What About Investment in Tampa Real Estate?

dave wieteska Many people who’ve never invested real estate in Tampa are now thinking about it for the first time, as compared to current trends in Wall Street. . “Investment real estate” may cover everything from your vacation home at the beach, to apartments, offices, shopping centers, warehouses, and land. This is a broad subject, and we will approach it in sections, beginning with Housing.

A. Housing. The bottom line is this: In good times and bad, people need two things above all: A roof over their head and food on the table. Recent bad news about the housing market does not mention that rental occupancies are up. In Florida, one often quoted statistic is that 31% of people in Florida live in rental housing. And of course the population here continues to grow. In Tampa Bay, rental occupancies have been solidly above 95% for years. We smile when buyers and investors from other parts of the country ask us what the vacancy factor is!

The answer is, housing is an excellent investment. Nationwide, individual investors and not big corporations account for the largest percentage of owners. Forty-seven percent (47%) of all rental housing properties are owned by individuals. Looking at it from the viewpoint of large investors and pension funds, in the period 1984-2004, apartments averaged a 9.3% total annual return on investment, compared to 7.6% for all property types combined.

What about right now? Any real estate professional will tell you what a great time this is to buy or invest in Florida real estate. While the news media have been emphasizing the down side of things, 1)Prices are more reasonable today, 2)interest rates on mortgages are very attractive, and 3)In Florida, as a Sunbelt State, the future continues to point to strong demand and growth. While Americans have been wringing their hands over a perceived drop in values, European and South American investors have recognized this as a time of opportunity. And Tampa Bay has often been singled out as one of the best buys in the country when it comes to rental housing.

How much can I make in real estate? How much do I have to invest? Unlike other business investments, real estate has several considerations. First, if it’s property which produces a net income after expenses, it’s making money. The second consideration is that over time, if it is a sound choice, it will likely appreciate in value. Third, the property owner realizes depreciation and expense deductions on his tax return each year – a possible important consideration if he has other income he wishes to offset. Fourth, when you sell that real estate investment, you can “roll over” into another like kind property and defer tax liability on your capital gains, by means of Internal Revenue Service Law, in a “1031 Exchange”.

Usually, regardless of the size, you will have to invest 20%-25% of the price, plus closing costs, and can leverage, or mortgage, the rest provided that your credit is good, and that the property has a positive cash flow sufficient to support the debt after expenses. Retail banks may lend on small investment properties, however the most competitive lenders are usually Insurance companies and other institutional lenders.

Each Investor has a different approach, a different motive. Yours may be Positive Cash Flow after expenses, or Long Term Appreciation. It may be a writeoff for you against other income. Some investors are interested in CAP (Capitalization) Rates. Others want to see Cash-on-Cash returns, or total Return on Investment (ROI). Yet others may want to buy distressed properties and invest “sweat equity’ on repairs and improvements to make the property perform better. So a combination of factors can influence your returns Your own goals should be examined so that you can approach this exciting field with a realistic, eyes-open attitude.

July 7, 2008