Good afternoon and welcome
At the end of a very harsh week, both in terms of snowfall and political fallouts, it is very easy to forget how flexible and adaptable the US economy is compared to our own. When I was in Florida a couple of weeks ago, I was immediately struck by the no nonsense approach individuals, banks and companies were taking in response to their property crisis. These were clearly people who had identified their problems and accepted the severity of the solutions needed to solve them.
Let me illustrate by way of examples I found on the ground:
- Property prices are considered overvalued? Keep reducing them weekly until people start buying. Those who reduce quickest will sell quickest.
- A huge property developer is struggling to sell the remaining 20% of a project? Reduce the prices by 40%, offer financing, pay the taxes for a year and offer free furniture.
- An investor defaults on a mortgage? Foreclose the property and sell it at a 55% discount. If that doesn't work, try 75%. It sounds brutal, and it is, but it looks like it is working.
Consider the following figures just released by the Orlando Regional Realtors Association:
1. After more than a year of monthly falls, December 2008 was the 4th month in a row that sales volumes increased, with January likely to be the 5th month.
2. There was 21% more properties sold in December 2008 than December 2007 and the average time a property spent on the market before being sold also fell in December 08.
3. The median price of a property sold in Orlando in December 08 was $169,900. This is 2.3% higher than the median price in November. Has the bottom of the market been reached?
4. The median price of the foreclosed properties sold to Someplace Else Investors to date is $70,300 - over 60% lower than the average price of all Orlando properties being sold. This very clearly demonstrates the value of the investments we are sourcing (which are all located in affluent neighbourhoods).
Because of the drastic measures taken to attract new buyers, it is starting to look like supply is finally starting to decrease again. This is a market that deserves to be taken very seriously. Once you've done your homework and purchased in the right areas, it is becoming increasingly clear that Orlando's economic strength will deliver both stable rental income and capital appreciation for you.
A Landlords Point if View
Let's take another look at this from a landlords point of view - even though prices have taken an absolute beating over the last 18 months, rental rates have remained remarkably stable. Why is this? The answer is simple: people need to live somewhere. Orlando's population continues to increase (it is the 2nd fastest growing city in the whole country), and as the numbers of foreclosures increased, mortgage lending standards tightened, forcing sales volumes down.
Regular people just can't get a mortgage right now. Most young professionals have to choose between living with their parents and renting a nice property.
How can Someplace Else help me make a profit from this?
We have a local team of professional and licensed experts on the ground in Orlando, who continuously research and carry out due diligence on well regarded and affluent local neighbourhoods with strong local amenities. We only list properties which have a high rental demand and are offered in excellent condition.
Absolutely everything we sell in conjunction with our local partners is 100% turnkey.
We source properties
We organise viewing trips (Aer Lingus have a great sale at the moment),
We process paperwork
We open bank accounts
We apply for non resident tax numbers
We find tenants
We offer rental guarantees
We file annual tax returns.
If this is something you want to get involved in, please download and read our brochure and have a look below at the properties available as of today.
Kind Regards
Colin Murphy
Sunday, February 8, 2009
An attempt to explain a Recession Simply & Clearly
Good afternoon everybody
Every ten blogs or so, I feel compelled to write a longer and more general note describing economic shifts and events (as I see them) rather than my usual focus on property and property markets.
However, please do feel free to skip straight to the property investment information by clicking on the links to your right or scrolling down to the bottom of this email.
Making sense of it all
Like many of our readers and clients, I'm the type of person who tunes in regularly to radio chat shows, current affairs programs and newspaper reports on how the global turbulence is affecting our house prices, our labour markets, our stock markets and our changing consumption habits. There are lots of commentators out there who seem very qualified and sound like they know what they're talking about when discussing concepts like recapitalisation, nationalisation, liquidity ratios, deflationary pressures, credit ratings etc. and yet, when I've finished listening to them, I've usually forgotten what the question they were supposed to be answering was. Sound familiar?
With that in mind, and throwing caution to the wind, I'm going to pose a few questions I think a lot of people would like answered, and I'll try and do as quickly and clearly as possible. Please bear in mind that all of these issues deserve much more comprehensive answers than the size of this newsletter or the limits of my ability permit.
1. How did the subprime mortgage crisis in the USA affect property prices in Ireland & Britain?
2. Why are large international banking stocks trading at 30-60c per share when they were €20-€30 per share 18 months ago?
3. Why have banks moved so rapidly from loose lending criteria to excessively strict lending criteria?
4. Why is unemployment rising so quickly and why are our economies slowly so rapidly?
5. How can a person safely invest in a property market without falling victim to another property crash in 2010 or 2011?
How did the subprime mortgage crisis in the USA affect property prices in Ireland & Britain?
The subprime market, i.e. the practise of offering high interest mortgages to people with a high risk of missing future payments, was just the most extreme example of a mind boggling variety of mortgage products. It was viewed to be of low risk overall because it was assumed the value of the properties they were secured against would always continue to rise and could be resold if the client defaulted on his loan.
While there was a time when mortgage lenders like AIB, Bank of Ireland, Barclays & RBS etc. could only source funds from their local markets and would simply offer a multiple of the deposits received from savers to borrowers who wished to take out a loan, this has not been the case for many years.
Nowadays, banks based in net borrowing economies (like the USA) receive vast sums of money from banks in net saving economies (like China). These banks then repackage this money in horrendously complicated ways and give other international banks operating in borrowing economies (like Ireland & the UK) access to it.
If the banks who lent to people with a high default risk operated in the old fashioned way and were not so interconnected with the global economy, their boardroom and their shareholders would be duly punished when these loans were not repaid and we would all move on.
However, this was not the case as institutions everywhere had products linked to these subprime mortgages. Gradually (from August-December 2007), it was realised that an unknown but potentially catastrophic proportion of the money lent to people and institutions all over the world would never be repaid.
During 2008, when Irish & British banks had much more limited access to global funds, mortgage lending duly slowed, reducing the amount of people who could afford to purchase a home, thus reducing the demand for housing. If a market suddenly realises that there is a large and impractical gap between supply and demand of any product, prices will fall dramatically, and they certainly have this time.
Why are large international banking stocks trading at 30-60c per share when they were €20-€30 per share 18 months ago?
At the moment, large and diverse Irish and British banks are being valued by stock markets at about one years profits, which is astounding. These low share prices have more to do with the markets perception of a banks ability to raise new capital than any major faults in their business models. If a bank cannot borrow cheaply from other banks or raise money from wealthy individuals and institutions, then it cannot function properly. This is why governments are stepping in to provide funding to the banks so they in turn can pump it into the economy in ways only a bank can do (in the forms of mortgages, car loans, business loans, overdrafts etc.).
Major problems will arise and people will start dumping shares when banks do not pass this money onto customers either because it has so much debt already and/or governments become very dangerously exposed to these enormous debts by providing continued support without the markets help.
Why have banks moved so rapidly from loose lending criteria to excessively strict lending criteria?
Banks need to abide by very strict laws which only allow them to lend money as a proportion of the cash they have access to. As a rule of thumb, if a bank has €10 million in liquid assets, it can lend €100 million to people in the form of car loans & mortgages etc. If a fictional banks' cash dipped to €7 million towards the end of the business day, and they had already lent €100 million to their customers, they would need to borrow €3 million from somewhere to remain solvent. They might borrow this €3 million for a night, a month or three months, but the interest rates for doing so were far lower than the interest rates they charged the customers they passed it onto.
When banks realised that many of the loans they were giving were worth less than they thought because of falling asset values, they needed to hold onto more cash to preserve this 10% ratio. This in turn meant they charged higher interest rates to other banks who wanted to borrow, which created a vicious circle dramatically reducing everybodies ability to lend money to their regular customers.
Why is unemployment rising so quickly and why are our economies slowly so rapidly?
If businesses (large and small) have less access to the loans they need to expand and the overdrafts they need to meet day to day expenses, either their business models will no longer be viable and they will shut down, or they will reduce their overheads dramatically and continue as a smaller entity.
If the average man or woman on the street is fearful of their job and/or realises they no longer have access to the overdrafts & credit card facilities they previously took for granted, they will spend less money and purchase less goods and services.
If companies are getting smaller and people are spending less, an economy will slow and GDP growth will contract.
How can a person safely invest in a property market without falling victim to another property crash in 2010 or 2011?
Firstly, thank you to those who have gotten this far though our newsletter. Secondly, and harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is causing much suffering to others.
One of these ways, which Someplace Else Ireland identified about eight months ago and launched as a comprehensive service about three months ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return of these types of properties, they must be purchased in wealthy, democratic economies, with a history of renewal and recovery from recessions, and in fundamentally sound cities and neighbourhoods where locals rent long term and have the ability to purchase and borrow against similar properties.
Regular readers will know of course, that I am referring to Florida. For the record, let me state that our focus is not on vacation homes. It is on long term lets to locals (only a small percentage of which work in the tourist industry). These properties are much more tax efficient, provide a much higher net rental return per square foot and are available at a higher discount than other property types.
Best Regards
Colin Murphy
Every ten blogs or so, I feel compelled to write a longer and more general note describing economic shifts and events (as I see them) rather than my usual focus on property and property markets.
However, please do feel free to skip straight to the property investment information by clicking on the links to your right or scrolling down to the bottom of this email.
Making sense of it all
Like many of our readers and clients, I'm the type of person who tunes in regularly to radio chat shows, current affairs programs and newspaper reports on how the global turbulence is affecting our house prices, our labour markets, our stock markets and our changing consumption habits. There are lots of commentators out there who seem very qualified and sound like they know what they're talking about when discussing concepts like recapitalisation, nationalisation, liquidity ratios, deflationary pressures, credit ratings etc. and yet, when I've finished listening to them, I've usually forgotten what the question they were supposed to be answering was. Sound familiar?
With that in mind, and throwing caution to the wind, I'm going to pose a few questions I think a lot of people would like answered, and I'll try and do as quickly and clearly as possible. Please bear in mind that all of these issues deserve much more comprehensive answers than the size of this newsletter or the limits of my ability permit.
1. How did the subprime mortgage crisis in the USA affect property prices in Ireland & Britain?
2. Why are large international banking stocks trading at 30-60c per share when they were €20-€30 per share 18 months ago?
3. Why have banks moved so rapidly from loose lending criteria to excessively strict lending criteria?
4. Why is unemployment rising so quickly and why are our economies slowly so rapidly?
5. How can a person safely invest in a property market without falling victim to another property crash in 2010 or 2011?
How did the subprime mortgage crisis in the USA affect property prices in Ireland & Britain?
The subprime market, i.e. the practise of offering high interest mortgages to people with a high risk of missing future payments, was just the most extreme example of a mind boggling variety of mortgage products. It was viewed to be of low risk overall because it was assumed the value of the properties they were secured against would always continue to rise and could be resold if the client defaulted on his loan.
While there was a time when mortgage lenders like AIB, Bank of Ireland, Barclays & RBS etc. could only source funds from their local markets and would simply offer a multiple of the deposits received from savers to borrowers who wished to take out a loan, this has not been the case for many years.
Nowadays, banks based in net borrowing economies (like the USA) receive vast sums of money from banks in net saving economies (like China). These banks then repackage this money in horrendously complicated ways and give other international banks operating in borrowing economies (like Ireland & the UK) access to it.
If the banks who lent to people with a high default risk operated in the old fashioned way and were not so interconnected with the global economy, their boardroom and their shareholders would be duly punished when these loans were not repaid and we would all move on.
However, this was not the case as institutions everywhere had products linked to these subprime mortgages. Gradually (from August-December 2007), it was realised that an unknown but potentially catastrophic proportion of the money lent to people and institutions all over the world would never be repaid.
During 2008, when Irish & British banks had much more limited access to global funds, mortgage lending duly slowed, reducing the amount of people who could afford to purchase a home, thus reducing the demand for housing. If a market suddenly realises that there is a large and impractical gap between supply and demand of any product, prices will fall dramatically, and they certainly have this time.
Why are large international banking stocks trading at 30-60c per share when they were €20-€30 per share 18 months ago?
At the moment, large and diverse Irish and British banks are being valued by stock markets at about one years profits, which is astounding. These low share prices have more to do with the markets perception of a banks ability to raise new capital than any major faults in their business models. If a bank cannot borrow cheaply from other banks or raise money from wealthy individuals and institutions, then it cannot function properly. This is why governments are stepping in to provide funding to the banks so they in turn can pump it into the economy in ways only a bank can do (in the forms of mortgages, car loans, business loans, overdrafts etc.).
Major problems will arise and people will start dumping shares when banks do not pass this money onto customers either because it has so much debt already and/or governments become very dangerously exposed to these enormous debts by providing continued support without the markets help.
Why have banks moved so rapidly from loose lending criteria to excessively strict lending criteria?
Banks need to abide by very strict laws which only allow them to lend money as a proportion of the cash they have access to. As a rule of thumb, if a bank has €10 million in liquid assets, it can lend €100 million to people in the form of car loans & mortgages etc. If a fictional banks' cash dipped to €7 million towards the end of the business day, and they had already lent €100 million to their customers, they would need to borrow €3 million from somewhere to remain solvent. They might borrow this €3 million for a night, a month or three months, but the interest rates for doing so were far lower than the interest rates they charged the customers they passed it onto.
When banks realised that many of the loans they were giving were worth less than they thought because of falling asset values, they needed to hold onto more cash to preserve this 10% ratio. This in turn meant they charged higher interest rates to other banks who wanted to borrow, which created a vicious circle dramatically reducing everybodies ability to lend money to their regular customers.
Why is unemployment rising so quickly and why are our economies slowly so rapidly?
If businesses (large and small) have less access to the loans they need to expand and the overdrafts they need to meet day to day expenses, either their business models will no longer be viable and they will shut down, or they will reduce their overheads dramatically and continue as a smaller entity.
If the average man or woman on the street is fearful of their job and/or realises they no longer have access to the overdrafts & credit card facilities they previously took for granted, they will spend less money and purchase less goods and services.
If companies are getting smaller and people are spending less, an economy will slow and GDP growth will contract.
How can a person safely invest in a property market without falling victim to another property crash in 2010 or 2011?
Firstly, thank you to those who have gotten this far though our newsletter. Secondly, and harsh as it may sound, there are several ways those who are still liquid can profitably take advantage of a global downturn which is causing much suffering to others.
One of these ways, which Someplace Else Ireland identified about eight months ago and launched as a comprehensive service about three months ago, is to purchase highly discounted and undervalued properties from distressed sellers. To maximise the return of these types of properties, they must be purchased in wealthy, democratic economies, with a history of renewal and recovery from recessions, and in fundamentally sound cities and neighbourhoods where locals rent long term and have the ability to purchase and borrow against similar properties.
Regular readers will know of course, that I am referring to Florida. For the record, let me state that our focus is not on vacation homes. It is on long term lets to locals (only a small percentage of which work in the tourist industry). These properties are much more tax efficient, provide a much higher net rental return per square foot and are available at a higher discount than other property types.
Best Regards
Colin Murphy
Florida - Safe and Exciting Investment Option for 2009
Good afternoon all,
I am very happy to report that 2008 was a profitable year for Someplace Else Ireland with turnover increasing significantly from previous years and for that we must thank all our loyal clients very sincerely.
Thoughts for the year ahead
While we pride ourselves on being more nimble and better able to spot trends than many of our competitors, 2009 is probably the first year for over a decade where all types of businesses will be forced to change their strategies and cost bases dramatically to survive (and hopefully thrive) this year. In terms of my thoughts for the year ahead, well, as I indicated in Issue 32, I don't think we will see much enthusiasm for offplan property at all in 2009, which will cause heartache for many Irish developers, estate agencies and investors.
Unfortunately, you cannot be certain anymore that financing will be available for properties on completion and they may not increase in value either during the construction stage. This is especially true if there is an oversupply in the area where you purchased and a high percentage of buy to let investors with short term exit strategies (the South of Spain and the Black Sea coast of Bulgaria are two stand out examples of the above).
Safer options
The truth, as I can see it, is that the economic crisis of the past six months has presented better and safer alternatives to placing a 20-30% deposit on a property that is supposed to increase in value during a 2-4 year construction period. Our focus in 2009 is very much going to be on promoting highly discounted, cash positive and finished properties in areas that should recover quickly from the global downturn.
If you'd like to view examples of these kinds of properties, please call us or visit our website to see some excellent properties in Central Orlando, Florida. Florida might seem a strange recommendation from an emerging market investment property specialist, but it is by far the most exciting place for cash buyers to invest at the moment and the time to take advantage of the highly discounted bank owned properties is now. In addition to this week's hot properties illustrated below we have a very wide range of information available to view and download on our website, including investment slide shows, podcasts, area descriptions, tax & legal information and much more.
Florida - Low prices, low taxes, high rental yields
Apart from having the comfort of investing in an area that has been offering foreign property investors security and legal protection for decades, there is no stamp duty or state tax in Florida and both income tax and capital gains tax can lowered to trivial amounts due to the sheer amount of allowable deductions available.
Someplace Else Investors are purchasing property at less than 30% of their previous sales prices, which ensures a high net rental yield. These properties are also much easier to rent as tenants prefer and actively seek properties owned by cash buyers. They do this because it minimises their chances of being forced to leave again if their landlord misses mortgage repayments and the bank forecloses. Accurate Sales Prices & Rental IncomeAs previous sales prices are on public record for every property in Florida and as the current market value estimates we provide are sourced from the Orlando Appraisers office, investors can easily calculate the huge value in the low purchase prices of the bank owned properties we carefully select.
While there are often large differences between a property agents optimistic rental income estimates and the reality on the ground, investors in Florida can verify that the gross and net income figures we quote are extremely accurate. Firstly, there is a monthly publication called Apartments for Rent that lists units for rent across Metro Orlando with guide prices. Secondly, our partner management company has many years experience of renting properties in the micro areas we focus on, and thirdly, there are many other rental companies offering units to rent across metro Orlando which can be quickly compared against our quoted figures.
Conclusion
In short, Someplace Else does a lot of work behind the scenes to provide a completely hands off purchase process for this unique and very time sensitive investment product. The best properties are selected daily, the legal paperwork is processed efficiently, tenants are in place within weeks of closure, accountants are in place to take care of tax affairs and secure online bank accounts are quickly opened.
There's lots of further information on our website. As always, my colleagues and I look forward to hearing from you soon.
Regards
Colin Murphy
I am very happy to report that 2008 was a profitable year for Someplace Else Ireland with turnover increasing significantly from previous years and for that we must thank all our loyal clients very sincerely.
Thoughts for the year ahead
While we pride ourselves on being more nimble and better able to spot trends than many of our competitors, 2009 is probably the first year for over a decade where all types of businesses will be forced to change their strategies and cost bases dramatically to survive (and hopefully thrive) this year. In terms of my thoughts for the year ahead, well, as I indicated in Issue 32, I don't think we will see much enthusiasm for offplan property at all in 2009, which will cause heartache for many Irish developers, estate agencies and investors.
Unfortunately, you cannot be certain anymore that financing will be available for properties on completion and they may not increase in value either during the construction stage. This is especially true if there is an oversupply in the area where you purchased and a high percentage of buy to let investors with short term exit strategies (the South of Spain and the Black Sea coast of Bulgaria are two stand out examples of the above).
Safer options
The truth, as I can see it, is that the economic crisis of the past six months has presented better and safer alternatives to placing a 20-30% deposit on a property that is supposed to increase in value during a 2-4 year construction period. Our focus in 2009 is very much going to be on promoting highly discounted, cash positive and finished properties in areas that should recover quickly from the global downturn.
If you'd like to view examples of these kinds of properties, please call us or visit our website to see some excellent properties in Central Orlando, Florida. Florida might seem a strange recommendation from an emerging market investment property specialist, but it is by far the most exciting place for cash buyers to invest at the moment and the time to take advantage of the highly discounted bank owned properties is now. In addition to this week's hot properties illustrated below we have a very wide range of information available to view and download on our website, including investment slide shows, podcasts, area descriptions, tax & legal information and much more.
Florida - Low prices, low taxes, high rental yields
Apart from having the comfort of investing in an area that has been offering foreign property investors security and legal protection for decades, there is no stamp duty or state tax in Florida and both income tax and capital gains tax can lowered to trivial amounts due to the sheer amount of allowable deductions available.
Someplace Else Investors are purchasing property at less than 30% of their previous sales prices, which ensures a high net rental yield. These properties are also much easier to rent as tenants prefer and actively seek properties owned by cash buyers. They do this because it minimises their chances of being forced to leave again if their landlord misses mortgage repayments and the bank forecloses. Accurate Sales Prices & Rental IncomeAs previous sales prices are on public record for every property in Florida and as the current market value estimates we provide are sourced from the Orlando Appraisers office, investors can easily calculate the huge value in the low purchase prices of the bank owned properties we carefully select.
While there are often large differences between a property agents optimistic rental income estimates and the reality on the ground, investors in Florida can verify that the gross and net income figures we quote are extremely accurate. Firstly, there is a monthly publication called Apartments for Rent that lists units for rent across Metro Orlando with guide prices. Secondly, our partner management company has many years experience of renting properties in the micro areas we focus on, and thirdly, there are many other rental companies offering units to rent across metro Orlando which can be quickly compared against our quoted figures.
Conclusion
In short, Someplace Else does a lot of work behind the scenes to provide a completely hands off purchase process for this unique and very time sensitive investment product. The best properties are selected daily, the legal paperwork is processed efficiently, tenants are in place within weeks of closure, accountants are in place to take care of tax affairs and secure online bank accounts are quickly opened.
There's lots of further information on our website. As always, my colleagues and I look forward to hearing from you soon.
Regards
Colin Murphy
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