Real Estate Ranks Tops Among Investments

Real estate is Americans' top investment choice, according to a new Bankrate survey. The survey asks Americans what kind of investments made the most sense and 27 percent said they'd invest in property if they had a pool of spare cash.

CDs and other cash investments – previously the top answer in Bankrate's 2013 and 2014 surveys – came in second at 23 percent. Only 17 percent of survey respondents said they’d purchase stocks; 14 percent said gold and other precious metals; and 5 percent said bonds.

"We're not seeing the bunker mentality from individual investors to the same extent of the past few years," says Greg McBride, CFA, Bankrate's chief financial analyst. "But the preference for real estate over, say, the stock market, does beg the question of whether or not Americans are again viewing residential housing as a golden ticket."

Geographically, Americans living in the West or in urban areas showed the biggest preference toward real estate investments at 35 percent and 31 percent, respectively. Americans living in the South also showed a strong preference for real estate and cash investments, while those living in the Midwest said they preferred cash and stocks over real estate.

Source: "Survey Reveals Americans’ Top Investment Choice: Real Estate," Bankrate.com (July 2015) 

7 Florida’s cities best in for real estate investment

SAN FRANCISCO, Calif. – The JWB Group, a real estate analysis company, created a list of top U.S. cities for investors who want to buy real estate for use as a passive investment. JWB says several sources of independent data were used to compile the list, but it did not include rental communities that can have fluctuating rent indexes.

Seven Florida cities made the top 25 for passive real estate investment, with Jacksonville landing in JWB's No. 1 spot, followed by Ocala and Palm Bay.

"People who have money to invest are not always experts in housing industry investments and can have many questions before investing an IRA or cash funds," JWB's report said.

Top 25 U.S. cities for passive real estate investment

1. Jacksonville, Fla.

2. Ocala, Fla.

3. Palm Bay, Fla.

4. Memphis, Tenn.

5. Las Vegas, Nev.

6. Toledo, Ohio

7. Detroit, Mich.

8. Orlando, Fla.

9. Syracuse, New York

10. Atlanta, Ga.

11. Richmond, Va.

12. Kissimmee, Fla.

13. Homosassa Springs, Fla.

14. Muskegon, Mich.

15. Tampa, Fla.

16. Mobile, Ala.

17. East Stroudsburg, Penna.

18. Marietta, Ga.

19. Baltimore, Md.

20. Clarksville, Tenn.

21. New Orleans, La.

22. Cincinnati, Ohio

23. Indianapolis, Ind.

24. Tacoma, Wash.

25. Milwaukee, Wis.

Source: Florida Realtors®

Investors turn to crowdfunding for flips

NEW YORK – March 30, 2015 – As home prices rise, investors looking to cash in are back to flipping properties – but more are now using online crowdfunding sites to fund their flips.

Unlike the housing boom days, lenders are showing more caution in granting financing to buyers who want to quickly rehab a property and then sell it for a profit. As a result, investors are turning to other financing avenues to fund their flips.

In addition, a growing number of online crowdfunding sites offer some financial aid for housing flips.

Ben Walhood in Chicago, for example, says he turned to RealtyShares in San Francisco, an online crowdfunding platform. Walhood has gotten his property purchases funded by individual investors from across the country who lend him money for single-family flips. He pays interest on a loan, and the investors earn about a 9 percent return.

With crowdfunding, the interest charged is much higher than conventional financing, however – loans backed by Fannie Mae and Freddie Mac are in the 4 percent range, while Walhood pays about an 11 percent interest rate through crowdfunding. The higher interest rate might make sense, however, if the home won't be held for long before the resale. Walhood says he plans to flip the house in three months, so he only will pay the higher rate for a short time before he pays off the full loan.

"This gap has been left by banks that now crowdfunding platforms, like RealtyShares, are able to fill," Nav Athwal, CEO of RealtyShares told CNBC. "They are able to provide quicker, more efficient capital that helps meet the needs of these investors who are looking for speed of execution and the ability to be flexible with their terms, as well as with the underwriting standards. Banks just aren't meeting that need."

Athwal says RealtyShares funded about 70 projects last year and about 30 so far this year (90 percent of the projects which have been fully funded).

Other real estate crowdfunding sites are also popping up, such as RealtyMogul, Fundrise, Groundbreaker and PatchofLand. Many of those sites focus on commercial projects, though. RealtyShares is one of the few to focus on the single-family flip market, CNBC reports.

Source: "Crowdfunding House Flippers: Risks and Rewards," CNBC (March 26, 2015)

Best Florida home investments found in smaller cities

DORAL, Fla. – Feb. 26, 2015 – Investment advisor NerdWallet recently compiled a list of the current top Florida cities for investors. To determine best potential and limited risk, NerdWallet writer Kamran Rosen offered this analysis:

Market health. We looked at how quickly houses sold compared with other cities in the state, as well as the change in vacancy rate.

Price per square foot. Weighting for affordability, we measured the price per square foot of housing in a city, averaging all months of 2013 and 2014 to avoid seasonal fluctuations.

Population and home price growth. Averaging monthly price data since 2004, we examined the percentage of houses that increased in value over the past 10 years. We also looked at the increase in population since 2010.

Property taxes. Using state data, we calculated the city and county property tax for each city.

In NerdWallet's study of 227 places, the cheapest average sale price was $37.36 per square foot in Kenneth City in Pinellas County. The most expensive was Key Biscayne at $546.77 per square foot, a difference of over $500.

General NerdWallet advice

Flip this. If your goal is to get in and get out with a profit, here are the top three communities when it comes to speed of sale: Hialeah Gardens, Lauderdale-by-the-Sea and Atlantis. Hialeah Gardens earned the highest mark, a 9.55, in our study on this metric – Zillow's 2014 market health score. The quicker a house sells, the higher the score, with 10 as the highest.

Beachfront bonus. The Miami-Fort Lauderdale metro area dominated our top 10 list – eight of our top 10 investments are located there.

Going long? Florida's housing market seems to make the most sense overall for those looking to invest long term. Most of our top 20 places have low scores when it comes to real estate market health, a sign of the continued impact of the Great Recession.

NerdWallet's best places to invest in Florida real estate

1. Doral

Doral tops our list thanks to its relative affordability, low unemployment rate (4.4 percent – over a full percentage point lower than the statewide rate) and strong population growth. This north-central Miami-Dade County city from 2010 to 2013 welcomed almost 6,000 new residents, a gain of more than 14 percent.

2. Bal Harbour

In tiny Bal Harbour, population 2,569, price could quickly become a factor – it's the most expensive location in our top 20 with an average sales price of $340 per square foot. Still, there are plenty of buyers. On Zillow's 0-10 scale for speed of sale, Bal Harbour scored a healthy 8.66.

3. Homestead

The watchword in Homestead is growth. More than half – 56 percent – of its homes have increased in value over the past 10 years, yet housing remains relatively affordable in this city of 61,714 residents. Sale prices over the past two years averaged just $79.42 per square foot, among the most affordable in our study.

4. Miami Lakes

Miami Lakes may not boast oceanfront property, but a full 57 percent of its housing stock has increased in value over the past 10 years, and vacancies have dropped 3.6 percent. That's a good sign for investors who may have to pay a premium for this suburban location just north of Miami. Here, buyers paid an average of $152 per square foot for a house.

5. Marianna

Bargains abound in Marianna, home of our top 20's lowest price-per-square-foot sale price of $61. It's also clearly attracting new residents, with a 28 percent increase in the population from 2010 to 2013.

6. Hialeah Gardens

Hialeah Gardens, population 22,136, had the highest overall market health score in our survey at 9.55. This means buyers who are looking for a quick turnaround on their investment will find many options to flip housing in Hialeah Gardens.

7. Aventura

This diverse and growing community in northeastern Miami-Dade County is known for its high concentration of transplants from the Northeast, and its many high-rise condos. Buyers will find an average sales price of $227 per square foot and options for Intracoastal Waterway and Atlantic Ocean views. The city's investment score also benefits from its 7.51 percent increase in population since 2010.

8. Pinecrest

This small suburban village in Miami-Dade County is the second-most expensive in our top 10, with a price of $269 per square foot. Its population has grown a modest 1.54 percent in recent years, and village leaders are thinking about expanding. A common discussion involves annexing land west of U.S. Highway 1 to help build out the small village's tax base.

9. Cape Coral

Cape Coral moves in many directions: It's the largest city in our top 10 at 158,415 residents, and it has an average sales price that is the third lowest in our top 10 at $96 per square foot. It's the only city on our list located in Lee County, which is also home to Fort Myers. Cape Coral residents are thinking about development, which can have a major effect on real estate values. Recent news reports have focused on plans to develop Bimini Basin as a community gathering place – with some ideas calling for a mix of commercial and open space.

10. Winter Garden

The only place in our top 10 near Orlando, Winter Garden has a lot to offer those diving into the real estate market. Its vacancy rate declined while its population grew over 13 percent, suggesting strong demand for housing. Perhaps it's the nearby Disney World effect, but Winter Garden enjoys a particularly strong job market, which supports a growing housing market. The unemployment rate in Winter Garden in December, the most-recent data available, was 3.8 percent. By comparison, the entire state of Florida was at 5.6 percent for the same month.

Source: Kamran Rosen with NerdWallet 

New investors rush into student housing

NEW YORK – Feb. 10, 2015 – In the last week of January, Starwood Capital closed a deal to buy four student housing properties. And before the week was done, Starwood had bought another portfolio in a second deal — building its portfolio of student housing beds from zero to several thousand in just a few days.

"There are a lot of new people in the market for student housing properties," says Jaclyn Fitts, director of student housing for CBRE's capital markets group, which helped arrange the four-property deal. Starwood is expected to release more details of the transactions in February.

New investors have piled into the market for student housing properties — driving property prices and the volume of deals up and driving capitalization rates down. The new student housing buyers include private equity funds and institutional investors, which are becoming much more likely to bid for student housing properties.

Student housing investors bought between $2.8 billion and $3.0 billion in properties in 2014, continuing the very fast pace set the year before, according to preliminary totals from CBRE, which will release its official count of student housing investments in February.

New investors have been drawn to the sector as it becomes more understood. "Student housing is much more accepted as an asset class," says Dorothy Jackman, managing director of student housing for real estate services firm Colliers International.

Investors are also impressed with how student housing performed through the Great Recession. Prices for apartment properties overall fell by about 20 percent, but average prices per bed for student housing properties stayed strong. "The industry demonstrated resilience," says CBRE's Fitts.

"There are now four or five more private equity funds specifically tasked to buy student housing," says Fitts. That's in addition to funds managed by private equity firms with a long history in student housing like Harrison Street and Blue Vista.

"The student housing industry as a whole is experiencing higher demand than I have ever seen," says Fitts.

Bidding wars are driving prices higher. Investors now routinely accept cap rates as low as 5.5 percent for student housing properties within walking distance of tier-one universities, and as low as 7.5 percent for properties a shuttle bus ride away from tier-two or tier-three schools.

"There is definitely downward pressure on cap rates," says Fitts.

Prices for student housing properties are now similar to the prices investors pay for conventional apartment properties, relative to income. The spread between conventional multifamily cap rates and student housing cap rates has shrunk from 50 to 100 basis points four years ago to just 25 to 50 basis points today.

Financing is also more available for student housing properties, at more attractive terms. For example, Fannie Mae and Freddie Mac no longer add an interest rate premium to most loans for student housing properties. Other lenders have also become more accommodating as student housing becomes a more mainstream asset class.

The most valuable properties are still those within walking distance of campuses. Both Education Realty Trust Inc. (EdR), a student housing developer and owner, and American Campus Communities, a student housing REIT, have stated they are focused on those types of assets. However, the demand for student housing is strong enough to encompass stabilized projects even if they are a bus ride away from the school.

"More people are diversifying," says Colliers International's Jackman. "They are getting more comfortable getting out of the box. … Maybe there might be opportunities in tier-two schools. Maybe distance from campus is not so important."

Developers are building student housing quickly, though so far demand has kept up with supply, as enrollment continues to grow for tier-one schools. Developers completed 4,149 student housing beds in 2014, more than twice the 1,926 completed in 2013. Occupancy rates averaged about 95 percent, down slightly from 96 percent in 2013, according to data aggregated by Colliers.

"We don't see occupancies declining in 2015," says Jackman.

Source: Penton Media, National Real Estate Investor, Bendix Anderson.

America’s housing stock: Who holds it and who’s buying?

NEW YORK – Feb. 9, 2015 – Analysts expect the nation's housing recovery to push onward in 2015, supported by new types of investors and more traditional sales. At the same time, the still-sizable foreclosure inventory will continue to influence home pricing in surprising ways.

Guy Cecala, publisher of Inside Mortgage Finance, confirms that the sector is returning "to a much more traditional housing market, where investors play a much smaller role and the market is more dependent on regular buyers."

RealtyTrac data shows that 421,164 residential properties are still bank-owned, with another 642,927 in default and in the foreclosure process but not yet repossessed.

Daren Blomquist, vice president at RealtyTrac, states, "So there's a lot of property still in the foreclosure pipeline."

At the same time, much of the "shadow inventory" of foreclosures -- residences in various stages of foreclosure, but not yet on the market -- never ended up on the multiple listing service (MLS).

Instead, lenders have been able to sell off inventory in bulk to large REITs and other investors. As a result, these "sales" did not result in as much price drag as some analysts projected.

Fewer distressed sales will actually boost prices overall in 2015, states Tom Popik, research director of the HousingPulse Tracking Survey. He reasons that REOs (real estate owned, an industry term for lender-owned properties), short sales and damaged REOs all trade at a discount of 25 percent to 40 percent of regular home prices.

HousingPulse calculates that distressed sales were 23 percent of total sales last month, a slight increase from the lowest level in four years.

Source: Investor's Business Daily (01/30/15) P. A10; Doler, Kathleen

Smaller Fla. counties tops for residential investors

IRVINE, Calif. – Jan. 29, 2015 – Where should property investors park their money to achieve the greatest return on investment?

According to RealtyTrac's first quarter 2015 Residential Property Rental Report, Florida's top markets, depending on the age of renters, are located outside major urban areas. The study breaks out top markets by generation, including millennials, Generation Xers and baby boomers. It also includes a list of the U.S. markets where rents increased by at least 10 percent year-to-year, and "safe havens" – markets where economic conditions make real estate investment relatively safe.

"There is still plenty of opportunity in the U.S. housing market for single family rental investors employing a variety of investing strategies," says Daren Blomquist, vice president at RealtyTrac. "Whether focusing on markets where homeownership-shy millennials are migrating, markets where recovering Gen X homeowners-turned-renters are prevalent, or markets where baby boomers are testing for retirement, investors can find good options with solid potential rental returns."

However, Blomquist says some markets no longer offer a significant return to investors "because of rapidly rising prices over the past few years. Savvy single family rental investors will tread cautiously in such markets despite the siren song of strong home price appreciation."

Best overall markets for buying residential rentals

The nation's highest potential return on investment, according to RealtyTrac, is in Clayton County, Ga., near Atlanta with a 25.83 percent projected return. However, four Florida cities made the top-20 list:

7. Pasco County: Annual gross yield: 17.86%

8. Hernando County: Annual gross yield: 17.86%

12. Marion County: Annual gross yield: 16.88%

19. Citrus County: Annual gross yield: 15.30%

Best markets for renting to millennials

Among the 516 counties RealtyTrac analyzed, 50 had a millennial share of the population above the national average of 22 percent and potential annual rental returns on residential properties of 9 percent or higher.

However, only one Florida county made the top-10 list for residential real estate investment to millennials: Duval County, with an annual gross yield of 13.16 percent, and a growth in the number of millennials (2007 to 2013) of 19.18 percent, ranked ninth.

Best markets for renting to Gen Xers

Twenty U.S. counties had Generation X shares (adults born between 1965 and 1976) above the national average of 16 percent with potential annual rental returns on residential properties at 9 percent or higher.

For Gen X rental investment, two Florida counties made the top 10 list: Clay County (No. 4) with an annual gross yield of 11.88 percent and growth of Gen X (between 2007 and 2013) of 5.14 percent; and Osceola County (No. 9) with an annual gross yield of 11.40 percent and Gen X growth of 8.35 percent over the same timeframe.

Best markets for renting to baby boomers

RealtyTrac found 40 markets where the Baby Boomer share of the population was above the national average of 25 percent – many in Florida – where potential annual rental returns on residential properties are 9 percent or higher.

Six Florida counties made the top 10 list including:

1. Hernando County: Annual gross yield 17.86%; increase in baby boomers (2007 to 2013) of 31.45%

2. Pasco County: Annual gross yield 17.86%; increase in baby boomers 17.10%

3. Marion County: Annual gross yield 16.88%; increase in baby boomers 31.95%

5. Citrus County: Annual gross yield 15.30%; increase in baby boomers 35.64%

8. St. Lucie County: Annual gross yield 12.39%; increase in baby boomers 29.39%

9. Volusia County: Annual gross yield 12.29%; increase in baby boomers 17.25%

Markets with the biggest rent increases over the past year

Among all counties analyzed, the average fair market rent for a three-bedroom property was up 2 percent in 2014. Fair market rents on three-bedroom properties increased 10 percent or more from 2014 to 2015 in 35 counties. RealtyTrac found only one Florida county with returns above 10 percent: Sumter County, No. 34, at 10.18 percent.

Safe haven rental markets

According to RealtyTrac, a safe haven rental market has an unemployment rate below the national average of 5.6 percent and annual rental returns of 10 percent or higher.

One Florida county made the top 10: Broward County, with an annual gross yield of 13.10 percent.

Source: Florida Realtors®

Fla. institutional investors could turn 29% profit

MIAMI – Dec. 16, 2014 – During the down real estate market, institutional investors – funds that purchased 10 or more single-family homes per year – bought 33,651 Florida property, according to a study by RealtyTrac.

With little profit in quickly flipping those homes, these investors used a different business model: They rented the homes, many times to people who had a foreclosure, with an eye toward selling the properties once home values rose.

The key real estate question now is: When will they sell?

RealtyTrac's study suggests that some institutional investors could consider selling soon given the profit by doing so. In Florida, for example, these investors own 33,651 homes, and their profit (selling price today compared to purchase cost) would average 29 percent.

However, that profit varies by city. Florida has 18 cities with 100 or more homes owned by institutional investors, according to RealtyTrac. Of those, the highest profit an investor would make if he sold today is 46 percent in the Fort Walton Beach-Crestview-Destin area; the lowest profit would be 10 percent in Cape Coral-Fort Myers.

So far, however, RealtyTrac data suggests that few large institutional investors in the single-family rental market have sold many homes. However, price appreciation has presented an opportunity – and created a motivation – to sell and realize a solid return on investment.

RealtyTrac analyzed more than 200,000 purchases made by institutional investors from January 2012 through August 2014. The markets where these investors would have the biggest motivation to "cash out" based on potential returns from gained equity include Chicago, Palm Bay-Melbourne-Titusville, Orlando, Columbus, Ohio, Indianapolis, Atlanta, Jacksonville and Charlotte.

"With the pop in prices last year and normal historical price increases this year, investors are testing the market with their inventory," says Mike Pappas, CEO and president of Keyes Company, which covers the South Florida market.

Florida cities by number of institutional investors and potential current profit

- Miami-Fort Lauderdale-Pompano Beach: 12,952 properties, 31% return today

- Tampa-St. Petersburg-Clearwater: 5,410 properties, 33% return today

- Orlando-Kissimmee: 4,149 properties, 24% return today

- Jacksonville: 2,633 properties, 35% return today

- Cape Coral-Fort Myers: 1,673 properties, 10% return today

- Lakeland: 1,264 properties, 28% return today

- Sarasota-Bradenton-Venice: 1,259 properties, 33% return today

- Port St. Lucie: 782 properties, 25% return today

- Deltona-Daytona Beach-Ormond Beach: 686 properties, 24% return today

- Naples-Marco Island: 547 properties, 41% return today

- Palm Bay-Melbourne-Titusville: 439 properties, 17% return today

- Punta Gorda: 261 properties, 28% return today

- Ocala: 248 properties, 29% return today

- Fort Walton Beach-Crestview-Destin: 200 properties, 46% return today

- Pensacola-Ferry Pass-Brent: 195 properties, 22% return today

- Tallahassee: 194 properties, 14% return today

- Panama City-Lynn Haven: 146 properties, 21% return today

- Palm Coast: 101 properties, 25% return today

Foreign investors push Fla.’s real estate market to a new peak

TAMPA, Fla. – Nov. 24, 2014 – Commercial real estate in Florida has heated up to the point that foreign investors and lenders are chasing deals that extend beyond their comfort zones bringing the market to a crest.

U.S. partisan politics aside, foreigners from around the world are much more comfortable having their money here rather than in their homelands where political instability is much greater. South Florida has long been a favorite repository for cash moved from Latin America and South America. However, increased competition has pushed Miami-area prices so high that foreign investors are venturing north into central Florida and Tampa Bay in search of better values and cap rates.

Foreign investors continue to prefer multifamily and hospitality properties because they are familiar with the business models and more comfortable with the tangibility of the asset.

How they invest, however, is changing. The established model is to pay all cash for the first property and leverage the income gained for the second deal. Now, they are joining with others to buy an apartment building, convert it to a condominium, and sell the units to individuals in foreign countries who agree to leave them in the rental pool run by the management company. Why? Foreign investors are more comfortable owning units than shares in an LLC. These transactions are all cash transactions from the seller's standpoint.

Foreigners are also making regular use of syndicators who scout properties, which are often in the Miami area. Syndicators provide a second benefit of using their track records to help obtain financing. Due to the fact that these syndicators have or do own property in the country already, and have an operation, bank accounts, etc., a lender is able to qualify them in a traditional way. If a borrower approaches a bank and doesn't have any assets in the states already, they know they will not be able to go outside the country to collect on any deficiency in case of a default. On top of that, they can't know if the buyer or entity is getting their funds from drugs or other illegal affairs.

Lenders are also becoming much more accommodating than in recent years. The Florida banks that survived the Great Recession are returning the market. Their loan criteria put greater weight on the sponsor's track record than the property as they seek to minimize risk and regulatory scrutiny.

Lending has also ramped up by agents and affiliates of Wall Street firms that offer commercial mortgage-backed securities. They are less worried about default risk than in the past, a feeling supported by the fact that CMBS loan delinquencies stayed under five percent for a second month in September, according Fitch Ratings.

Adding to the frenzy, lenders are arriving from places as far as Silicon Valley, all eager to participate in the next Florida boom. Like homegrown institutions, they worked through their troubled assets and want to put their money to work again. Joining them are Fannie Mae and Freddie Mac, which compete in financing of the hottest of assets, multifamily housing.

Lenders are also willing to place debt on industrial and hospitality properties, as they expect demand for warehouse space and hotel rooms to increase with economic activity. Lenders are cooler to retail and office properties due to the perceived threat of the Internet making online shopping, oversupply of properties to lease, more efficiently designed retail and office space concepts, and working from home more popular reducing demand on office space.

The other big change is the type of borrower. Traditional, stronger, more experienced buyers have moved to the sidelines as values have increased. New buyers are getting into the market, and traditional banks are not that excited to lend to them.

The newest lenders on the scene are less concerned about risk and are putting up money for acquisition, development and refinancing. They are supporting urban infill, smaller retail developments, and re-development.

The aggressiveness extends to interest-only financing, which is coming from Fannie Mae and Freddie Mac for multi-family properties. It's likely that CMBS lenders will follow in that category. Despite the unease associated with this type of loan, banks are probably going to join in.

Investment and loan activity has risen to a point that the market is susceptible to risks that can end the upcycle. Rising interest rates could push properties from positive to negative returns. Sales are occurring at prices above replacement value. Available properties are drying up as owners realize that while they could take a big profit, they have nowhere to invest the money and achieve as high a return, so they decide not to sell.

While the overbuilt stage is visible only in retrospect, there are signs it has arrived. Lenders that financed development in the early stages are pulling back. Newer banks and new developers are taking their place, and these less experienced players are more prone to failure.

Much of the money is going into multi-family construction. Anyone who has lived through a few real estate cycles knows what happens when too many projects come out of the ground at the same time. We may be approaching that time again so investors and brokers alike should take a cautious approach to their 2015 strategies.

RealtyTrac: Home flipping at lowest level since ‘09

IRVINE, Calif. – Nov. 20, 2014 – RealtyTrac's Q3 2014 U.S. Home Flipping Report, finds 26,947 single-family U.S. homes flipped (bought and resold within 12 months) in the third quarter – 4.0 percent of all single-family sales.

That's a drop from the second quarter when 4.6 percent of single-family sales were flips, and down from 5.6 percent year-to-year. It's the lowest level of flipped homes since the second quarter of 2009.

The current level of home flips has now reached its "historic norm," says Daren Blomquist, vice president at RealtyTrac. He says it's due to a drop in home price appreciation in many markets where flipping has been hot.

"Meanwhile, the record-high average profits per flip in the quarter demonstrate that flippers are still filling an important niche in an aging housing market with historically low levels of new homes being built," Blomquist says. "The most successful flippers are buying older, outdated homes in established neighborhoods and rehabbing them extensively to appeal to modern tastes.

Overall, investors averaged a gross profit of $75,990 per flip in the third quarter – a 36 percent gross return on initial investment – though that number doesn't include rehab costs and other expenses. The average gross return was up from 35 percent in the second quarter but down from 37 percent a year ago.

Blomquist says markets that have seen a flipping increase tend to have older, distressed inventory that can be upgraded. "Those discounted distressed properties have become harder to find, but a recent jump in scheduled foreclosure auctions could provide more fodder for flippers in the next three to six months."

"Investors have had a heyday in South Florida over the past five years. These third quarter numbers show that good opportunities still exist for those in tune to the market," said Mike Pappas, CEO and President of the Keyes Company representing Southern Florida.

Other findings

Metro areas with the most flips in the third quarter were Miami (1,190 flips), Los Angeles (1,170 flips), Phoenix (1,147 flips), New York (1,070 flips) and Tampa (789 flips). Among these top five, Tampa was the only to post an increase in the share of home flips compared to a year ago.

Markets with the best return on flips in the third quarter included Baltimore (88 percent), Pittsburgh (79 percent), Detroit (61 percent), Richmond, Va. (60 percent) and Mobile, Ala. (59 percent).

Flips completed in the third quarter took an average 185 days to complete, down slightly from 187 days in the previous quarter, but up from an average 133 days for flips a year earlier.

Homes priced below $100,000 represented 20 percent of all homes flipped during the quarter, up from 19 percent in the second quarter and 18 percent one year earlier.

Homes priced $100,000 to $400,000 represented 64 percent of all homes flipped during the quarter, down from 65 percent a year ago

Homes with a flipped price of $400,000 to $750,000 represented 12 percent of all flips, down from 13 percent a year ago.

Flips on homes priced above $750,000 accounted for nearly 4 percent of all flips in the third quarter, down slightly from a year ago.

The best returns on homes flipped in the third quarter were on homes with a flipped sale price between $1 million and $2 million, yielding a 45 percent average gross return on investment. Homes in the $100,000 to $200,000 price range had the second best return at 43 percent, followed by homes in the $200,000 to $300,000 price range with an average gross return of 41 percent.

Investors scaling back home purchases

FORT LAUDERDALE, Fla. – Sept. 23, 2014 – Investors pulling back on home buying is one of the biggest issues facing South Florida's housing market, an analyst said Friday.

"There's still a lot of investor activity, but it is declining," said Brad O'Connor, a research economist for the Florida Realtors trade group. "As they exit the market, will demand from traditional homebuyers still push prices up?"

So far, the answer is yes, but some industry experts wonder whether that will change. They say investors have played too large of a role in the housing rebound by artificially inflating prices.

O'Connor was one of the featured speakers during a housing forum sponsored by the Greater Fort Lauderdale Realtors at Nova Southeastern University in Davie.

In July, 523 Broward buyers paid cash for single-family homes, down 10 percent from the prior year, according to data from the Realtor board. Cash sales countywide dropped 8 percent in June from June 2013.

Richard Barkett, chief executive of Greater Fort Lauderdale Realtors, said he isn't worried about fewer investors. They've been squeezing out traditional buyers, who now will have more of an "opportunity to be active in the marketplace," he said.

Also Friday, Ned Murray, associate director of the Metropolitan Center at Florida International University, presented a report showing a lack of workforce housing in Broward.

"We need to make it a priority," he said.

© 2014 the Sun Sentinel (Fort Lauderdale, Fla.), Paul Owers. Distributed by MCT Information Services

25% of international investors buy a home in Florida

ORLANDO, Fla. – Sept. 8, 2014 – U.S. real estate appeals to foreign buyers, and a large number of them settled on property in Florida – about 25 percent of all international U.S. home purchases to foreign buyers, according to the 2014 report "Profile of International Home Buyers in Florida."

In the 12 months that ended in June 2014, the dollar value of purchases in Florida hit $7.97 billion – a 24 percent increase over the amount spent ($6.43 billion) the year before. About one in 10 property purchases (10 percent) in the state (26,500) involved a foreign buyer, an increase from 9 percent the year before.

Two major trends drove the increase in foreign buyers: A continuing recovery of the world's economy and the affordability of U.S. properties.

U.S. and Florida residential prices remain affordable to most international homebuyers, and they buy property that, overall, costs more than the mean price paid by domestic buyers. In Florida, 76 percent of all Realtors cited less expensive property as a top reason for purchase.

Countries

Canadian buyers accounted for the largest share of international clients (32 percent), followed by:

• Western Europe: 24 percent; primarily from the United Kingdom, France and Germany

• Latin America/Caribbean: 23 percent: primarily from Brazil and Venezuela

• Asia: 10 percent; primarily from China

Florida destinations

Sales to non-resident international clients as percent of international sales:

• Orlando-Kissimmee: 11 percent

• Tampa-St. Petersburg- Clearwater: 11 percent

• Miami-Miami Beach: 10 percent

• Bradenton-Sarasota-Venice: 8 percent

• Fort Lauderdale: 8 percent

Other key findings:

• 52 percent of Florida Realtors reported international clients (national average: 28 percent)

• 19 percent of Florida Realtors with international clients reported 6 or more clients (national average: 12 percent)

• 20 percent with international clients said they accounted for 26 percent or more of their transactions (national average: 15 percent)

• 29 percent reported that their percentage of international clients increased in the last five years (national average: 20 percent)

Market success

Realtors dealing with international clients say the key to success is understanding the culture, concerns and language of potential foreign clients; reaching out through personal contacts and online tools; and assisting potential foreign buyers through the regulatory and financial process, especially for agents on the buy-side of the transaction.

According to the survey, Realtors also said that relaxing current visa restrictions on a length of stay would attract additional international clients.

© 2014 Florida Realtors®

Another Foreign Investor Mandate to Place $1 Billion in U.S. Real Estate

Given the stability and maturity of the U.S. commercial property market in 2014, global institutional money continues to flow into the United States.

The most recent example of foreign capital flowing into the U.S., LaSalle Investment Management, a leading global real estate investment manager announced today their firm has been awarded $1 billion of equity to invest in US real estate by a large European institutional investor.

The new mandate will seek direct real estate investment opportunities across all property types in primary and top secondary markets in the U.S.

"We are extremely pleased to be working with a global investor of this caliber to develop a customized investment program which fits their requirements," says Jason Kern, LaSalle Americas CEO. "We continue to see strong interest from sophisticated investors from around the globe in more customized strategies like this one targeting the US commercial real estate market.  We anticipate continued economic growth and improving real estate fundamentals over the next few years, and believe ongoing changes in demographics, technology and urbanization will provide attractive risk-adjusted investment returns across most major property types in the US."

This new mandate follows quickly on the heels of LaSalle's recent announcement that it has raised $1 billion in equity since the beginning of 2014 for Asia Pacific property investment strategies.

Flippers, landlords find new home-loan money

ORLANDO, Fla. – Aug. 20, 2014 – Orlando landlord Brian Lunsford needed $40,000 to renovate a house that a college student almost burned down, so he turned to an online crowdfunding site.

Within two days, more than a dozen investors had each agreed to loan him an average of $2,800 for up to 13 months.

"He left a candle burning and it did significant damage to the interior," Lunsford said. "I'm fighting it out with the insurance company, and I was going to front the money myself, but it was $40,000 to renovate. … that's not easily financeable."

Crowdfunding is just one new financing option that has emerged in a metro area where 56 percent of all home sales were paid for with cash in May, according to RealtyTrac. Recognizing that community banks and institutional lenders are reluctant to loan money to house flippers and landlords, several companies have started offering cash to real estate entrepreneurs in the Orlando area.

But the borrowed money doesn't come cheap.

Lima One Capital LLC, which offers loans to residential real estate investors and homebuilders, opened an Orlando office this month. Launched in 2010 in Atlanta, the company offers short-term, fast-approval loans with interest rates of 12 percent to 13 percent to residential real estate investors and homebuilders – about three times higher than normal mortgage rates. Last year, the company loaned $485 million in 12 states.

"Orlando has very depressed home prices that are 33 percent behind peak-level pricing, and it lags behind the rest of the nation," said Lima One founder John Warren, a former Marines infantryman. "And that means there is going to be a lot of investors because they think the growth is going to be there."

In Lunsford's case, the individuals who loaned the money will earn 9 percent interest. Lunsford has agreed to pay 11 percent interest on the short-term renovation loan, and the crowdfunding platform he used, RealtyShares.com, will keep the 2 percent difference for doing the marketing.

Cary Berman, executive vice president of Old Florida National Bank, said the type of loans being offered by Lima One Capital and RealtyShares are new to the Orlando area but not necessarily worrisome for a recovering housing market.

"I think they're on to something in an underserved market, but I don't believe it impacts or affects our market," he said.

Old Florida typically appeals to low-risk borrowers who have just a few residential properties rather than landlords and flippers who constantly buy and sell houses, Berman added.

Berman said he appreciated that nontraditional funding sources such RealtyShares and Lima One don't offer federal-backed loans, so only private equity – not taxpayer dollars – is at risk.

Typically, investors used their own funds or that of friends and family members for short-term investment strategies including those involving home renovation and flipping.

Robert Luis Castillo, senior vice president for Synovus Bank in Orlando, said traditional lenders have typically shied away from spending their resources on loans for less than, say, $100,000.

"Additionally, there are numerous risks associated with rehabbing houses that the casual investor may not be fully aware," he said. "It only takes a few miscues to create the proverbial money pit."

A more traditional source of funds for these buyers is equity loans, which have interest rates of about 4 to 5 percent.

Based in San Francisco, RealtyShares launched in 2013. It is exempt from Securities and Exchange Act regulations because it connects borrowers only with "accredited" investors.

Those lenders have affirmed that they have income levels of at least $200,000 or have at least $1 million of assets. RealtyShares runs credit and background checks on the borrowers and checks on the property being purchased.

"We're never the sponsor of the loan, and we're only the marketplace," founder Nav Athwal said. "We're trying to provide an alternative to banks."

If Lunsford can't repay the loan, his fleet of lenders has the legal footing to file a lien against the house and get their money back when it sells.

Lunsford said he said he first began buying houses after the housing market crashed starting in 2007.

At the time, he had just sold a gourmet-coffee business in Atlanta and had cash for properties. But he was keeping most of the homes he purchased and renting them. With few sales to help pay for more houses, his funds began to run short in 2011 and he went from buying two or three houses a month to purchasing one every two months.

"It was really frustrating because there were so many deals and the reason there were so many deals was because no one could get the money to buy," said Lunsford, who had turned to community banks and national lenders with no success.

He said the RealtyShares option helped him get the cash on about a dozen of the 50-plus rentals he now owns in Orlando, Jacksonville and the east coast of Florida.

Investors Snap Up $515 Million of South Florida Apartments in H1 of 2014

According to a report by the CBRE South Florida Multifamily Investment Properties team, South Florida's multifamily market commanded a record number of sales in the first half of 2014.

The report tracks sales in the $1 to $20 million range and shows 172 multifamily sales totaling more than $515 million, the strongest sales activity for the first half of a year since 2006.

"The relatively low cost basis that we experienced in 2010 and 2011 is now a thing of the past," said Calum Weaver, CBRE First Vice President. "However, interest in multifamily properties is unabated. Investors recognize the strong market fundamentals for apartment buildings which has contributed to the uptick in sale activity." 

Added Ken Krasnow, CBRE South Florida Managing Director, "Above-average population growth in South Florida is driving the demand for multifamily product. According to the Florida Bureau of Economic and Business Research, South Florida's population is expected to increase by 2.4 million people, or 29%, between 2013 and 2040." 

Other CBRE highlights of the report include:

Cap rates will remain in line with current levels although they may increase with any sudden uptick in interest rates.

In 2013, there were 9,558 net units absorbed in South Florida. In the previous four years, the region averaged around 4,500 net absorbed units per year. The positive net absorption of units has helped drive down vacancies to record lows and rents to record highs. In 2014, we anticipate over 14,000 units to be completed in the region which is forecasted to be greater than the forecasted net absorption of 8,640 units.

Value-add opportunities are still desirable; foreign investors, who are more prevalent than at any previous time in South Florida, are increasingly willing to invest in older product with upside potential.

More than half of CBRE multifamily investment properties transactions in South Florida over the last year involved foreign buyers.