Still Going Strong

The dismal stock market is one factor, of course; but rock-bottom mortgage rates and middle-aged baby boomers shopping for second homes are also fueling the home market.

"I'm seeing a lot of these buyers," says Denise Langlois, a realtor with Coldwell Banker in Sarasota" target="_blank">Manatee County. "Rather than putting more money in stocks, they're putting it in real estate."

David McGee, a former vice president of LexisNexis in Dayton, Ohio, who now lives on Siesta Key, is one of these new real estate investors. "I pulled most of my money out of the stock market two years ago," he says. "I wanted to diversify and I wanted disposable income. Right now, I have nine beach properties." And, he adds, "They've all appreciated." McGee and his wife, who are both in their 40s, are overjoyed they left the stock market and the corporate world for a lifestyle of sun and sand, and their beachfront rental properties provide more than enough income to live on.

McGee's strategy is tempting to follow. Fortune magazine reports that the median price for a home in the U.S. is up 30 percent from five years ago, while the stock market has plummeted to levels not seen since 1997. At the same time, interest rates last fall tumbled to their lowest level since the 1960s, near six percent for a 30-year fixed mortgage. The National Association of Realtors (NAR) reported that the median existing-home price was $159,000, up 7.9 percent from the previous year. No, real estate doesn't shoot up as quickly as stocks sometimes do; during the dot-com frenzy, you might have sniffed at an eight-percent rise in value. But the NAR stresses that for the nation as a whole, home prices have risen every year since records were kept. And fluctuations in the residential market tend not to swing as widely or as rapidly as the stock market-a mighty comforting thought for investors who lost 30 percent and more of their stock portfolios in the last two years.

In Sarasota and Manatee counties, the rise in values surpasses the national average. In Sarasota, median single-family home prices increased almost 12 percent in 2001 and about nine percent during the first six months of 2002, according to the Sarasota County Association of Realtors. Condo prices rose about six percent in 2001 and 19 percent in the first six months of 2002. In Sarasota" target="_blank">Manatee County, the median home price increase was 10 to15 percent last year and 37.5 percent in the last four-year period, according to Langlois.

But the sizzling hot U.S. real estate market has also led to rumblings of a real estate bubble-an overheated market of overpriced homes that's bound to pop-and some think that could apply to parts of Southwest Florida. In its November 2002 issue, Consumer Reports pinpointed our neighbors to the north and south-the Tampa-St. Petersburg area and the Fort Myers-Cape Coral areas-as bubbles. Historically, in such areas, housing prices tank about two years after the stock market takes a nosedive, according to Consumer Reports. If you buy in one of these "bubbles," you can lose big.

Real estate analysts from Economy.com recently put Sarasota-Bradenton and Naples on their list of top 10 overheated markets around the country. But Celia Chen, a senior economist for the company, says Florida is a peculiar market. Even though the numbers-population growth, income growth and home prices, primarily-show a potential bubble, "It may be an overstatement in your area," she says. Florida's huge second home market (the largest in the U.S., according to Fortune) and huge retirement population-including those retiring baby boomers who are snapping up second homes-insulate the Florida residential market. She also says South American buyers worried about the economies in their own countries have been investing heavily in Florida residential real estate recently, keeping demand and prices high, further protecting us from a "correction."

Even without the catalyst of a volatile stock market, real estate investments have a certain appeal. For one, they're real; that is, they're tangible, and some investors like to see and touch where their money is. "You can't live in your Enron stock," says the NAR's Walter Maloney.

You're also not tying up all your money. "If you finance it," says Darla Furst, president-elect of the Sarasota Association of Realtors, "maybe five, 10 or 20 percent of the purchase price, you get a return on the entire property." Property investment specialist Brian Livesy, a co-owner of Waterside Realty LLC in Sarasota, says there are lots of tax advantages as well. You can deduct the interest payments from your mortgage on your federal tax returns; and if you sell a principal residence, you can exclude $250,000 of the gains ($500,000 for a couple) from taxes. Rental properties have benefits, too. If the rent is right, such investments can pay for themselves and provide a nice income.

In Sarasota and Bradenton, local realtors are confident the housing market here will remain a good investment. "I don't think there's any bad place to put your money," says Tom Cail, a Sarasota Re/Max realtor. Sales have slowed a bit from the frenzy of 1998 to 2000, he admits. Back then, people were lined up to buy some choice properties and then, after buying them, would flip them in a few months for a profit. He also says there's more inventory now than there was a few years ago, which is also slowing the local market a bit. "It's not a slam-dunk like a few years ago, but I don't think you'll find anybody who, two years down the road, won't be doing fine."

Langlois says in Sarasota" target="_blank">Manatee County she wouldn't rule out buying older properties, fixing them up a bit and then selling them in a few months. In fact, she recently "flipped" one herself when she was shopping around for a client. The client didn't want it, but Langlois thought it had possibilities. "The price was great, but it needed a little work," she says. So she put in new carpet and tile, slapped on a fresh coat of paint and sold it one month after closing for a nice profit. "I'm not daring, but I knew it was the right thing to do," she says. "I wouldn't say you need to approach your investments as long-term. Just know your area and your limitations."

That's the key, says Waterside's Livesy, who specializes on Siesta Key and helped McGee find his nine beachfront rentals. "Know your marketplace. Look at properties and get familiar with the area. When something comes along you'll know if it's a good deal." Livesy follows his own advice. "I have six investment properties," he says. "It's retirement for me."

Furst, who is facing looming college costs because of her 18- and 20-year-old daughters, is also investing: "A year ago, my husband and I lost a good amount of money in the stock market. We bought a 16-unit apartment complex; and if we need to cash out for graduate school, it's going to get at least 10 percent a year plus my purchase price."

Although realtors interviewed insisted that most local areas are excellent investments, they did single out a few of the strongest locations.

Bayfront and Gulf-front properties are always at the forefront of realtors' lists. Furst says a year ago waterfront property was appreciating at five percent per month. "I won't accept a bubble on the waterfront," says Tom Stone, a realtor with Michael Saunders & Company, who specializes in multi-million-dollar Casey Key properties. And even though national sales of high-priced mansions are slowing and their asking prices are in a free fall, Stone says, "Casey Key could hit the $50-million mark (in sales) four years in a row this year." That said, he also cautions that potential homebuyers and investors need to pay attention to supply and demand in each micro market. Evaluate the type of property you're interested in, its price range and location. "The focus should be on properties that will virtually always be limited in supply," he says.

Livesy, who likes Siesta Key waterfront, says he also likes the west-of-the-Trail neighborhood between Orange and Osprey and close to Southside Village. In fact, he bought a property there in 1999 for $200,000 and now it's worth $500,000, he says. "This area is close to downtown and the hospital, areas people want to be near," he says.

He also likes older condos with views-"either bay or Gulf in the $400,000 to $800,000 price range." The downtown condo market is hot and so are the older homes in Gillespie Park and Burns Court.

Cail also singles out the downtown market. In particular, he likes Golden Gate, that little spit of land on the bayfront across from the entrance to The Ritz-Carlton. "It's on the water and it's a great location," he says. The cute two-story motels and small homes are making way for multi-story luxury condos such as Vista Bay Point, Grand Riviera and Majestic Bay on the water, but there are still some wonderful, older interior properties, too, he says.

Southgate is another area Cail likes. The homes are nice, solid concrete block residences below $200,000 in a central location, he explains. "I have one client who cashed $2 million out of the stock market and bought nothing but real estate," Cail says, including four homes in Southgate.

Cail also has a lot of listings on Longboat Key, and says anything on Longboat is strong, but he particularly likes the bayou section of the Longboat Key Club. "It's a mid-to-late '80s development on deep waterfront that still has a couple of lots and older homes," he says. "It could be an up-and-comer. It's behind the gates, has low maintenance fees. The older homes are a good value. Non-water goes from the high $300s to $2 million for something on the point." Cail also says condos remain strong, citing an ad in the newspaper for a two-bedroom unit in Beach Harbor, a mid-key condo, for $195,000.

In Sarasota" target="_blank">Manatee County, Langlois says waterfront prices continue to skyrocket, but she says west and northwest Bradenton are strong markets. However, the big story, she says, is in eastern Sarasota" target="_blank">Manatee County-a location of tremendous growth and often the first place newcomers begin to look.

Re/Max Gulfstream realtor Tierney Foster says buyer interest in eastern Sarasota" target="_blank">Manatee County is, without a doubt, the biggest trend. Buyers, who include investors, are heading across the Manatee River into Parrish and east of I-75 because the communities offer brand-new homes and amenities. Lakewood Ranch off of University Parkway emerged as a popular area for investors who often buy several properties and rent them out. She also mentions the new east-of-I-75 communities Waterlefe, River Club and Heritage Harbor. "In these new communities, if you get in early you catch the greatest appreciation," she says. Also looking good are River Wilderness, Heather Glen, Creekwood, Greenfield Plantation, Panther Ridge and Mote Ranch. "I just don't know communities that haven't done well," she says.

And about that bubble? Most local realtors just shrug their shoulders. "They've been saying that for years," says Langlois. "It hasn't burst yet."