, you are losing equity

True - but if you buy wisely, you won't be buying a house that falls in price. And if you do, and you've bought for the long term, history has told us things swing up again. Just like stocks - up and down, up and down.

Again, please be specific. I'm sure there are lots of people on this board that are looking for one of these sure fire investment opportunities that you refer to.

Hyperbole and tired old sayings won't get you very far in a market like the one we are currently experiencing



Specific examples?? It depends on what you are looking for, what your price range is, your investment goals, etc. etc. etc. Ready to buy? Do your homework, find a good Realtor and proceed.

Hyperbole and tired old sayings :lol: Funny, I could say the same thing to you, fisher! We just aren't on the same page.

[full time]

"... you will have a hard time getting many people that ignore logic, reason and facts to understand your post."

Apparently not. You seem to have "understood" it just fine. Using the Village of Blue Mountain Beach makes the exercise pointless and patently stupid from the outset.

[destinsm]

"... you will have a hard time getting many people that ignore logic, reason and facts to understand your post."

Apparently not. You seem to have "understood" it just fine. Using the Village of Blue Mountain Beach makes the exercise pointless and patently stupid from the outset.


Like I had said in an early post, pick any neighborhood you would like.... 99% of the time you will come up with the same outcome I have shown..

The ONLY reason I used Village of Blue Mountain is because it was the first rental I saw when searching in the SoWal area for an example to be used to make my point...

Same can be shown in Camp Creek, Rosemary, on and on... just name your neighborhood...

[Rather B. Paddlin]

Destinsm,

You gave one hypethetical example. There are a lot of values out there. It just takes time, effort, and hard work to turn lemons into lemonade. Oh yes and a good realestate broker, which I am not.

How about a real life example. A gulf view house (much larger than your example) was purchased 3 months ago in Santa Rosa Beach for less than $900K. It will generate $70k to $75k a year in rents. Humm that works.

Renting as opposed to buying is definitely easier, but necessarily a correct decision.

[fisher]

Destinsm,

You gave one hypethetical example. There are a lot of values out there. It just takes time, effort, and hard work to turn lemons into lemonade. Oh yes and a good realestate broker, which I am not.

How about a real life example. A gulf view house (much larger than your example) was purchased 3 months ago in Santa Rosa Beach for less than $900K. It will generate $70k to $75k a year in rents. Humm that works.

Renting as opposed to buying is definitely easier, but necessarily a correct decision.

I assume you are quoting gross rent. After deducting 33% or so percent for the rental agent. You are netting out $50k or so. Next deduct property taxes, utilities, maintenance, insurance, etc. You might be left with somewhere in the neighborhood of $20k to 30k. A return of 3% or less. CD's are running around 5% right now. So, you need appreciation of 2% per year to breakeven. That kind of appreciation ain't happening--in fact properties are depreciating right now. Bottom line--renting is a better option from a financial perspective right now.

[Rather B. Paddlin]

Yes, gross rent. NO Rental Agency = 0%. You do not need a rental agency. It much easier and more painless without a rental agency. Sorry to the advertisers. Also, most rental agencies charge much less than 33%, more like 20%-25%. Lastly, you have to take in the effect of the paper depreciation losses on your taxable income. I believe you could gain a taxable benefit of up to $25k per year.

Talk to a good realestate broker and enlist a good CPA, before you decide buying is not feasible for your situation. Good luck with your decision.

[fisher]

Yes, gross rent. NO Rental Agency = 0%. You do not need a rental agency. It much easier and more painless without a rental agency. Sorry to the advertisers. Also, most rental agencies charge much less than 33%, more like 20%-25%. Lastly, you have to take in the effect of the paper depreciation losses on your taxable income. I believe you could gain a taxable benefit of up to $25k per year.

Talk to a good realestate broker and enlist a good CPA, before you decide buying is not feasible for your situation. Good luck with your decision.

You can only deduct the depreciation and other expenses up to the amount of your rental income. So, you get no tax "benefits" other than the fact that you pay no tax on the $25k which I factored into my equation.

And, I disagree, using a rental agency makes things much easier for a landlord. A good agency takes most of the hassle out of renting--especially if you own multiple properties.

[fisher]

As I said, I'm not a Realtor anymore so don't have access to the MLS to quickly pull some data - and I'm not going to sift through public records ... Beach Dad can do that.

That said, I've heard of homes in WaterColor selling around $600-$700K and people getting incredible deals at auctions. And there is a lot on my block here in Point Washington that was just recently listed for $99K (or around there). That to me is a steal. Maybe some Realtors could quickly share some data with us?


Are you talking about one of the lots on East Point Washington or the one on Oak Street or the one on Georgie Street? Looks like some lots nearby several of these lots have sold for less than $99k over the last 6 months or so. So, is $99k really a steal?

Also, given the current state of the market, you would likely be better off putting your money in a 15 year CD at around 5% than buying a $99k lot from an investment perspective (does not take into account intangibles of simply wanting to own a nice piece of property). Hypothetically, you would be better off at the end of 15 years in the CD netting 3% after taxes than buying the $99k property with prices stagnant for 3 years then increasing by 6% per year thereafter. At the end of 15 years, after paying property taxes each year, then selling the property, paying broker fees and cap gains, you will have less money at the end of the period than you would by simply putting the money in the CD.

I don't believe an interior lot in Point Washington is worth $99k. Maybe the $25 to $30k the lots were going for just a couple of years ago is a better measure of the value. Lots in many areas of South Walton are retreating to levels from 2003 and 2004. That means your Pt Washington lot could have a huge way to go on the downside making the analysis above look all the better for the CD.

[Rather B. Paddlin]

?????????

You are able to deduct up to $25k of rental losses against normal taxable income with a Schedule E. Your are not limited to deducting $25k of expenses against your total rental revenue. Please see your CPA to verify.

Rental Agencies - Personal experience. I have used 3 different rental agencies. Marketing, renting, and maintaining multiple rental properties on your own is much easier and lot less expensive. Please talk to other rental home owners about there experiences.

[beachmouse]

Even if you bought wisely today and prices stagnate for the next few years, if you have purchased as a long term investment, according to history, things will swing up again.

More importantly though, if you rent for 2-3 years, you have lost that time to build equity - and helped the owner of your rental build theirs! There are many "what if's" in life ... this is an AMAZING place to live and we all have to be thankful we can afford to be here because many who would like to move here can't. Do your homework and you will see there is a perfect place for you RIGHT NOW to buy and call "home".


In a flat market, the rate at which you build equity in a home in the first five years isn't very good unless you're one of those freaks with a 15 or 20 year mortgage. Go look at the amoritization tables for a 30 year fixed, and look at how much interest you're paying in the first few years, and how little principal.

[Smiling JOe]

I am really tired of hearing this line of crap...

If you buy, you are building equity...

If you rent, you are throwing money away...


Lets actually look at this simplistic mainstream idea a bit deeper...

Lets assume as you have stated that the market will stagnate for a few years and I am looking to buy or rent next week...

Well if I looked to buy a home in South Walton and say as example I picked Village of Blue Mountain I would be looking to pay anywhere from $700k to $1.5M depending on the size....

Well if I meander on over to the rental department I can magically rent a home over 2,000 sq ft for $2,000/month in the same neighborhood... And this comparable size home in this neighborhood would be going for about $1.25 million...

So say I bought it at $1.25 million and I even put down 20%(doubtful to have $250,000 cash on hand for a down payment... but I am giving the benefit of doubt in this argument toward the buying side... I also won't even use this downpayment against you as far as the opportunity you have wasted by putting $250k into the house rather than letting it grow in a mutual fund or even a high yield savings) my mortgage with insurance taxes and interest would be no cheaper than $7000/month... This is assuming annual taxes at $7500/year and Annual Insurance at $2500/year... pretty low assumptions...

So knowing that very little of your PITI payment each month for your mortgage actually goes to Principal for the first 5 years of the loan... why would I want to spend $5000/month more to live in the same type of home...

Assuming you even had $7,000/month to spend on a mortgage would you not rather pay $2,000 per month to rent and save the difference ($5,000/month in even a high yield savings account???)

In this scenario with house prices stagnate and the difference from price to rent in five years that person could have saved and grown his savings to close to $350k in a simple high yield savings account with absolutely no risk... or he could fork over $7,000 per month and hope and pray everynight that his house appreciates like it was 2005 all over again...

I also left out maintenance costs, HOA dues, and maybe some other small things to again give the benefit of my math to the buyer.... But in the end, in my opinion you would be crazy not to rent for a few years and see how this thing shakes out...
The fault in this argument is your assumption of a flat market for the next several years. If it was a fact that the market will rely flat, your argument holds truth. The truth is that it is unkown what the market will do. Who knows, buying that property at the $600K mark, may prove to earn you an extra $300K. To say that you know what will happen doesn't hold water.

Also, one additional minor note: In your opportunity costs example, you mention mutual funds as one choice of investments where you say that money can "grow." Again, you make the assumption that all mutual funds will grow over the same period. I can give you many people's real life examples where their mutual fund investments were not growing.

[Smiling JOe]

I assume you are quoting gross rent. After deducting 33% or so percent for the rental agent. You are netting out $50k or so. Next deduct property taxes, utilities, maintenance, insurance, etc. You might be left with somewhere in the neighborhood of $20k to 30k. A return of 3% or less. CD's are running around 5% right now. So, you need appreciation of 2% per year to breakeven. That kind of appreciation ain't happening--in fact properties are depreciating right now. Bottom line--renting is a better option from a financial perspective right now.It isn't? :idontno: Tell that to the sellers who profitted around $1 million dollars on a $4.1M investment, of which I am sure wasn't paid for with 100% cash, on the sale of the property at 260 Blue Mtn Rd. It was purchased in April 05 while the market was still high in price. It recently sold in Aug 06, in this "down market" to which you guys keep referring. Let's say for our example that they put 10% down on $4 Million ($400,000). They paid interest on the balance of $3.6 million for 1.5 years at 6% per year, equalling $324,000. Add that to their costs of downpayment and you have a total cash out of pocket of $724,000. Oops, better throw in taxes and insurance. Assessed value being at $1.56 million would bring the taxes to around $15,000. Insurance? I have not idea the costs. Lets say its a crazy number of $50,000. So when we add those numbers to that total cash out of pocket in the investment, we get a total of $789,000. To receive the $1,000,000 return on the investment of $789,000, you get a before tax return on investment of 126%. Divide that by 1.5 years and you receive an avg annualized rate of return of 84%. Show me that CD that pays that.

...and this sale is in a "down market" for a property which was originally purchased in the peak.

There are plenty of example on both sides. My point is that if you shop, you can find a property which may work for you today.

[Indigo Jill]

In a flat market, the rate at which you build equity in a home in the first five years isn't very good unless you're one of those freaks with a 15 or 20 year mortgage. Go look at the amoritization tables for a 30 year fixed, and look at how much interest you're paying in the first few years, and how little principal.

Alas, but once again this is based on an assumption to support your point of view and you aren't "thinking outside the box" . Your are assuming that the buyer would be taking out a 30 year mortgage. If, after researching and doing one's homework, the buyer feels confidant that the property will stagnate for a few years (and remember, not one person here knows what is going to happen), there are options to accomodate for that out there (differnet types of financing, more cash invested (again, I'm not judging to say this is good or bad - if the buyer thinks it is a good idea, it's a good idea), etc.).

That is what is frustrating, a lot of pessimists here have no peripheral perspective. No one sitaution is the same - there are ALWAYS ways to make things work in every market, up and down and why some win and some lose in this game.

Again, just my opinion.

[Rather B. Paddlin]

S.J.

Great point. The rate of return needs to calculated against the cash out of pocket to purchase property not the total sale price.

It is true that overall properties have seen values decrease. But if you buy right, you will experience an instant 10%-20% equity gain that will neglect a slight decrease in the market.

Buying investment realestate that will have a great return is not easy, but it is very feasible with some work. If it was easy everyone would do it.

[Indigo Jill]

It isn't? :idontno: Tell that to the sellers who profitted around $1 million dollars on a $4.1M investment, of which I am sure wasn't paid for with 100% cash, on the sale of the property at 260 Blue Mtn Rd. It was purchased in April 05 while the market was still high in price. It recently sold in Aug 06, in this "down market" to which you guys keep referring. Let's say for our example that they put 10% down on $4 Million ($400,000). They paid interest on the balance of $3.6 million for 1.5 years at 6% per year, equalling $324,000. Add that to their costs of downpayment and you have a total cash out of pocket of $724,000. Oops, better throw in taxes and insurance. Assessed value being at $1.56 million would bring the taxes to around $15,000. Insurance? I have not idea the costs. Lets say its a crazy number of $50,000. So when we add those numbers to that total cash out of pocket in the investment, we get a total of $789,000. To receive the $1,000,000 return on the investment of $789,000, you get a before tax return on investment of 126%. Divide that by 1.5 years and you receive an avg annualized rate of return of 84%. Show me that CD that pays that.

...and this sale is in a "down market" for a property which was originally purchased in the peak.

There are plenty of example on both sides. My point is that if you shop, you can find a property which may work for you today.

:clap_1: Thank you SJ for the "real life" example.

[Bob]

Beach Dad, Full time is right about buying, because the consensus says rent. There are raw land deals out there. Builders need work now and are dismounting their Clydesdales. Make your homestead Florida and build a stout home exactly as you wish. The west end of 30A north of the road and Point Washington will provide you with a quiet location, without the hassles of short-term renters generally speaking. And, of course, mortgage rates are very low. If only we could have a permanent El Nino. Buy this spring after a full scouting foray, or wait and treat this whole process like a stock trade.

[TooFarTampa]

Beach Dad, Full time is right about buying, because the consensus says rent. There are raw land deals out there. Builders need work now and are dismounting their Clydesdales. Make your homestead Florida and build a stout home exactly as you wish. The west end of 30A north of the road and Point Washington will provide you with a quiet location, without the hassles of short-term renters generally speaking. And, of course, mortgage rates are very low. If only we could have a permanent El Nino. Buy this spring after a full scouting foray, or wait and treat this whole process like a stock trade.

I would say renting is a good idea just because it is smart for any relocating family to rent for a while to figure out what neighborhood is best for them (that said, we have never done that, and never regretted not doing it). Bob is right about the raw land deals. And remember, while you are holding onto the raw land, you do not have to insure it. Maybe consider buying a lot in a great location, and renting for two years or so while you refine building plans and search for a contractor. Hopefully in the meantime, the state will be able to deal with some of these insurance issues.

Good luck with the move!

[fisher]

Alas, but once again this is based on an assumption to support your point of view and you aren't "thinking outside the box" . Your are assuming that the buyer would be taking out a 30 year mortgage. If, after researching and doing one's homework, the buyer feels confidant that the property will stagnate for a few years (and remember, not one person here knows what is going to happen), there are options to accomodate for that out there (differnet types of financing, more cash invested (again, I'm not judging to say this is good or bad - if the buyer thinks it is a good idea, it's a good idea), etc.).

That is what is frustrating, a lot of pessimists here have no peripheral perspective. No one sitaution is the same - there are ALWAYS ways to make things work in every market, up and down and why some win and some lose in this game.

Again, just my opinion.

Realism is much different than pessimism.

My assumption was based on paying cash not taking out a mortgage. However, the analysis would be roughly the same whether you pay cash or take out a mortgage. I understand the tax code and I understand finance extremely well. The analysis is sound based on the assumptions. If you assume an increasing market, it looks like a good deal. A stagnant market for a few years or falling prices and its a bad deal based on the math and no intangibles involved in the decision making process.

[fisher]

It isn't? :idontno: Tell that to the sellers who profitted around $1 million dollars on a $4.1M investment, of which I am sure wasn't paid for with 100% cash, on the sale of the property at 260 Blue Mtn Rd. It was purchased in April 05 while the market was still high in price. It recently sold in Aug 06, in this "down market" to which you guys keep referring. Let's say for our example that they put 10% down on $4 Million ($400,000). They paid interest on the balance of $3.6 million for 1.5 years at 6% per year, equalling $324,000. Add that to their costs of downpayment and you have a total cash out of pocket of $724,000. Oops, better throw in taxes and insurance. Assessed value being at $1.56 million would bring the taxes to around $15,000. Insurance? I have not idea the costs. Lets say its a crazy number of $50,000. So when we add those numbers to that total cash out of pocket in the investment, we get a total of $789,000. To receive the $1,000,000 return on the investment of $789,000, you get a before tax return on investment of 126%. Divide that by 1.5 years and you receive an avg annualized rate of return of 84%. Show me that CD that pays that.

...and this sale is in a "down market" for a property which was originally purchased in the peak.

There are plenty of example on both sides. My point is that if you shop, you can find a property which may work for you today.


You are referring to the sale of land to the very desperate owners of Redfish Village that had to get a plot of land in order to get a beach access for all the condos they sold (see separate thread). I can quote 15 recent severe losses on sale to every gain on a recent purchase that you can quote. You should know better as a realtor that the market IS falling and falling hard. For you as a realtor to state anything to the contrary is a shame. Are you actually claiming that we are not in a down market??:confused: :confused: :confused:

Your math is bad too. In order to calculate return on investment, you need to compare the original cash outlay to the final cash inflow (you also need to consider the time value effect of cash outlays in between as for property taxes, but that calculation is too complex for this board).

So, here is the proper analysis. If they sold at $5.045 million, they netted $4.742 after a normal 6% commission. Then, they will pay from $110k to $150k in capital gains taxes on the sale. Subtract from that the after tax interest expense they paid of about $210k, the property taxes of $15k, closing costs of say 1.5% on the original purchase or about $60k, minor closing costs on the sale of say $15k. This will net the seller a profit of about $200k at closing (again ignoring the time value of money on the cash outflows between the purchase and sale dates). The annualized return on investment is around 30% (actually less if you do the real math including the time value of money on all of the other cash outflows between the purchase and sale date). Certainly a great return, but nowhere near where your interesting calculations went. Plus, lets call a spade a spade, these people got extremely lucky. A desperate buyer paid a lot of money to get a beachfront lot that they needed to try to placate a large number of potentially angry condo purchasers.

This situation is an anamoly and you know it as a real estate agent. You mention that there are lots of similar examples of great returns on property bought a the peak and sold during the bad downturn (which you imply doesn't really exist). There are 20, 30, 40 or more losses to go with every (this might be the only one as far as I can tell) gain that occurred on property bought at the peak in 2005 and sold mid to late 2006. I have seen losses of up to 45% on some transactions (and that return doesn't include carrying costs, closing costs, property taxes, etc).

[fisher]

?????????

You are able to deduct up to $25k of rental losses against normal taxable income with a Schedule E. Your are not limited to deducting $25k of expenses against your total rental revenue. Please see your CPA to verify.

Rental Agencies - Personal experience. I have used 3 different rental agencies. Marketing, renting, and maintaining multiple rental properties on your own is much easier and lot less expensive. Please talk to other rental home owners about there experiences.

RBP--if you are deducting rental expenses that exceed your rental income on your tax return, I suggest you see a good lawyer.

Rental income and expenses on a personal tax return are called passive activitie. If you expenses from a passive activity exceed your income from a passive activity, the resulting passive loss cannot be deducted against anything but other passive losses. You cannot deduct passive losses against regular income (ie:salaries and wages, regular business income, etc). My example was correct in that you cannot deduct the rental expenses if they exceed rental income.

[Indigo Jill]

Realism is much different than pessimism.



Touche, fisher... realism is much different than pessimism.

I guess I'm just trying to convey that the definition of "realism" is what separates on this thread. My perceived reality of the current market situation is different than your perceived reality in that I do think a savvy investor, especially those with a long term strategy, can buy now and do well in their investment. There are a milllion variables involved between one transaction and another, and every person's situation is the NOT the same. That is why sweeping generalizations (like saying that the market sucks or that it is great) are not accurate. Everyone has a story - as SJ's real life example shows and conversely, as the one's who have an opposite experience show.

[Rather B. Paddlin]

Fisher,

Thanks for your two bit advice; but I have great lawyer, a great CPA, and awesome broker. Maybe you do not know as much as you claim to. My only advice on this board is to get advice from a professional.


FYI, see below.


If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.

If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income.

The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. See Phaseout rule, later.

Example — Deducting Passive Income and Losses
Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and less than $100,000 of modified adjusted gross income. She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages).

[Rather B. Paddlin]

Beach Dad,

Sorry this thread has taken on a life of its own. The best 2 pieces of advice I ever received in life.

1. Surround yourself with good people.

2. Buy when no one else wants to buy , sell when no on else wants to sell.


I am sure you will make the best decision for you and your family, see you at the beach.

[Rather B. Paddlin]

My perceived reality of the current market situation is different than your perceived reality in that I do think a savvy investor, especially those with a long term strategy, can buy now and do well in their investment.



Indigo Jill - well said.

"In the middle of difficulty lies opportunity". A.E.

[Indigo Jill]

Beach Dad,

Sorry this thread has taken on a life of its own. The best 2 pieces of advice I ever received in life.

1. Surround yourself with good people.

2. Buy when no one else wants to buy , sell when no on else wants to sell.


I am sure you will make the best decision for you and your family, see you at the beach.

I ditto RBP here, Beach Dad. And what we have all failed to acknowledge, myself included, in this thread is what "value" can you place on the quality of life here? That, IMO, is priceless.

Yes, analyzing the data and statistics about how the market is performing shows a correction taking place. NO one here, I think, is debating that at all! It is and it's ugly for many people. There are a lot of sad stories because the masses converged on the area over the last few years and many are losing their shirts right now. I liken it to what I call the "Money Magazine" phenomenon. By the time the "hot stock tip" hits the fine print, it ceases to be a hot tip and people make bad decisions and suffer negative consequences because of it. IMO, it's the SAME phenomenon here, except the investment vehicle is real estate, not stocks. That intuitively tells me that a lovely buying opportunity exists for the seasoned and/or educated investor right now.

Good luck to you Beach Dad! This is an amazing place to raise kids and I don't think you'll be disappointed whatever you decide to do.

[Smiling JOe]

You are referring to the sale of land to the very desperate owners of Redfish Village that had to get a plot of land in order to get a beach access for all the condos they sold (see separate thread). I can quote 15 recent severe losses on sale to every gain on a recent purchase that you can quote. You should know better as a realtor that the market IS falling and falling hard. For you as a realtor to state anything to the contrary is a shame. Are you actually claiming that we are not in a down market??:confused: :confused: :confused:

Your math is bad too. In order to calculate return on investment, you need to compare the original cash outlay to the final cash inflow (you also need to consider the time value effect of cash outlays in between as for property taxes, but that calculation is too complex for this board).

So, here is the proper analysis. If they sold at $5.045 million, they netted $4.742 after a normal 6% commission. Then, they will pay from $110k to $150k in capital gains taxes on the sale. Subtract from that the after tax interest expense they paid of about $210k, the property taxes of $15k, closing costs of say 1.5% on the original purchase or about $60k, minor closing costs on the sale of say $15k. This will net the seller a profit of about $200k at closing (again ignoring the time value of money on the cash outflows between the purchase and sale dates). The annualized return on investment is around 30% (actually less if you do the real math including the time value of money on all of the other cash outflows between the purchase and sale date). Certainly a great return, but nowhere near where your interesting calculations went. Plus, lets call a spade a spade, these people got extremely lucky. A desperate buyer paid a lot of money to get a beachfront lot that they needed to try to placate a large number of potentially angry condo purchasers.

This situation is an anamoly and you know it as a real estate agent. You mention that there are lots of similar examples of great returns on property bought a the peak and sold during the bad downturn (which you imply doesn't really exist). There are 20, 30, 40 or more losses to go with every (this might be the only one as far as I can tell) gain that occurred on property bought at the peak in 2005 and sold mid to late 2006. I have seen losses of up to 45% on some transactions (and that return doesn't include carrying costs, closing costs, property taxes, etc).Okay, you are right I forgot to include the extra four months in the taxes and interest, but I did include added a couple of extra months when calculating the percentage of return. I did fairly mention that it was "BEFORE TAXES," as does your example of a CD or savings account returning around 5%. You pay taxes when you profit -- just a way of life. So comparing apples to apples, even using your after tax percentage for return of 30%, it still beats the heck out of 3% on that savings account for this scenerio. What is the inflation rate these days. :scratch:

Maybe you didn't read the last part of my post which clearly states that I can find particular examples of both sides of this coin. Sure Redfish Village was in a pinch, but so are some of the sellers who sold at losses. ;-) Don't read too much into it. Good deals do exist, but they are not the majority of the listings. I put "down market" in quotes because you and others say use the term so often, but that doesn't mean that good values don't exist. Like couple of other people said, in markets you make your money doing the opposite of the masses. If I correctly recall, the original poster, asking the question, is looking to purchase or rent a home, not seeking a rate of return on investment.

[fisher]

Fisher,

Thanks for your two bit advice; but I have great lawyer, a great CPA, and awesome broker. Maybe you do not know as much as you claim to. My only advice on this board is to get advice from a professional.


FYI, see below.


If you or your spouse actively participated in a passive rental real estate activity, you can deduct up to $25,000 of loss from the activity from your nonpassive income. This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Similarly, you can offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception.

If you are married, filing a separate return, and lived apart from your spouse for the entire tax year, your special allowance cannot be more than $12,500. If you lived with your spouse at any time during the year and are filing a separate return, you cannot use the special allowance to reduce your nonpassive income or tax on nonpassive income.

The maximum special allowance is reduced if your modified adjusted gross income exceeds certain amounts. See Phaseout rule, later.

Example — Deducting Passive Income and Losses
Kate, a single taxpayer, has $70,000 in wages, $15,000 income from a limited partnership, a $26,000 loss from rental real estate activities in which she actively participated, and less than $100,000 of modified adjusted gross income. She can use $15,000 of her $26,000 loss to offset her $15,000 passive income from the partnership. She actively participated in her rental real estate activities, so she can use the remaining $11,000 rental real estate loss to offset $11,000 of her nonpassive income (wages).


The key in your quote is actively participated in the passive rental income activity. In my example, I mention using a real estate manager to handle the renting of my property. In that case, the losses are not allowed. If in your example, you are totally mananging the rental property activity and not using an agent, then you can deduct up to $25k. If you use a management company to handle your rentals as the majority of folks do, then you do not qualify for the exemption.

[Chickpea]

:roll: I'm living out my lifelong dream of relocating my family here from Tx June 1st and am working through the pros and cons of the current market conditions. I'd love to hear from some of you regarding an objective view of pricing. I'll admit my mindset has become very jaded due to a number of factors. Side note: If you live in Rosemary Beach, don't even bother reading further, you are either retired, independently wealthy, or mortgaged out the wazoo and this lengthy post will bore you.

I'll preface this by saying I don't think I've ever seen so many real estate agents in one particular locale than I've seen here. And with all due respect, I don't expect any one of them to voice anything but optimism about how pricing and demand is right on the verge of taking off. (I'm very skeptical due to the fact that I read that there are over 11,000 listings right now along the Emerald Coast - supply is considerably higher than demand.)

I want someone to tell me what they would tell their son, friend, or business aquaintance they would do, if they were in my shoes. Not try to sell me on the area, just talk honestly about how to get the best value for my housing dollar.

That being said, I think that I am a great prospect for a home purchase. My income is above average, my credit excellent, and my job allows me to live anywhere along the Panhandle. My preference is to live as close to water as possible (and know that waterfront is out of the question). I don't want to have to drive across the causeway or Mid-bay bridge to get to the beach. Bluewater Bay is nice, but not my cup of tea.

However, it now seems that every mudhole with a trailer in this area has been listed at $300K. And I've been coming down here for 40+ years and I've never seen that kind of seller optimism. The number of homes in the $300K to $400K range is disappointing. And my view is that if I'm going to spend $500K for a 3 bedroom 2+ bath home here, I'll definitely build what I want, not buy a 70's home that somebody is trying to flip for a big profit because their agent has convinced them they can get it.

Am I the only guy in the grit eating world that thinks that a price correction is still yet to come? I understand that there is a lot of money coming into this area, but with homeowner's coverage and property taxes rising, I've got to believe that there are a number of folks in Atlanta, Bham, Memphis, etc, who have overextended themselves. If your taxes and insurance are $700/month, that can seriously impact your monthly mortgage note (escrow).

Am I nuts in my thinking? Is this California? I hope this area has not become unaffordable for the average family fortunate enough to live in this incredibly beautiful area. I'm seriously considering renting for a year to watch and wait. I'd love to hear what you would do if you were in my shoes. Thanks for allowing me to type this novel.

Beach Dad,
I have read this thread with interest as we were in the exact situation you were in about 3 years ago. The parallels are very similar.
Before I share our story I can tell you that I lean on the optimistic side of life and agree with Indigo Jill and SJoe's arguments AND I will also add that we are VERY fiscally conservative.
We rented for a year here because when we moved here we were alarmed at the asking prices - we then proceeded to watch prices escalate and escalate.... we finally decided to buy when we made the decision that Sowal was where we wanted to live. So we bought in Jan 2006! To many people this was probably a foolish decision - to us, we have no regrets although we have certainly not seen double digit appreciation (nor have we seen the value tumble). What drove our decision principally was that we loved the area, our kids (6 and 2) also love it and we feel we own a bit of paradise. I have never lived in a house where values doubled in a year so in a way I am not spoiled - if we see 5-10% appreciation we will be tickled pink. If our property stagnates and we break even, we will still consider ourselves lucky because we got to live in an awesome place. And if our property plummets, then we will have no choice than to deal with it and hope that we do not lose too much - either way it was a calculated risk and one that we do not regret in any way.
Good luck in your decisions -do arm yourslf with a good realtor and take your time looking and discovering different areas that you would consider buying in - then it is up to you o decide if you want to wait in the hopes that prices fall :idontno: OR make an offer.
No-one here has a crystal ball despite many people thinking they do. No-one can predict to what degree prices may or may not fall or if they will go up or stay stable - do your research, stay informed and enjoy Sowal regardless of whether you chose to rent or buy!

[fisher]

No-one here has a crystal ball despite many people thinking they do. No-one can predict to what degree prices may or may not fall or if they will go up or stay stable - do your research, stay informed and enjoy Sowal regardless of whether you chose to rent or buy!

Agreed.

Beachdad--sorry I had a part in gumming up your thread about renting versus owning with lots of bickering amongst the group.

Whatever your decision, I'm sure you will love the lifestyle in South Walton. Good luck and if you decide to buy, I hope you make a fortune on the investment.

[Beach Dad]

Not a problem. Nothing wrong with a little spirited discussion. Hey, we are all passionate about something. I guess the key to debating is to remember to attack issues, not people. And that goes for all of us, particularly on message boards. As I used to tell my sales reps, don't use email (or posts) as a club to beat people over the head. Use discernment in what you say.

As mentioned earlier, I really appreciate the feedback. And I thank all who chose to email me directly and to reply.

Can we all agree that living here is awesome? Think I'll send my friends a postcard with some white sand taped to it. :-)

[Bobby J]

Not a problem. Nothing wrong with a little spirited discussion. Hey, we are all passionate about something. I guess the key to debating is to remember to attack issues, not people. And that goes for all of us, particularly on message boards. As I used to tell my sales reps, don't use email (or posts) as a club to beat people over the head. Use discernment in what you say.

As mentioned earlier, I really appreciate the feedback. And I thank all who chose to email me directly and to reply.

Can we all agree that living here is awesome? Think I'll send my friends a postcard with some white sand taped to it. :-)

I agree! Did you see the surf and beach on Saturday!!!! Priceless!!:clap_1:

[Babyblue]

Not a problem. Nothing wrong with a little spirited discussion. Hey, we are all passionate about something. I guess the key to debating is to remember to attack issues, not people. And that goes for all of us, particularly on message boards. As I used to tell my sales reps, don't use email (or posts) as a club to beat people over the head. Use discernment in what you say.

As mentioned earlier, I really appreciate the feedback. And I thank all who chose to email me directly and to reply.

Can we all agree that living here is awesome? Think I'll send my friends a postcard with some white sand taped to it. :-)

Send them a picture and they will envy you!:chill:

[spinDrAtl]

The key in your quote is actively participated in the passive rental income activity. In my example, I mention using a real estate manager to handle the renting of my property. In that case, the losses are not allowed. If in your example, you are totally mananging the rental property activity and not using an agent, then you can deduct up to $25k. If you use a management company to handle your rentals as the majority of folks do, then you do not qualify for the exemption.

Using a management company does not necessarily exclude you from 'actively participating'. Active participation is defined as 500 hours during the year. Many people do a lot of their own rentals, do maintenance, maintain websites, etc. etc. Document your time spent on your rentals and as always, talk to a professional.