BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Where demand is highest -- in the affordable segment -- the supply of apartments and rental houses is tight. But at the higher end of the market, there is a glut of properties aching for tenants. Investors initially bought single-family homes in the hope of benefiting from the rapid appreciation in values. When prices of properties rose too high, they turned to condominiums and converted apartments. Most of the neophyte landlords figured it would be easy to rent their properties at prices that would cover their costs until it was time to sell. But it is now dawning on them that the rental market is not a no-brainer, and selling out during the current sales slump is not an option unless owners are prepared to dump their properties at significant discounts. Evidence of the disequilibrium in the real estate market can be most clearly seen in Sarasota County. According to RealFacts, a Novato, Calif.-based research company, the average rent of apartments in complexes with more than 100 units in Sarasota County reached $989 during the second quarter of 2006. That is a 19.9 percent increase from the average rent of $825 in the second quarter of 2005. At the same time, average occupancy in Sarasota County apartment complexes fell to 90.7 percent in the second quarter of 2006 from 98.2 during the same period a year earlier. The problem, Louis and others say, is that the new owners of the units want to cover their mortgages, taxes, insurance and maintenance costs. So they are offering units for as much as $200 more than the market will bear. 'There's a six-month supply of condos on the market right now,' said Corbridge of Sarasota Management and Leasing. 'That means that if no new rental units come to market, it will take six months to rent all the units we already have.' 'Owners will either have to drop their prices to a point where it makes sense for the next landlord to invest, or hang on until rents rise or real estate sales pick up.' 'Instead of making money, landlords will see money going out.' Holmes said. 'It's called an alligator, and it will eat you every month. It seems like it is getting very expensive to feed that alligator. I gave Mike Morgan a call and asked him what the average carrying cost would be on a $400,000 condo and a high priced $1,000,000 condo. IF rented (most are not) the carry cost is (at $1750 a month in rent) is $3100-$1750= $1350 a month. Annualized that is $16,200. Bear in mind that does NOT include special assessments. Anyone who knows anything about condos knows those will be coming. Special assessments will happen to cover tuckpointing, hurricane damage, mold, improvements, and lowball initial maintenance fees. Special and regular assessments do not include rental damage, repainting, recarpeting, etc, etc, to keep a unit rented. The best case scenario on a $400,000 unit rented out is a loss of $16,200 annually. Unrented, the annual upkeep is $37,200. On a $1,000,000 condo multiply the numbers by 2.5 minimally (it is more actually because rents do not rise proportionately) Another problem is the demand to purchase condos has been dropping like a rock but supply is constantly being added by flippers wanting to bail out, and builders still foolishly building the damn things. will be offering weekly analysis of the latest housing trends in Miami, Orlando, Naples, Palm Beach, the Panhandle and the Treasure Coast. Morgan will also continue to offer statewide tours to hedge fund managers, reporters, analysts and large private investors. Morgan is available for any custom research projects you have in mind. Anyone (hedge funds, banks, private investors, etc) who wants a tour of the area or real time advice as to what is happening in Florida and why should send him an Email or give him a call. As I look at those images I easily say to myself that it is nearly impossible for anyone who bought near the peak to ever break even. There is 10 years worth of supply coming on the market at current sales rates. Prices will drop and in 10 years there will be new condos still coming on at reduced prices. By the time rents catch up with carrying costs, if they ever do, those condos may be worth 50% less than they are today. Right now it seems that no one wants to rent (at the high end), and no one wants to buy. In that scenario, prices have nowhere to go but down yet insurance rates and low ball maintenance fees will be rising sharply. If you are thinking of buying an alligator, I suggest you think twice, then don't do it. If you already have an alligator you do not want or can not afford to feed, the best thing to do is sell it for any price you can get before it eats you alive. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.