patrick.net

gabbar says

WookieMan says

Another office space in the building. Only $400 cash flow, but only $110k at full list. Reinvest the cash flow over 2-3 decades and inflation and it would have been a low risk $500k to who knows what above that by the time I'm 60-70.

So is office space building the best investment in commercial real estate? If not, then what is?

TL:DR - I wouldn't touch office spaces unless you have a long term, solid tenant.

I was more or less being super specific to my location. The main tenant was USPS and they never move. The town it's in doesn't build new construction. The other small office would have been a bonus. $20k down. $400/mo in cash flow. Was a safe and solid investment, I inquired, but didn't pull the trigger. Would have reinvested the cash flow. Appreciation over 20-30 years and it could have easily added 5-8 years of retirement money beyond what I already have going.

I wouldn't touch office space right now without a solid lease from a tenant you knew was going to stay I guess is my point. I think the snapback from covid and WFH is going to piss off employees. At least the ones that got their job done during covid.

Not going to name the company but the the town I was looking to buy the building in, another office has about a 70 space parking lot. This is rural, so that's big here. Lot was full every day. Maybe 5-10 cars parked there every day now. Company owns the building outright. They can just move the people that show up to a section of the building and shut down the rest.

But this is my anecdotal evidence that WFH is here to stay. Companies trying to bring it back are dealing with pissed off employees that now have to pay commuting costs again doing the same job they were for 2 years at home.

https://www.dailymail.co.uk/news/article-13739993/florida-real-estate-crisis-condo-owners-slash-prices.html

Florida hit by 'worst real estate crisis in decades' as desperate condo owners slash prices by up to 40%: 'It's paradise lost' ...

Florida condo owners are slashing prices by up to 40 percent as they strive to dodge massive incoming repair costs.

Some units have had almost half a million wiped off their asking price as safety fears trigger a wave of sell offs in what realtors have described as the worst real estate crisis in decades.

One three-bedroom, two-bathroom condo in Saint Petersburg was listed at around $1.2million at the start of the year.

But still without a buyer, the owner slashed the asking price first to $898,000 and last week to $715,000.

State legislation brought in following the 2021 collapse of the Champlain Tower South in Surfside, Miame-Dade County, which killed 98 people, means hundreds of thousands of condo owners must now fork out hefty sums for previously neglected maintenance.

Many could face fees greater than their mortgage payments, sparking a wave of distressed sales in the Sunshine State.

I think the fundamental issues are much deeper than just deferred maintenance. Prices are grossly beyond the fair value as determined by annual rent divided by current long-term mortgage rate.

Example crude fair value calculation:

$2,000 / mo rent = $24,000 /year

$24,000 / 0.06 = $400,000 fair value

Of course that's just a first-order approximation. There are many more variable to consider, but they won't change the result all that much.

Patrick says

I think the fundamental issues are much deeper than just deferred maintenance. Prices are grossly beyond the fair value as determined by annual rent divided by current long-term mortgage rate.

Example crude fair value calculation:

$2,000 / mo rent = $24,000 /year

$24,000 / 0.06 = $400,000 fair value

Of course that's just a first-order approximation. There are many more variable to consider, but they won't change the result all that much.

here is a good example and gem which is only about a 2 mile walk to the beach and 10 minute walk to the nearby Dollar General and strip mall (vape/smoke shop, Guthries Chicken, laundry mat, nails saloon, Jamaican grocery store, Cricket Wireless, and Asian massage parlor)

it likely could sell for $260,000 easily , which was same price likely back at high-water mark of the housing bubble in 2006 , and its monthly expenses are $425 HOA fee, $150 property tax, and $150 property insurance (plus $300 a month for rental property management and maintenance/repairs if the landlord rather not directly manage it)

it could easily rent for $2000 so if someone lays down $270,000 in cash (includes closing costs), then their monthly net income based on 10% vacancy is $1800 minus $1025 which is $825

($825 x 12) / $270,000 x 100% = 3.7%

Conservatively assume a 3% annual appreciate rate, and hence the total ROI would be 6.7%

https://www.zillow.com/homedetails/1702-Annabellas-Dr-Panama-City-Beach-FL-32407/87637913_zpid/

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My father saved a combined $12,000 per year in income and property taxes by moving to Florida around 2012.

The Florida real estate trend will continue as those who 1. have money 2. can do arithmatic move away from states like New York, New Jersey, Connecticut, etc.

Around North Palm Beach County I have seen numerous residential projects in just a few years, with thousands of units.

An example is Nautilus 2020, another one nearby is Ritz Carlton Residences; in Jupiter Azure and Alton, Caretta under construction in Juno Beach.

Locals will not be buying the new ones, nor Azure; some locals and young transplants are in Alton.

clambo says

My father saved a combined $12,000 per year in income and property taxes by moving to Florida around 2012.

The Florida real estate trend will continue as those who 1. have money 2. can do arithmatic move away from states like New York, New Jersey, Connecticut, etc.

Around North Palm Beach County I have seen numerous residential projects in just a few years, with thousands of units.

An example is Nautilus 2020, another one nearby is Ritz Carlton Residences; in Jupiter Azure and Alton, Caretta under construction in Juno Beach.

Locals will not be buying the new ones, nor Azure; some locals and young transplants are in Alton.

That is true, but it makes real estate in places like Connecticut cheaper, where nice Waterfront mansions have slipped below $2MM over the years of the business and people exodus from the state.

mell says

That is true, but it makes real estate in places like Connecticut cheaper, where nice Waterfront mansions have slipped below $2MM over the years of the business and people exodus from the state.

just like housing is "cheap" in the high income, property and sales tax shitholes like Illinois

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in Florida, housing is making more people more "house poor" because of increase in property insurance and HOA fees

but just as in Nassau County, New York (Long Island), housing prices will go down if property tax goes up a lot more as the pricing point accounts for the home ownership costs.

I had to make an adjustment to my property insurance (HO-3) for our 3 bedrm, 2.5 bath, 2 car garage townhome about 2 miles from the beach of Florida panhandle, whereas the deductible was increased from $1000 to $2500 so my annual property insurance premium is $1900, and not $2300 for a replacement value of $250,000.

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AD says

mell says

That is true, but it makes real estate in places like Connecticut cheaper, where nice Waterfront mansions have slipped below $2MM over the years of the business and people exodus from the state.

just like housing is "cheap" in the high income, property and sales tax shitholes like Illinois

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Relatively, yeah. Only CA is perma expensive so far. $800k gets you a nicely upkept 3-4 bedroom house in the IL burbs, in CA a 2 bedroom starter shack in need of renovation.

mell says

Relatively, yeah. Only CA is perma expensive so far. $800k gets you a nicely upkept 3-4 bedroom house in the IL burbs, in CA a 2 bedroom starter shack in need of renovation.

that cause of the weather, beach, mountains, and culture there ... I'll admit California is still attractive as you can go to hike the mountains within a 2 hour drive or got to Catalina Island and it has a lot of cultural appeal

let alone it is a major job center as far as tech jobs, Hollywood, etc

whereas Illinois is hemorrhaging jobs

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AD says

whereas Illinois is hemorrhaging jobs

No. There's plenty of jobs. Maybe Chicago. The rest of the state is fine. Has been for a couple years. We already had our exodus. I don't like our governor, but things are much better here. Still have the pension debt issues, but housing is fine. It's actually doing well. mell says

Relatively, yeah. Only CA is perma expensive so far. $800k gets you a nicely upkept 3-4 bedroom house in the IL burbs, in CA a 2 bedroom starter shack in need of renovation.

Way cheaper than $800k. $400k gets you a new home here. Sure you can spend more in uppity suburbs, but the schools are shitty even though they say they're good. There are areas by me that a 3/2.1 is going for $250-300k brand new. Not a shitty neighborhood either.

Coastal areas just pay more for homes. When the buyers dry up, the prices will crater and they will. CA is unique with foreign buyers so that's a hard market to predict. FL is at the end of the covid and boomer buzz and ran out of booze in my opinion. I don't think prices will do well. I'm usually looking at vacations and not housing prices, so I could be wrong.

The housing collapse is going to happen a couple of months or so after the rate first cut.

That's when the sellers won't see a sudden onslaught of buyers they're expecting, and realize they need to cut prices deeper.

WookieMan says

FL is at the end of the covid and boomer buzz and ran out of booze in my opinion. I don't think prices will do well.

A 3 bedroom , 2.5 bath, 2 car garage townhome in my neighborhood in Panama City Beach sold for $299,000 two months ago when the 30 yr mortgage rate was at least 7%. It could have sold for at most $335,000 back in early 2022 when the 30 yr mortgage rate was 3%.

I think a townhome like this will bottom around 80% of the peak price, so around $268,000 by spring 2026.

This is based on 30 yr mortgage rate of around 5.5% and that price is at an affordability level similar to with the 3% rate in early 2022.

The same townhome sold for $187,000 in 2016 so that means around a 4% annual appreciation from 2016 to 2026.

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What I hope is household income continues to increase in the Florida panhandle while housing costs (mortgage or rent as well as property insurance) remain flat for the next two years.

Household income in Panama City Beach increased about 20% since early 2022 to present day, while a townhome sells for about 10% less than it did in early 2022 and rent seems to be at summer 2021 price level.

I was able to keep my property insurance (HO 3) premium the same at $1900 for 2025 for our townhome about 2 miles from the beach by increasing the deductible from $1000 to $2500 for a replacement value of around $275,000.

My wife & I knew a lady that was a long time former Florida resident. She was a very sharp business lady. While discussing a possible move to Florida with her, she emphatically told us "don't ever buy real estate in Florida." She went on to describe specific examples of the "notoriously shoddy construction practices," along with her assertion that "most of the housing in Florida is built upon swamp land." We never made the move and I'm glad we didn't.

Regarding the collapse of the Champlain Tower South in Surfside, it often takes time for shoddy construction practices to show up, but eventually they do. I wouldn't be the slightest bit surprised see more of this down the road, and that too will have a major impact on Florida real estate prices in the future.

Hell, since the 1920's Florida real estate has been a scam - over a century. Are we all surprised?