|
Real Estate Broker/Owner |
RAINER 3,015 |
| Michael Lancsek | ||
|
location_on
Kitty Hawk, NC
— RE/MAX Surfside
RE/MAX International Inc. |
||
| insert_link http://www.surfsideouterbanks.com | ||
| web Outer Banks Realty Blog | ||
Get to Know Michael Lancsek
VOTED BEST WEBSITE! The richest website for real estate content on the Outer Banks of North Carolina. www.obxconsulting.com
Hey. How ‘bout a chat with a thought or two? Maybe I'll give you some of the best Outer Banks real estate investment advice you'll ever get, and in return, you pay me just five cents for that advice. "What is it going to cost me" you may ask? Good question. I guess if it were good information it would be worth paying considerably for it. I personally would pay let's say...ummm... a nickel for some good information. I think most would. I'd pay a nickel to have a solid understanding of something that most are not aware of. I think you would too. Here's five cents worth of Outer Banks real estate thought, so read all the way through or you will miss the golden nugget: With confidence, I can say we will not be in an opportunistic Outer Banks real estate environment forever. Actually, you will only know where we are today after tomorrow has occurred and yesterday is quantified. It's like one of those simple things you've heard over and over again throughout your life, but it didn't really make literal sense to you until you REALLY understood its meaning at the core. Have you ever been told you have "missed the boat?" Many uneducated investors have felt over the past few years that they missed the boat in obtaining a good investment on the Outer Banks. And at one point they did. Amateur thinking has no place in what is today's "player's market". This "missing the boat" phrase is insulting to the simplicity of logical investment thinking. Missed what boat? It's almost like missing the boat is some mass of people getting on board for something great. That is not how savvy investment decisions are derived and later quantified. There is no boat. The "boat" is "the cat is out of the bag!" Nothing more. It tends to be lethargic thinking from uneducated real estate investors who wished they had taken a risk at the right time based on some hindsight thought. It's old. We all have heard from the "wise." The real estate environment on the Outer Banks is providing niches for people right now who truly understand how and when to buy. And better yet it makes sense! It's a simple as this: IF IT CASH FLOWS THEN YOU BUY IT! The problem is: Can you find it? The number of sold transactions on the Outer Banks has been slow. There's high inventory and values have been falling for the past couple years. No secret. Regardless of national indicators, our seasonal rental incomes on single family investment property continue to be strong with very strong tourism. Land scarcity is noticeable different today when compared to just ten years ago. There are not "gobs" of land to be developed here anymore. In actuality there is very little when it comes to rental investment property. As the land inventory continues to shrink you will see that there is less "on board" inventory available to accommodate our increasing tourism base. When this happens the demand for rental homes will rise along with weekly rental rates as less and less new inventory becomes available to offset increasing tourism. As supply of new homes continues to exponentially decrease, the demand from vacation renters will continue to increase. Increased weekly rental rates will soon follow. Higher rents, better cash flows, equates to higher real estate values. This benefit from long term investment thinking is not by any means far off. This is only worth noting, and not my point. Remember, the value placed on any investment property should be directly related the rental potential/histories of the home. It's essentially a business. In real estate sense, values are directly related to how much money they bring in to offset the expensive of owning the investment. The goal is to gain appreciation, and other financial benefits from the property. That's it. To pay absorbingly to carry a property is risky investing. Would you pay 25X gross earning for an investment property? You could and people are, but if your sales price is 25X gross earning for that home, it will certainly cost you to own it. You better bank on appreciation and a good hand of cards. Finding resort investment property anywhere that is even close to break even potential is difficult regardless of the market or market conditions. I look every few days here, because something that has a near break even cash flow is something worth buying. The trouble is these opportunities do not really exist on the surface when you look at developed lots with existing homes. I want to show you opportunities that are "safe" in the highest regard. The goal in owning rental investment property is for the seasonal rentals to pay for itself without having to put more than 20% down to do so. People who own property that "cash flow," do not need to worry nearly as much about the market fluctuations. For years on the Outer Banks, people have been buying property that cost thousands of dollars a month to own, hedging their bet on continued hyper appreciation. Bad move. When times get financially tight, that investment can break people. And it has. If the home is a solid investment then it should not make a difference what the market is doing or where you are with personal finances. It can carry itself. Again, long term thinking strategy. These are fundamentals and good rules of thumb. You can benefit from the long term gain philosophies because you are never "feeding the pig," or exposing your self to undesirable risks that could keep you from hording future appreciation. If along the way of ownership you get a spike in the market during the ownership of the property...great... that is a bonus you get, but not a guarantee. Think long term. Real estate is known to be the safest investment vehicle known. But remember, you need to have a "safe" investment for the rules to apply. Case in point. Attached here is an unusual piece of dirt between the highways in Nags Head. The lot is in an incredible, higher end, neighborhood with direct beach access. Let's say someone were to contract the lot for $200K (originally listed in ‘05 for $380K) and built a 5 bedroom home with pool, with a set budget of $350K for the construction of the home. The seasonal rentals are generally $40-50k range in this neighborhood. Some are higher. With 20% down into an investment loan, this new construction investment home will cash flow, and maybe then some, with tax and depreciation benefits taken into account. Comparable housing is selling recently for the upper $700K range. That's a big spread for risk management from what we can buy and build today. I see this scenario from time to time with land recently. It's happening, yet not a trend. I am consulting people who want to be "in the know." My most recent closing was in Kitty Hawk where my clients have closed on an Oceanside lot (though on highway 158) for an unheard of $155k. These investors are building a 4 bedroom house with pool and Jacuzzi for $260k. They should bring in a minimum 40k in rentals. I "comped" this new construction investment with an equal a preexisting home currently on the market. The existing home "comp" is currently listed for well over 100k more (with multiple price reductions in mind). Even recent sales were as far out if not more when compared to what my client is spending for a lot and a brand new home. $417K with $40K in rentals. Today, a savvy buyer can buy land and build a home like never before. Even the most conservative investors should be intrigued . This hasn't existing in this area for many years. Today, focusing on residential homes specifically in the "buy land and build" scenario will make the wise investment decisions; and it's a three fold deal. One, you can generally buy a lot and build a new home for far less than what you can buy an existing home; even today (prices are at a low). Two, the new property (if identified) can cash flow. That's the biggie and should dominate any investment decision regardless of timing. (Finding an existing home anywhere that has a real cash flow, even through recent years adjustment is very, very rare). Three, if someone wanted, or needed, to sell it, they could afford to cut the market, and sell the investment home far easier. You can take advantage, more than ever, the risk management aspect of owning investment property. You will continue to see a trend in lots being bought and homes being built. I'm the trend. In short, it just makes sense! Again, IF IT CASH FLOWS, THEN YOU BUY!Timing is important here. I am candidly expressing this because there are solid investment opportunities in building residential homes on vacant land on the Outer Banks. Land has decreased in value far more than homes have over the past two years. Many people have been financing lots on short term interest-only lot loans that have matured and converted into rates that are based on prime. Prime was under 4% not but 3 years ago. We all know where prime is today. Now many loans have converted to 8-9% which has more than double some payments (and land does not bring ANY rental income to offset the money to carry). That has been a big "ouch" to many land holders, and a major contribution to decreasing values in the land from very sluggish land sales. The upside to that is that the builders are aggressively competing for building business today whereas in ‘04-‘05 builders were naming there price since demand for builder was so high. Today, the big opportunity is in the dirt. If someone is in a position to make an investment, I would make serious consideration to the possibilities of doing so. This sort of alignment, with all thoughts in place, is extremely rare. "What boat?" It's not complicated. This is something that I recently quantified, yet it still seems to be sitting out there quietly. Now you know. Take it how you wish. Call or email if you have questions or thoughts about where to look and what to buy. I have intimate knowledge of building costs and attributing hard value to vacant lots. You have maximized the value of a new construction project when you have spent no more nor less than what the investment actually deserves. Here is some more sound advice, and I'll give it to you for free. Find a real estate consultant who has enough knowledge about land optimization, and cost of construction/development. First identify a lot and do a complete analysis of the total opportunity as a whole, before you talk to the builder. Then figure out what house plan and level of finish makes sense, and set the budget for the project prior to communicating with someone for the bids. It is better tell the builder exactly what you are building and how much you will be willing to spend. This is a far superior approach to making intelligent Outer Banks investment decisions. I'll keep you in the driver's seat.Please call me if you have any questions about making good investment decisions. There are many benefits to owning an Outer Banks investment, outside of just having a place to relax at the beach. Educate yourself and benefit. Now that I have earned my wage, kindly send my five cents to the address below. No pennies please!
Certifications
format_quote
Outer Banks Real Estate Consulting, Sales, New Construction Investment Planning, and Land Devlopment including Corolla, Duck, Southern Shores, Kitty Hawk, Nags Head, Kill Devil Hills, and Hatteras.