Market Timing

Were you in the stock market on 9/11? Do you remember what happened to the stock market when it reopened after 9/11? I do. It tanked!

I had a bunch of stock in various good companies like Pfizer, Citicorp, and Microsoft. I had several shares of Berkshire Hathaway that I bought in 1995 that had more than tripled in value. I bought a bunch of stock on margin in a variety of good companies. But all of the stocks tumbled after 9/11. And I got several margin calls. I had the cash to avoid having to sell. But it hurt. A couple of years later the market dipped again and this time I had to sell one share of Berkshire Hathaway for $85,000 if I remember correctly. Then it went down again to $80,000 per share. I got really nervous and told my broker I wanted to sell all of it when the price returned to $85,000 and asked him to call me beforehand. It came right back up; he did not call, the stock got sold and my margin account went away. I had money in the bank.

I did not complain. I was tired of nervous nights wondering what would happen next. I had experienced 10 years of ups and downs in the stock market with "profit taking" by market insiders at the expense of everyday investors such as myself. I did not day trade. When I bought a stock I bought quality and looked for long term appreciation. I made a bunch of money during the 1995 to 2000 period. But 9/11 changed all of that. The four years after 9/11 were not fun at all. I just looked up the last quote on Berkshire Hathaway: $111,600 per share. CLICK HERE. The 52 week high was $114,500 or $29,500 more per share than the price I sold mine.

My shortsightedness got the best of me, I think. I knew that Berkshire Hathaway was a great company. That's why I bought it. I did not have to think. Warren Buffet would think and act for me. My problem was one of my own creation. I bought other stocks using the capital from Berkshire. The other stocks tumbled and did not recover. (Microsoft went from $120 a share to $25. I had 10,000 shares. I bought it at different prices but the loss was very damaging.)

So how does my tale of woe relate to what is going on in the Key West real estate market you ask. A lot of "investors" bought homes and condos here "on margin"-- if you will. They borrowed funds to buy properties that they could sell at a profit in the future. It worked like a charm for years. The town is a testament to the truth of it. Key West today does not look like it did 20 years ago.

The problem is that the real estate downturn across the country has frightened would-be buyers from buying in Key West. (That and fear of another Hurricane Wilma.) Many investors put their "investments" on the market and drove down the prices further. Many of these investments will be sold at a loss. On the other hand, investors who bought three or more years ago and who have no need to sell are doing fine. They are enjoying the use of the property or the income from it, or both. And when the market comes back their investments will have appreciated even more.

There are many would-be buyers out there looking. Hovering actually. Like vultures. Waiting to see what tasty piece of property goes on the chopping block, I mean auction block.

I remember another fact about what happened after 9/11. Town was dead as hell until Christmas. Then the "buyers" came back. Big time. Prices soared. And those market timers who procrastinated got hit. I think it will happen again.

Iguana Soup

One of the first items in my blog was a piece on home renovations in Key West and I referred to the old school Cary Grant film Mr. Blanding Builds a Dreamhouse. It has always been a favorite of mine. I loved that guy. I wanted to grow up and be as handsome. And I loved the idea of the movie of turning a dump into a great comfy home.

I have done some renovating over the years. I have done some work myself, but I hired builders to do things I could not do. I know the limits of my ability and my propensity to mess stuff up.

Right after Christmas I decided to replace the dishwasher in my kitchen. It died as a result of 3 inches of water during Hurricane Wilma. All of my house had at least 3 inches of water, but a couple of rooms had up to 9 inches. Then I got the idea of replacing the kitchen cabinets with a cheap set from Home Depot. You know, the $3500 10 foot kitchen. I thought I would add some granite to make the cabinets look better. That shouldn't cost that much since I was only buying 10 feet of cabinets.

I visited the model kitchen of the new homes being built on Petronia Street and saw the GE Professional Kitchen appliances and I thought I would add them since they looked so good. They were expensive but worth it for resale later. Then I did a Google search to checkout Viking Appliance costs for comparison purpose. Viking was more expensive for sure. But then I reasoned that the kitchen would really "pop" if I had Viking appliances.

I also decided to add travertine marble floors throughout the house. That would really make the house look much better. I had to repair some of the old wood floors that were damaged by years of too much dampness under the house. A wise and necessary investment I thought.

You are getting the picture I trust. One thing led to another and I got to become Cary Grant. Not the handsome gent,the guy who spent a fortune building his dream house.

Now things are not done, but progress is being made. I tore down the house I owned next door and now have a huge backyard that also needs to be landscaped. And more money to be spent. So here's where the Iguana soup comes into play. Just about every person who has worked on the house is not an American. The contractor is from Rhodesia, the lead carpenter is from England, the carpenter's helpers are from Nicaragua, the electrician is from Ireland, and so on. Two days ago the Nicaraguans saw a 3 foot Iguana in the backyard where we were working. They tried to catch it. They couldn't. So the carpenter said he could and picked up a large 6" x 6" post and hit the beast on the head, killing him instantly. The time was 11:45 AM. He took the Iguana home at noon. He returned at 12:30 and announced he had thrown the Iguana into a pot and was making Iguana Soup.

Later that day after everyone had left I saw a baby Iguana about 12 inches long walking by my pool. It wasn't even afraid. I thought buddy, you better move or you could get thrown into the pot with your mom. Yesterday the carpenter retold the story of his slaying the Iguana and reported on what a tasty tail the beast had. Best Iguana I ever ate, he said.

P.S. I didn't buy the $3500 kitchen at Home Depot. No, like Mr. Blandings I had to have the best. I'll post more on this when the cabinets arrive in later September. They are being custom made.....

House w/pool in Old Town under $449,000

Want to buy a single family home in Old Town with a pool for under $449,000? Call me. Quickly. This little charmer at 722 Galveston Lane is located just two blocks from Duval and across the street from Bill Butler Park. It is a tropical cottage (628 square feet on a 1481 square foot lot) on Solares Hill, the highest point in Key West. This one bedroom, one bath home has a new pool, roof, kitchen, bath. Quaint hideaway, lots of privacy yet within easy walk of all downtown attractions. Nice retreat for selective buyer.

This house was originally priced at $583,000 and the price has been progressively reduced to the new asking price of $449,000 which means the price per square foot is $714. Now that price is still a little high for today's market. But if you consider what you would be getting for your buck (pool, location, old town), it really isn't that high. This is the kind of bargain buyers were searching for three years ago. But today it sits unsold.

The photo to the right shows the pool in the front yard which is enclosed by a fence with lush tropical foliage. There is a walking lane on the north side of the house that provides easy access to Elizabeth Street.

This is not my listing, but I really would like to show it to you if you are looking for a bargain. The present owners bought this little gem in January 2006 and paid $583,000 or $134,000 more than the asking price. Give me a call if you are interested. You may be pleasantly surprised. 305-766-2642.

Second Quarter Sale Report for Key West Real Estate

The second quarter of 2007 is over. How did the real estate market do in Key West this year as compared to 2005 and 2006?

I did a quick search of SOLD homes, condos, duplexes, and 3-4 units from Key West through Shark Key priced over $200,000 from March 1st thru June 30, 2007. There were a total of 109 such sales. The least expensive sale was a one bedroom condo listed and sold for $250,000. The average sale was a 3-bedroom home with 1457 sq ft listed for $920,702 and that sold for $845,707. The most expensive sale was a home listed for $4.675million that sold for $4.34 million.

In 2005 there were 189 sales during the same time period. The least expensive condo sold for $200,000. The average sale was a 3 bedroom, 1325 sq ft listed at $1,002,561 and sold for $954,714. The most expensive home was an Old Town home on Sunset Key that was listed for $7.4 million and sold for $6.950 million with only 105 days on the market

The year 2006 had a total of 124 sales during this period. The least expensive was a 215 square foot condo that sold for a whopping $240,000 ($1116 per sq ft). The average sale was a three bedroom 1,525 sq ft home listed at $1,146,748 and sold at $1,038,578. The most expensive sale was a 5,000sq ft home listed at $5,900,000 that sold at $5,500,000 (on the market 440 days).

What do the numbers show? Well, I am no statistician but is easy to see that the overall sales are down and the overall sales prices are down across the board from low end to high end sales as compared to both 2005 and 2006 sales.

I have also noticed something very bothersome. There have been a very large number of properties that were put under contract (both seller and buyer agreed to all contract terms) during the past quarter but that later went back on the market. There are usually four things that cause a property to fall out of contract: buyer remorse, poor homeowner inspection report, insufficient credit, or property failed to appraise for the contract price. My suspicion is that properties have devalued and are not appraising at the contract price. If the seller will not lower the price, the property goes unsold.

The hardest part of the market to sell is the mid-range priced home. If you go back through Key West real estate sales to 1997 you will see that the mid range priced home has always been the most difficult priced property to sell. Back then the affordable fixer-uppers in Old Town sold around $250-280K. Homes over a million sold quite easily. But the majority of homes in the $500-800K range languished. Those homes are now just priced a lot higher. And I think the pessimism or skepticism about the lack of sales is failing to recognize this fact. Doom sayers are comparing the "boom market" sales of 2003 thru 2005 to today, and they are seeing doom and gloom.

The next three months are traditionally the worst. Town is hot, locals go away, not much sells. The hurricanes of 2005 and the market downturn have put a chilling effect on a traditionally down market. We shall see what happens this year.

My suggestion: if you are a seller and don’t need to sell now: Don’t list your property. If you must sell now, price it correctly. If you are a buyer, now is the time to buy. The market may not have totally bottomed, but good properties will get purchased before the dregs. Get the right property at a price you feel comfortable with.

If you are thinking about buying, please CLICK HERE to preview all current Key West mls listings. Then call me at 305-766-2642 to help you find your deal. And there are some good deals out there.

Do you want to own a Guest House?

Have you ever thought of owning a guest house? If so, I have some ideas for you. I used to own Eaton Lodge at 511 Eaton Street in Key West. So I think I can give you some creative pointers when looking for a guest house in Key West or another location.

First is location. Can the public easily find your property? Not every vacationer comes to town with a room reservation. So it is important that your property can be found easily. In Key West there are numerous street booths and referral agencies that can refer tourists to you. But these services charge a fee of 15% to 20% off the top for each night of the stay. That is money off your bottom line. Moreover, having a location in Old Town near the action on Duval or the marina makes it easy for the vacationer to find his way home late at night.

Second is reputation. Word of mouth and printed reviews in books and on the internet are the two biggest sources of new business. Look for repeat business when you review the financials of a prospective business.

Room for improvement. Has the present owner developed the property to its fullest? Is there any upside left for a new owner? Chances are pretty good that the seller is selling because he either has to or he has tired of the business. Under either scenario I would suggest that any prospective buyer scrutinize the P&L Statement carefully. Not every business operator reports all of his income. Surprise! Try to construct a pro-forma operating statement to determine how much money you should make during the year.

We are still in the first week of summer but I think now is the time to consider buying a guest house so that you can get all of the little problems addressed sooner rather than later. We only have 6 months until season starts. That is barely time to get the property under contract and apply for a loan. Then you will need to obtain an inspection, an appraisal, and a title commitment. Commercial appraisals can take up to a month to obtain. I estimate that most guest house closings require a time frame of 60 days from start to finish. So the sooner you start the process the more likely you are to attain your goals.

Late summer and early fall are hot in the Keys and many people are on vacation. But it is an excellent time to do necessary repairs and to prepare your new business for operation once season hits. Of course you will probably be operating prior to season, but your ADR (Average Daily Rate-price per room) will probably be less because that's the way it is in Key West during the off season. Operating during the off season is similar to training for a marathon. You still run your ass off every day, but it really counts during the marathon. The hard work beforehand just makes the race day more fulfilling.

CLICK HERE to review a list of all current guest houses for sale in Key West's Old Town area. Most but not all are near Duval Street. I think several of the properties are way over-priced. And I think a couple of the properties have room for improvement.

One particular guest house you should consider is Seacape Tropical Inn located just off Duval at 420 Olivia Street. It is next door to the Ernest Hemingway house so it gets lots of pedestrian and auto traffic. The guest house has 7 rooms and a small pool. So the size is just right for a regular mom & pop operation. CLICK HERE for more information on Seascape tropical Inn.

CLICK HERE to preview all current mls lisings in the Key West area. Then please call meat 305-766-2642 to help you find your new guest house in Pardise.

Such a Deal

I have been writing about potential "deals" for some time. Well, here is a deal that just closed.

This particular house was totally renovated about 5 years ago. The seller purchased the property in 2003 for $1,050,000. It is a 1530 sq ft 2 bed / 2 bath home on a very desirable block on Southard Street. The "best" block in my opinion. It has all the bells and whistles that most second home buyers are looking for including pool, off street parking, charm, location, quality construction, and no need for updating.

Why is this property such a deal you ask. It sold for $880,000. The house was originally listed for $1,375,000 in December 2005 and went thru a series of price reductions. The final asking price was $1,025,000. So the sales price per square foot was $575. Depending on the contractor a homeowner selects, renovation cost per square foot easily can go $200 to $350 per foot. Obviously when a seller sells for a price lower than what he purchased the property for there is an underlying reason. This seller's reason for selling is not important, but it is illustrative of what I have been writing. There are bargains out there and the smart buyers are taking advantage of them.

Want to find your own "deal"? CLICK HERE and search the Key West mls and then give me a call at 305-766-2642. Let me help you find your deal in Paradise.

Sea Isle Town Homes Open House

We are having an Open House on Sunday, June 24th at the Sea Isle Town Homes located at 901 Windsor Lane. (Just across Truman Avenue from St. Mary's Church.) The Open House runs from noon until 3:00 P.M.

There are only six of the special town homes available. The homes are 1750 square feet and feature 3 bedrooms and 3 1/2 baths. Each home has it's own pool and off-street parking space. The lots are individually landscaped and fenced.

The homes feature 10' ceilings on the main level and 9' ceilings on the second floor. All interior finishes are high end. Additional features include extra high baseboards, crown molding, recessed lights, pocket doors, Baldwin door knobs, Grohe and Kohler fixtures, Toto bath fixtures, PGT doors and CGI windows (hurricane rated) The kitchens feature Greenfiled Cabinets and Viking stainless steel appliances. There are granite counter tops in the kitchen and baths, and the downstairs floors are travertine marble. The stairway and second level floors are engineered Teak. And each unit has it's own 20 kilowatt Quiet Source Generator to provide unlimited electricity in the event of power failure.

So all of the features sound like many new projects you say. But these homes also have individual Transient Rental Licenses that permit the homeowner to rent the home on a daily basis to help defray the cost of home ownership. The town homes are a short 5 minute walk to Duval or the Conch Harbor Marina.

Mid-Centruy Modern in Mid-Town Key West

This exquisite Mid 20th Century Modern designer home was awarded the Star for its 2004 rehabilitation by the Historic Florida Keys Foundation. The home is located at 2026 Seidenberg and will by OPEN HOUSE today (Sunday, June 17th from 1:00 to 3:00 PM.

The house sits on a corner in Mid-Town. But that location is about the only thing this house in common with other homes in the area. It is spectacular. It sits on an angle and is encased inside a privacy fence. The angles, colors, textures, finishes inside bely the 1950 design. It is ultra-modern and chic.

The home was re-designed by Guiellermo A. Orozco and his partner Kent Ducote. The 1500 square foot home with 3 bedrooms and 2 baths is offered at $967,000 or $644 per square foot. Kitchen Features: Custom-made cherry wood cabinets, stainless steel appliances, wine cooler, reverse osmosis water purifier. Slate countertop and glass tile backsplash. Kitchen opens to both inside and outside dining areas.

CLICK HERE to preview all other homes and condos in Key West. Then call me at 305-766-2642 to take a peek at some of the great bargains now available in Key West.

Dealing with a Pending Foreclosure

I have worn many hats over the years. My bio is at the left of the blog. One of my jobs was managing problem loans for the biggest bank in Denver and one of my responsibilities was managing the foreclosure and sale of real property securing defaulted loans.

On the off-chance that some reader of this little blog may be facing financing problems, I offer the following advice on how to deal with a banker if you are facing foreclosure. Please take note that although I am an attorney, I am not offering legal advice. You must rely on the advice and counsel of your own personal attorney who is familiar with the specific facts and circumstances that affects your particular problem loan. My advice instead is that of a former banker in the hope I can help you understand how to deal effectively with your banker.

Rule Number One: Stay in contact with your banker. Don't hide. Return phone calls promptly. Keep appointments with your banker. Bring all documents that your banker requests to any and all meetings. Respond promptly to any written communication from your banker in writing. Keep a copy of everything you give to your banker and every thing he sends or gives to you. You may need these items at some future time if you end up in court or if your banker leaves and you have to start a new relationship with another banker.

Rule Number Two: Tell the truth. That's a good rule to follow in life anyways. But do not lie or misrepresent the truth to your banker. Do not give a false or misleading financial statement. Do not omit assets or overstate liabilities when you submit a financial statement. If you are uncertain as to the amount of an asset or liability, make a side note stating that the amount shown is an "estimate". Act in Good Faith.

Rule Number Three: Don't give up the ship. Many people think that if they cannot repay a loan when it becomes due and they receive a notice in the mail demanding payment under the threat of foreclosure that all hope is lost. Not so. Start a dialogue with your banker. Ask for a meeting. If you own a lot of money or have complicated loan, take your attorney with you. But don't let the attorney turn the meeting into an adversarial relationship. Lawyers like to do that. That is how they make money: they sue people. If you can't pay your loan, you probably can't afford to file a suit against a bank. Banks have more money than you. But banks don't sue people if they think they are going to spend a lot of money on a hopeless cause.

Banks make mistakes in documentation. Your attorney should examine your loan documents just to make sure that the collateral the bank thinks it has is really properly documented. Each state has different rules regarding the recordation of a mortgage or deed of trust, or other collateral for a loan. The date and time of recodation also control the rights of various creditors that may claim an interest in property that you own or that you gave as collateral for a loan. I have seen many cases where a bank does not have a correct mortgage or security instrument filed. The odds favor the banks, but it is always best to make sure that the bank has the collateral it thinks it has. If it does not, your chances of getting a better deal with your lender improve immensely.

Some borrowers can only see foreclosure, litigation, or bankruptcy as the way out of dealing with a banker who insists on repayment. Banks do not want your home or business. They already own too many. They don't need another lawsuit either. And bankruptcy may seem like an easy way out now, but it may cost you dearly in the future. And if you were dumb enough to give any false or fraudulent information when you obtained your bank loan (mortgage), you may face a tenacious lender or trustee in bankruptcy that will hound you. Bankruptcy is not a cakewalk. If you lied to get a loan or attempt to hide assets to avoid turnover to a bankruptcy trustee, you are courting disaster.

Rule Number Four: Be realistic. If you honestly know that you will never be able to repay the bank loan, admit that fact to yourself and to your banker. Offer to cooperate with the bank so that the bank can minimize its expenses to minimize its loss. Offer a deed in lieu of foreclosure if that will help the lender. But ask the lender to release you from any future or further obligation once the deed in lieu is given or once the foreclosure is completed. The bank is under no obligation to grant any request, but some lenders may work with you. On the other hand, a bank could agree to release you from further payment, but also file a FORM 1099 with the IRS showing the amount of debt forgiveness. That debt forgiveness becomes a tax obligation on your part. Not good. I used the threat of filing a FORM 1099 to secure borrower cooperation on many occasions.

Rule Number Five: Keep your promises. If you enter into a workout arrangement with your banker, make all payments when due. Drive them to the bank on the due date if necessary. If you fall short of the amount when due, go directly to the banker and explain why you are short. Ask for a short extension so that you can get current.

There is an old saying that goes something like "Fool me once, shame on you! Fool me twice, shame on me!" As a banker I tried to always give a borrower a second chance if he acted like he was going to try to repay his debt. I always required a new financial statement (which I could use against him later if he misstated assets or liabilities to secure debt forgiveness). I usually tried to get some new collateral as an abundance of caution. If our loan documents were messed up, I would always work with a borrower so that I could get my documentation corrected and get the documents properly recorded and seasoned so that if the borrower did file bankruptcy my bank would be a secured creditor as opposed to an unsecured creditor.

I did find that most borrowers respond well to being treated as a human being caught up in a difficult situation. I have even made new loans to borrowers in trouble just so that they could earn money to repay a prior debt that was in default. This tactic does work. But few borrowers can get that kind of loan because it requires new unencumbered assets of real value and an ability to generate cash to repay the new loan quickly. The excess income goes to pay down the prior debt.

Borrowers who make promises and who don't keep them make the lender look weak or stupid. Not a good idea. Shame on you. Lender's tend to get angry when a borrower takes advantage of a lender's forbearance.

Rule Number Six: Maintain your dignity. Most people recognize a con from the get go. Don't try to con your banker. Be honest and sincere and ask if there is any way that "we" can work this problem out amicably. Don't grovel and cry. Some people (men-successful men)try it. It doesn't look good. And it usually doesn't work.
But if you come across as a straight shooter that is realistic about what you can repay, you may get a chance to save your home or business. And that is worthy goal.

There are a lot of homes in the process of foreclosure in Key West. If you are facing foreclosure please think about calling me to list your home so that we can sell it before it does get foreclosed upon. You can maintain your credit. And maybe you can walk away from the obligation with a few bucks left in your pocket.

The Walls Came Tumbling Down

I don't claim to be an "expert" like some people in real estate. If you have read parts of this blog you know that I have admitted to some big screw-ups in the Key West real estate market--most of which dealt with opportunities I lost in buying property that I wanted. The bad thing about lost opportunities in real estate is that you get to drive by and see what someone else got that you missed. And it can gnaw on you for years.

Today I am talking about two properties that I did buy and what I learned from them. This will be continued through a few more updates as time progresses. I bought a large late 1940's home in the Casa Marina area in late 1995. My Realtor was the owner-broker of a very prominent real estate company. He sold a commercial property that I owned and made a huge commission on the deal. So I relied on his judgment and integrity in helping me find a new home. Bad decision on my part. I ended up suing him, his partner, his company, and the seller over allegations of fraud and misrepresentation. I settled the lawsuit after five years of litigation. And I cannot discuss the terms of the settlement or infer any outcome.

The house I bought had flooded in 1994 and the seller allegedly misrepresented in writing that the house had not flooded and had no settling or foundation problems. Since I paid cash for the property and needed a quick close, I was not required to have an inspection or appraisal. Bad idea folks because an inspection would have revealed the previous flooding and the lingering problems associated with it. It would have also disclosed that the site is prone to flood during any large rain event--not just a hurricane.

GO HERE to read my previous blog on the home inspection and the requirement of a seller to disclose material defects.

In 1998 I got the opportunity to buy the adjacent two story duplex for the price of a song. I bought it instantly because I feel any time you have the opportunity to control your property you should do so. The property was run down and looked even worse. So my initial idea was to buy it and fix it up and collect rent on two units. I did have it inspected and appraised. It appraised for more than the purchase price. I started to renovate the property and decided to stop because the cost of repair was greater than the value I expected to receive. So it sat vacant for 8 years.

A couple of months ago I decided to take down the house. The house is located in a part of the Casa Marina area that is included in HARC so I had to get HARC approval before I could get the house raised. The house was not a contributing structure (a building on a historic map noted for its construction or some other significance). So I got permission to tear it down. The approval process was actually not all that difficult and getting the demolition permit from the building department was not that difficult either.

Last Thursday this big ass monster machine arrived at the property around 10:00 AM and starteg to munch away on the house. Within four hours most of the building had been demolished. The crew returned the next day and took down the rest of the building and a series of trucks hauled the debris away. The lot is now barren and now I get to figure out what to do with it.

The owners of the house next door to the east are renovating that property. They have their house listed at $3.8 million and are happy as hell to have my eyesore gone. In fact I think all of my neighbors will probably nominate me for some award for getting rid of the ugly thing.

I am not going to build anything on the lot but rather plan to landscape it. The total lot size for my house and the vacant lot is just under 9,000 square feet. That is huge for Key West. My property taxes will go down because I won't be taxed for an unproductive building. And I anticipate that the value to my residence will appreciate significantly because of the value of the extra large lot in an area of more estate type properties. Time will tell if I am right.

Later I will talk about what I am going to do with my residence located next door.

I think there are some real buying opportunities in Key West. We are in the worst selling time of the year and some sellers have to sell. So if you are thinking of buying CLICK HERE to preview all current mls listings in Key West. Then give me a call at 305-766-2642. Thanks.