Thursday, December 27, 2007
Is it a good time to buy or sell real property in Key West?
In a market of volatile prices take advantage of other peoples misfortunes. A couple of weeks ago I listed numerous properties that are in the process of foreclosure or already bank owned. These are buying opportunities. The bank owned properties are routinely reduced in asking price because the reluctant bank owners want out ASAP.
Here is a "for instance" of a non-bank seller that wants out now. I suspect something is amiss. Today there is a new listing of what is an attached two story condo 202-1 Southard (Shipyard). It is the only unit of its kind. This unit was purchased in June 2005 for $1,170,000 and is now being offered at $1,095,000 or $75,000 less than the price paid two years ago. The present asking price is too high on a price per sq ft basis, and I think the seller will probably have to accept a much lower price. But the uniqueness of this particular unit make it a good deal for a buyer who buys at the right price. It looks to me like the seller has to sell and it just a matter of determining how much of a loss he (or maybe his lender) can absorb.
Here is another "for instance". Our office has a customer who owns a mixed use property that she wants to sell. She bought it many years ago, and it is debt free. She gets a good rental income on it so she is not losing money. But the tenants are not triple net, so she does have ongoing property management and maintenance expenses. The property is located on a major street near Duval. The property was originally a two story Greek revival (Conch) house that has been converted to a small retail use and there also two licensed transient guest rooms. It is really not suitable to going back to single family use because of its location. And because it lacks any meaningful off street parking, it is not really suited to a full commercial use. The owner has left the area and would like to sell. She obtained market value opinions from two commercial brokers, a "star" residential Realtor, and from an agent in our office. The two commercial brokers told her $2.5 million. The "star" said $1.6 million. The agent in our office told her $1.7 to $1.8 million if she could wait a few years. I think the real price is around $1.4 to $1.5 million today.
Should she sell? Is it worth sitting on for 5 or 10 years to maybe get the $2.5 million. I say "maybe" because we cannot predict exactly when, if ever, the property will reach that price. Should she sell it now and forgo the possible gain of a million dollars or more at some future date? I told the Realtor in our office that she ought to sell it now and get out. She should convert an asset of determinable present value into an asset capable of earning a defined income.
I did a present value analysis of the $1.5 million invested at 5% over 5 years. The future value of that amount is $1,914,422.34 or growth of $414,422.34. If she could earn a 6% return the future value would be $2,007,338.37 or growth of $507,338.37. That is what she could earn from no risk certificate of deposits.
Maybe she could use her $1.5 million to purchase a replacement(triple net commercial property) where she now lives. If she established an 8% rate of return her $1,500,000 would become $2,203,992 in five years. She could determine exactly what the future value of her non-earning asset would be simply by acting prudently now. And she could also enjoy the upside of rising property values in a market where she resides.
The owner is in her fifties so there is a good likelihood that she will be around for several years. But in the event she should pass away, what do you think her estate will do with the property? Sell it, of course. And estates are notorious for selling short. Or maybe she just sits tight and waits for the market to rise, but it doesn't. Or maybe it even declines more. Anything is possible.
You cannot predict what the future will be, but you can make prudent business decisions to reasonably insure that your assets will be worth more in the future than they are today.
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Gary Thomas in a Nutshell
- Gary Thomas
- Key West, Florida, United States
- I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.