What: Property Investment Business Trip
When:13 Sep – 30 Sep 2010
Where: Towns of Inverness and Hernando in Citrus County, Florida, USA
Why: To look for property deals.
Why Inverness and Hernando in Citrus County?
We already have two rental properties in the area; one in Inverness and one in Hernando. The houses are separated by less than a mile but just straddle on the town borders. Also, we’re already connected with a property management team locally; they’ve been managing our properties for about 16 years.
Is the economy as bad as they say?
Yes. The general feeling I got was folks are struggling. They’re just happy to have a job; any job. And, those without jobs are looking for a job; any job. And, people are moving to take jobs and/or look for jobs.
How do you know?
I formed my opinion about the bad economy by talking to people. Lots of people. Mostly locals. And, the best activity for meeting and talking to locals was the humble garage sale. (For more, see my blog article “My Secret to Discovering the Economic “Heartbeat”).
Is now a good time to buy in the USA?
Remember folks, this an “opinion” question. You ask 10 people, you’ll get 10 different answers. Who’s right?
So, in my opinion, this is an excellent time to buy in the USA. Now, I’ll only address the area of Citrus County Florida, because that’s where I was based. But, last time I checked Citrus County was in the USA so it falls within the parameters of the question!
My reasoning is based on the following:
The Deal: I always look at the deal at hand to make investment decisions. So, what’s the deal? It’s simple. You can pick up a new or newer home for under $100,000 and rent the home easily for $800 or so a month. In my book that’s a good deal.
How do you figure this is a good deal? Let’s bring this deal back to Australia and run the equivalent numbers. Let’s say you bought a house in Alice Springs today for $400,000 (You wouldn’t get much of a house at this price!). What rent would you have to attract to match the deal in Florida? We’ll this is what I calculated; see if you get the same result. To match the deal in Florida, your Alice Springs $400,000 home would have to rent for over $700 a week! Now, I agree, rents are very high in Alice Springs, but they’re not that high yet! If you could find such a deal in Alice Springs, would you take it? I would.
I can’t predict the future. Since I can’t predict the future, I don’t even try. What if the economy gets worse? What if the house prices drop even lower? What if the unemployment rate goes higher? How do I deal with these questions? Easy. I ignore them. Why? Because they’re not relevant to the deal. They’re what I call “distractors.” Things that imobilize people from taking positive constructive action. Action that will benefit them years down the track.
What else do you ignore? Good question. Remember the boom time from 2005-2006 in the USA? People were saying things like, “You better buy now or you’ll miss out on all the capital gains over the next few years!” Or, “Go ahead and borrow all the money because in a few years – heck, maybe less – your house will be worth a lot more!” Guess what? I ignored these comments as well; just more distractors. These comments are not germane to the deal. Can the person making these statements guarantee them? Then how can you base an investment decision on these futuristic predictions? Doesn’t make sense to me. And, people were entering into deals that didn’t stack up; buy a house for well over $200,000 and it only rents for $700 a month. That is not what I’d call a good deal. Then when housing prices crashed in 2007 or so, people started to panic. They were counting on the capital growth. But, the capital growth never came.
Keep it real; keep the focus on the deal. So, just like I ignore the gloom and doom reports of the economy going down the tubes, I also ignore the euphoria associated with a boom market. In my opinion, these future predicting activities are not relevant and usually only work to bring you to the wrong conclusions. For instance, if you factor these future predictions into the deal then … in the boom-time you buy at high prices and in the bad-times you miss the bargains or you sell at low prices. Now, is that really a profitable strategy?
So What is Relavent to the Deal?
Here’s something that’s relavent … can you get the property rented at a price that makes the deal work? This is the question I had during my Florida property search. So, I set out asking agents this very question. Over and over I got the same response. Essentially, they told me three bedroom houses are in high demand. “Can’t get enough of them.” “They get scooped up as soon as we get them.” “You give me a three bedroom house and I’ll have it rented in no time.”
This is a “now” assessment. Not a future prediction of what rentals will be in a year or what they were a year ago. It’s what’s happening now and that’s what I want to know for my decision making.
A year from now, the rents might be lower. I like to factor in a buffer to account for such an event. But, the rents just as likely (or more likely) could go up in a year. That’s an event I can live with.
After talking to the agents, it appears there are more and more renters entering the market as people get displaced from their homes through “short sales” and/or foreclosures. So, the rental market should be quite buoyant for some time. But, it’s only my guess based on listening to the local agents. And, I won’t use this “guess” as part of my decision making process. If rents drop, I must be prepared financially to cope. Hopefully, I’ll set the deal up so that even if the rent drops the numbers still work. So, next year if the rent drops from $850 to $750 a month, it’s still a very good deal.
But, But, But? But what if …? But, what about …? But, have you considered …? Here’s the bottom line. You can never take all the “buts” out of a deal. And, why would you want to? That would eliminate all the risk. And guess what? Without some risk, you don’t have a deal. Why, because every deal must have some associated risk; if not, then there’s no opportunity for profit. Take away the risk; take away the profit. The only way to profit without risk is via illegal or deceptive methods. Who wants to make money that way? Not me.