Every now and again I write a newsletter that takes a step back from the hectic day to day schedule of sourcing, renovating, promoting and selling turnkey rental properties in the Tampa Bay area.
It is hard to find the time, but I enjoy the process of searching for a theme that has an interesting real estate angle that might offer our patient readers some respite from the constant barrage of promotional emails.
Inspired by a Zillow article I read a few months back, this week I´ve decided to write about the "Top 10 Real Estate Stories of the Past 10 Years". Whether the last ten years have been good or bad to you financially, there can be little doubt that the period from 2006-2016 was one of the most disruptive in living memory.
Please read on if you´d like to take a short trip down (recent) memory lane to relive the changes caused by the market crash, the Fannie & Freddie bailouts, the record low interest rates and the rise of the internet as the dominant source of new sales and rental listings.
Each one of the ten stories below is more than interesting enough to merit its own newsletter, but I´m going to go through them extremely briefly in this email. However, I did record an indepth 20 minute podcast talking about each one in detail earlier this morning that I hope you can find time to listen to it.
1. The real estate market collapsed
A huge 10-12 year housing bubble fueled by sub prime mortgages, reckless Wall Street traders, low interest rates and a range of misguided government policies finally burst with a huge BANG in early 2008. Washington Mutual was one of the first dominoes to fall, but things really took a dive after Bear Stearns was sold for peanuts to JP Morgan and Lehman Brothers was allowed to fail.
2. Fannie & Freddie received a massive bailout
During the chaotic fallout from the Lehmans Brothers crash, the stock price plunges of both Fannie Mae & Freddie Mac brought both semi government entities to near collapse. As they guaranteed such a huge portion of mortgages at the time, they were deemed too big to fail and ultimately received a $187 billion bailout (which has since been repaid). They continue to guarantee more than 50% of all new US mortgages and are the main reason why so many investors and home owners have been enjoying 30 year fixed mortgages.
3. Government policy forces mortgage rates to historic lows
I think late 2012 was the record for mortgage lows when 30 year fixed rates were as low as 3.3%. That is a ridiculously low rate and a direct result of federal policies to stimulate the housing market. Smart investors, particularly higher net worth ones, were also able to access very low mortgage interest rates to expand their portfolios.
4. Detroit declares bankruptcy
During the summer of 2013 and after some very nasty and protracted arguments with creditors, Detroit filed the largest municipal bankruptcy (by far!) in US history. It exited a year or so later, but a city with a shrinking population of 700,000 still has more than 100,000 vacant properties and a long list of pending foreclosures. While local real estate experts can and do make lots of money, it is not an ideal "turnkey" market for out of state or overseas investors, despite what the glossy emails and brochures might promise.
5. The Internet turns property search and lead generation upside down
Stating that the internet is the most important tool for people searching for a new house seems like the most obvious thing in the world now. However, back in the early 2000s many people still relied on newspapers and property magazines as their main source of information. Detailed real estate information (e.g. sales prices of similar houses, days on market, property taxes) used to be available to professional insiders, and even what they had was nothing compared to what is available to everybody online now. Buying, selling and renting a property is far more transparent now thanks to the internet (although it contains a lot of inaccurate real estate info too!).
6. Rebuilding in the aftermath of Hurricane Katrina
Back in 2004, Katrina was first and foremost a human tragedy with more than 1800 people losing their lives. However, it is also a huge real estate story as over a million homes were destroyed. The federal, local and private initiatives to rebuild this area have already started to pay dividends, but it will take a lifetime to replace all those properties.
7. People stopped getting so obsessed with "bigger is better"
One of the positive side affects of the real estate crash was that people realized they didn´t always need to buy huge properties. In Florida especially, there was an alarming trend towards 4, 5 and 6 bed single family homes. I live in quite a modest sized house and can´t understand friends who buy these huge properties that cost a fortune to purchase, maintain and pay taxes on. People seem to be changing now though, and the same holds true for renters. If you have a well renovated property in a nice area, people will be more than happy with 1000-1300 sq ft in the areas we operate in.
8. Real estate TV shows start to flourish
I have always found it very amusing that real estate shows only really started to flourish during the biggest real estate crisis in living memory. For the last 5 years, HGTV and other channels have been showing dozens of popular programs showing (good looking) people finding that diamond in the rough and transforming it into a beautiful home. They are good fun and I tune into them every now and again, but they are completely divorced from reality.
9. Millennials and Baby Boomers drive migration back to urban areas
As discussed in a Torcana blog a few months ago, Millenials (lucky people born after 1980) show a distinct preference for urban accommodation close to transport links, amenities, universities, bars, shops etc. Many of them rent and like to keep flexible for job relocation and other lifestyle reasons. Conversely, many retiring baby boomer generations are moving back to the cities they left 40 years ago when they bought a big house in the suburbs to raise a family.
These are just two of many different trends, and while some builders are capitalizing on them very well, the fundamental truths don´t change. In other words, when people want to settle down and have families, the default choice for most is still to buy (or rent) a more spacious house in the suburbs with a nice garden. That is the market Torcana is involved in.
10. Return of cash buyers and massive portfolio builders
If you rewind the clock back to 2002-2007, practically nobody was buying properties with cash. To do so would have seemed completely insane at the time as prices were rising so fast and finance was so easy to come by. Fast forward to 2012-2016 though and in places like Florida you´re still seeing fully 40% of all real estate transactions being funded by non conventional means. Also, companies like Blackstone, Carlyle Group and KKR all have property portfolios worth many tens of billions of dollars. They barely existed as residential landlords ten years ago.
Don´t let other peoples fears infect your drive to succeed as an investor
Before I let you go to enjoy your weekend I wanted to touch briefly on something important. Earlier this week I had a conversation with a client that seems to repeat itself once every couple of months. An investor who has been reallyenthusiastic about starting their journey as a property landlord had their confidence dented by the opinion of a third party close to them.
Just like everybody else who wants to start a new business or do something different from the crowd, property investors have to combat their fair share of naysayers as they begin their real estate journeys. Keeping other peoples fears from infecting your drive to invest can be a challenge, particularly when they come from close friends and family members who have our best interests at heart.
I finished a very well known book recently called "The Millionaire Real Estate Investor" which has a large section at the back with mini biographies of successful people. One of the chapters that stuck with me was the story of a young woman called Renata Circeo. Just after graduating college, Renata was told by her father that "she was too young" when she approached him for a loan for a down payment on her first rental property.
Faced with that kind of feedback from such a trusted authority figure, most people would have postponed their real estate dreams then and there. But to her credit, this young lady took it on the chin and simply said "I know Dad, I just wanted to give you first refusal" before going ahead and finding the funds elsewhere. Fast forward 10 years from that conversation and she had a diverse portfolio comprised of 5 single family homes, two duplexes, six condos and an 18 unit apartment building.
Clearly Renata had an uncommon drive, but I just wanted to illustrate that while there are many kinds of bumps on the road to building a real estate portfolio, it is absolutely worth it if you are willing to put in the time and research to make it happen. Torcana can help provide you with the right tools and options and we are always available to talk to people who are interested in this business.
I´ll leave it at that for today, but thanks for reading this far, and don´t forget to tune into our latest podcast!