Stay Ahead Of The Market With Stateside Stock

"Whether we are talking socks or stocks, I like buying quality merchandise when it is marked down." Warren Buffet.

The flurry of foreclosures across the USA, as widely reported and covered in our article Foreclosure Facts and Why Now Is the Time To Act*, resulted in the ready availability of massively-reduced Stateside property.

This is particularly true of foreclosure ‘hotspot', Florida. Now, savvy investors are snapping up luxury, tenanted, Florida condos and family houses for around 70% below peak pricing.

Whatever happens in the foreclosure story next, the appeal of Florida is summed up by one investor who simply says: "Everyone I know wants to move to Florida!"

Hotspots in the Sunshine State:

The Sunshine State has a strong economy, a stable legal system and secure property rights - coupled with lots of sunshine. The area has always maintained its fundamental attractions and is predicted to recover, most likely ahead of the rest of the US property market, as it did back in the early 1990s. Specifically, we are expecting Florida property to double in price in the next five years.

The current bargain prices in Florida are certainly attracting a large number of overseas investors, many of whom are purchasing tenanted condos until market values boom again.

There is an incredibly high demand for quality rental property in Florida and, if you invest through Axis, tenancy is guaranteed. You can typically expect an 8% to 12% rental yield while your investment rises in value.

The Miami movement:

Peter Zalewski of a Florida-based property consulting and brokerage company, Condo Vultures, comments: "I have never seen such a high concentration of foreign nationals acquiring real estate. Some 80% of sales in downtown Miami are foreign based. This is unprecedented."

According to the Miami Association of Realtors (MAR), condo sales in Miami, specifically, are up 21% in Q3 2010. This is a 73% rise from Q3 2008. The current median sales price for Miami condos is $104,600, which is significantly higher than the $45,000 to $80,000 investor prices we at Axis achieve for our clients.

Jack Levine, chairman of MAR, explains: "These figures [in Miami] reflect the stabilisation of the single-family home in South Florida and the overall demand that exists for local properties. Local sales are now at near normal levels and we expect the local market to continue to strengthen."

Certainly, the market rise in Miami is a fair indication the rest of Florida is soon to follow.

Words to the wise:

However, we wouldn't recommend that investors try to navigate the market alone. Unless you know the market inside out, already have an LLC (US equivalent to a Limited Company), a US bank account and six months (plus an additional $100,000 USD / £63,000 GBP) free to spend in the USA, at auctions, arranging and managing renovations, finding and installing tenants ... and then having to fly backwards and forwards to deal with whatever needs dealing with.

All sounds like a bit of a headache, doesn't it!

Axis clients, however, can be assured all our investment properties have passed the due diligence of our US partners. They will have been renovated and refurbished to a tenant-ready standard and come tenanted, or with a rental guarantee. We and our partners also ensure all paperwork is correct and legal procedures are arranged on your behalf. In brief, you simply don't have to worry as we handle everything for you as a hands-off, armchair investment.

200% to 500% Return On Investment:

Successful investing in Florida can bring you a generous 200% to a truly whopping 500% Return On Investment in a three to five year timescale. But you have to know exactly what you are doing. You, as an Axis investor, may not have to worry about the finer details, but we always recommend you understand your investment as clearly and fully as possible. So, in this article, we are going to share our knowledge with you.

Before we look at the market in more detail, let's differentiate the types of bargain US stock.

REOs:

The term Real Estate Owned (REO) is often used ambiguously to describe repossessed (foreclosed) property, but it is not the same thing as a foreclosure. Rather, an REO is produced as a result of a failed foreclosure sale.

Many foreclosure auctions in the States do not even result in bids, as the property has often fallen into a state of disrepair and requires renovation and refurbishment. If this happens and a buyer cannot be found, the mortgage lender repossesses the property to sell separately. This is an REO.

Foreclosures:

Foreclosure sales begin with a minimum bid which includes the loan balance, any accrued interest, attorney's fees and any costs associated with the foreclosure process. In order to bid at a foreclosure auction, you must have a cheque (or cash) ready to fulfil your bid and, if you are successful, you receive the property in "as is" condition. This means the property may be tenanted or not and may include liens (bad debts) attached to the property.

Short sales:

In a short sale, the bank or mortgage lender agrees to discount the loan balance in order to avoid the foreclosure process. This means that rather than repossessing the property, the bank or lender allows the homeowner/debtor to sell the mortgaged property for less than the outstanding balance of the loan/mortgage and then accepts this amount as a reduced payment.

Despite the reduction, banks and lenders incur a smaller financial loss with a short sale, than they would from a foreclosure or continued non-payment. Short sales are typically faster and less expensive than foreclosures for the homeowner/debtor as well. They are also less damaging to credit reports, but do not necessarily extinguish the remaining balance unless full and final settlement is clearly indicated on the acceptance of offer.

Too good to be true?

So, what does this mean for you, the investor? Firstly, it means if you look at US property websites such as Zillow and Trulia, you might see incredibly similar properties for sale at, say $25,000 USD (just under £16,000 GBP) and $45,000 USD (just over £28,000 GBP). Does this mean the $25,000 sale is the ‘better' bargain? Does this mean the $45,000 comparable is incorrect or overinflated? Absolutely not!

US property websites (Zillow, Trulia, etc) are so scattered with REOs, foreclosures and short sales, it is incredibly difficult to obtain true comparables. It is crucial to be able to follow up on inspection and due diligence on these types of properties, as there will always be a reason the cheaper property of the same type is so cheap.

Typically, this is because it requires extensive renovation before it is rentable and/or because liens (bad debts) are attached to the address. Liens, taxes and outstanding fees can typically amount to $10,000 to $20,000 per property. Standard refurbishments, with white goods etc, are typically around another $10,000 per property. So, with these two factors alone, your $25,000 ‘bargain' is already costing you in excess of $45,000 ... and it doesn't stop there.

Liens, taxes and building work, oh my:

Secondly, the procedure to bid for such properties is so tight, it is essential to be in situ to do so. To purchase these types of properties you need to have:

• A US company already formed and operational (LLC).
• Proof of funds.
• A local builder to complete required renovation work to a satisfactory level.
• A local attorney who can check title and liens and advise of any bad debts which are attached and need to be paid.
• The ability to close in seven days.
• To be available to complete your due diligence.

The Freedom Plan for Florida:

Axis handles all these areas for our investor clients and more. For example, although such US sales are more often than not cash deals, we can even offer 60% financing on some of our investment options. Our Florida partners have many years of experience and all procedures in place to make your US armchair investment as easy and lucrative for you as possible.

The Freedom Plan for Florida

Axis handles all these areas for our investor clients and more. For example, although such US sales are more often than not cash deals, we can even offer 60% financing on some of our investment options. Our Florida partners have many years of experience and all procedures in place to make your US armchair investment as easy and lucrative for you as possible.

For details of our currently available Florida properties and/or further information about investing in Florida or the USA as a whole, contact Greg Glagow, Axis US portfolio manager, for a no obligation chat. You can reach Greg on our US hotline on 0333 444 1440 or via email at greg@axiscontact.com

*Read the foreclosure article here

Live with Abundance

Posted in Property in Florida

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