How to Make Money in South Florida Real Estate
By Dr. Steve Sjuggerud
Ah... 70 degree weather, with toes in the sand...
While the East Coast was hit with a record snowstorm over the weekend, my wife and I spent a few days away from it all in Palm Beach, Florida.
Palm Beach County is a fantastic place to be in the winter. But I was shocked reading the local papers. Practically everyone in Palm Beach County, it seems, is underwater on their mortgage...
- A full 20% of Palm Beach County mortgage holders are 90 or more days late on their payments.
- The number of foreclosures in Palm Beach County is up TENFOLD. (The Palm Beach Post reported the number of foreclosures rose from 3,049 in 2005 to 30,227 in 2009.)
- The chief judge said the county has a backlog of 55,000 foreclosure cases – in a county with only 1.4 million people!
It's not just Palm Beach County... Homeowners all over the state are seriously underwater. Florida has the worst foreclosure inventory in the nation, estimated at over 450,000 homes as of the end of 2009.
People ask me, "When is real estate going to recover in Florida?"
My answer, in short, is not for a while... not until we burn through all these foreclosures and all this excess inventory.
We have other things to burn through as well... All the guys who are "holding and hoping" must finally give up.
Banks, for example, are holding and hoping... Banks should be liquidating houses they're stuck with. But they don't want to write off the loss, and they're hoping for higher prices. They have to give up.
Also, all the smaller local real estate "tycoons" who got rich from having debt in a bull market have to move on and find another career. Right now, they're still holding on.
It's the basic nature of bubbles... The more excessive the bubble, the longer the hangover is. And the longer the bubble, the longer it takes for the people who need to give up to actually give up. Prices can go down for much longer than people can imagine.
Yes, homes in Florida are incredibly cheap... Home prices in Miami (for example) are down nearly 50% from their 2006 peak. By buying today, you really get a lot of value in relation to income and the standard of living.
But the reality is, there is way more supply than demand. This comes down to basic economics... When supply is greater than demand, prices fall. I don't expect them to fall much farther. But buying and holding for appreciation won't be your best strategy today. That will really only work once the local tycoons have finally thrown in the towel.
While I don't expect a big bounceback in home prices, you can still make money in Florida real estate...
The correct way to buy in Florida now is to try to buy at 50 cents on the dollar – or better. That's 50 cents on the dollar – based on a conservative estimate of today's value, not on its value at the peak.
Then, if you had to sell, you could sell it for 75 cents on the dollar or more... for a 50% return.
That way, you don't need prices to go up... You are simply buying from a desperate seller and selling when you're not desperate.
These deals exist. But you have to look for them. Somebody needs your money right now. You find them by making lowball offers.
Folks in Palm Beach County – and most of South Florida – are underwater in terms of real estate. With the overhang of foreclosures and supply, it will be a while before prices start really climbing again. But you can still make money.
It is an absolutely beautiful place to consider buying... toes in the sand in 70 degree weather sure is nice... particularly in the winter.
Now is the time to start poking around... to start making lowball offers. Just make sure the deals make great sense for you, even without factoring in future price appreciation.
Then you'll have a place to put your toes in the sand in the winter, at a great price, for years to come.
Good investing,
Steve
P.S. I'm making 18% a year on Florida real estate right now. It takes more work than buying a stock online... but it's worth it! And you can get started with just a few thousand dollars. Read more about my strategy here.
If you're ready for a bigger commitment, here's my essay on how to get $50,000 tax-free on "unfair" real estate deals. |
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INCREDIBLE PRICE ACTION IN COPPER
Traders take note: Copper just "jumped out the window."
There's a classic Wall Street saying that goes, "The bull walks up the stairs and the bear jumps out the window." Bull markets tend to march higher and higher as money required to boost prices steadily flows in. When at last there are no new buyers, investors can see months and years of gains erased by a fast decline... We're seeing this phenomenon at work in the vital commodity we call Dr. Copper.
Below is a two-year chart of the red metal. Note how copper suffered a huge decline during the 2008 credit crisis. This decline bottomed at $1.30 per pound that December. Copper then staged a huge rally to $3.40 per pound over the next year. But in just the past two weeks, the bear has "jumped out the window" and erased three months of price gains. This decline has also smashed copper's year-long trendline.
Is this incredible copper decline reason "batten down the hatches" and expect the economy to head lower again? Not necessarily. But we can say copper has been punched in gut... and more losses here will at least get us prepared to "batten."
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Gloom, Boom and Doom editor Marc Faber says big banks are the freakish offspring of easy Fed money.
"The baleful reality is that big banks, the freakish offspring of the Fed's easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed," Faber says.
During the recent quarter, the preponderance of Goldman Sachs' revenues came from trading in bonds, currencies and commodities, Faber tells the Financial Times.
"But these profits were no evidence of Mr Market doing God's work, greasing the wheels of commerce and trade by facilitating productive financial transactions," Faber says.
Instead, they represented "the fruits of hyperactive gambling in the Fed's monetary casino – a place where the inside players obtain their chips at no cost from the Fed-controlled money markets, and are warned well in advance, by obscure wording changes in the Fed's policy statements, about any pending shift in the gambling odds."
– Newsmax
Currency speculators have increased their bets against the euro to the highest level since the creation of the single currency.
Figures from the Chicago Mercantile Exchange, often used as a proxy of hedge fund activity, showed investors increased their bets against the single currency to record levels in the week to February 2.
The news came as the euro dropped to a series of multi-month lows against the dollar, culminating last Friday when the single currency fell to an eight-month trough of $1.3583.
– Financial Times
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