Lifestyle Investing for Family, Fun and Profit
You invest your money to make more money … but there is so much more to life than cash.
Still, you have to have a way to fund your fun. Some say invest now and play later … but why not invest now AND play now, too?
We’re talking about lifestyle investing.
Beautiful properties are available for you to live in … part of the time … and rent out for the rest.
In this episode of The Real Estate Guys™ show, hear from:
- Your playmaker host, Robert Helms
- His playful co-host, Russell Gray
- The Grove Resort’s Nick Rohrbach
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Lifestyle investing is in style
You can find an investment property that pays you to own it … a place where you can spend time and enjoy yourself.
It’s called lifestyle investing.
When most people invest in real estate, they don’t think about living in the house that they choose as a rental.
But so many people own a house that they USED to live in … but now rent out.
Lifestyle investing turns this idea on its head and blurs the lines to bridge the gap.
You find a property that you would love to spend time in occasionally … and in the meantime, it creates income.
Most of us invest in rental properties to create wealth so that we spend that money somewhere that we enjoy.
With lifestyle investing, you buy and asset what you want to enjoy yourself and organize it so that it pays YOU to own it.
A unique rental niche
In a typical rental property, your tenant normally moves once a year. But a lifestyle property is usually rented by the night … which makes management more expensive.
On the other hand, while a monthly tenant might be paying the equivalent of $20 a day … a nightly vacation renter could pay several hundred dollars.
You’re paying to have a hands-off experience … and you want to deliver an exceptional service level.
One of the beautiful things about this niche is that you’re marketing to affluent people. You have customers who aren’t necessarily as burdened when economic times turn backward.
Another great thing about resort properties … renters are typically tourists from out of town … which means you aren’t as reliant on ups and downs in the local economy.
And when you have a really unique property, you can attract people from all over the world.
Don’t get us wrong … it’s not just the world’s most wealthy we’re talking about.
Some people save all year long for their vacation. They are frugal the rest of the year … but when it is time for vacation, they want to have a good time.
Let’s be clear … lifestyle investments are NOT timeshares.
A timeshare isn’t really real estate. It’s more like a prepaid vacation. You don’t have equity ownership. Lifestyle investments CREATE CASH FLOW.
If you don’t have enough cash to get started, resort properties can be the perfect opportunity for simple syndication.
With a few owners, you can all use the property for a certain amount of time each year … and share the profits the rest of the time.
Factors to consider
When selecting a resort property, you need to decide how the seasonal market is.
It’s like being in retail. If you have a strip mall, you know your tenants lose money during the off season … but they make it all up during the holidays.
If your property is a prime skiing location … think about what happens to it during the summer.
You need to look at the property as a totality of ownership … and then you have to be really good at managing cash flow.
The good news is that you don’t need to go in blind. It’s like we always say … if you’re going into a market you’re not familiar with … BUILD RELATIONSHIPS.
In this case, you really want to build relationships with property managers.
They know the demographic. They know the trends. They know the inventory … and they really know the income.
It is so important with any deal … and especially with lifestyle investments … to do your due diligence.
But once you do … if you choose your market correctly … you’ll discover a market that is robust and not hung up in too much seasonality …. and then you choose a product that makes sense for you.
Rentals at The Grove Resort
We caught up with our friend Nick Rohrbach at The Grove Resort to learn more about a really interesting lifestyle investment opportunity.
The Grove is an amazing resort property in Orlando … amazing facilities, a 7-acre water park, a four-star spa, and a stone’s throw from the Disney theme parks.
The people who visit here are all about the lifestyle.
And for investors, it means owning a beautiful, professionally managed resort property in one of the hottest markets in the USA.
Nick says that many tourists come to spend their days at theme parks … but then they want somewhere comfortable and luxurious to come back.
What makes The Grove a unique opportunity is that the big ticket amenities … including the water park … are included in the rate.
“That’s what makes our occupancy higher than average, and average occupancies in the area are already fairly high at 77.5% in Orlando,” Nick says.
The Grove caters toward a wide variety of guests … there are spaces for weddings, family reunions, and small conventions.
The suites at The Grove are all two and three bedroom condos … perfect for families or employees.
Units are completely turnkey … and managed by a team that has been in business in the area for over 40 years.
“And Orlando really is a year round destination,” Nick says.
Ultimately … like any investment opportunity … you need to find a deal that works with your personal investment philosophy.
Interested in learning more about The Grove? “Come on-site and stay with us,” Nick says.
To learn more about lifestyle investing and opportunities at The Grove Resort, listen in to the full episode.
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Cashing In On the Space Race – New Homes in a Market Ready for Lift-Off
The space race is on!
No … we’re not talking about the great cosmos overhead. We’re talking about a race for space in a thriving market.
Central Florida is thriving thanks to international tourism, low taxes, strong population growth, and great infrastructure.
Billions of public and private dollars are making their way into this market … We’ve liked it for a long time … and it’s getting even better.
Discover how YOU can cash in on this space race as we hear tips from an on-the-ground expert.
In this episode of The Real Estate Guys™ show, hear from:
- Your out-of-this-world host, Robert Helms
- His out-of-the-way co-host, Russell Gray
- Central Florida investment property specialist, Jean Gillen
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Welcome to the “space coast”
Today we’re talking about a market that is well-positioned for growth and equity … it’s the “space coast” in Florida!
Central Florida is one of the markets we’ve loved for a long time … every time we visit we see cranes helping build new projects.
When we analyze a market, we look at the dynamics in supply and demand, capacity to pay, and what’s going on in mortgage rates and demographics … and don’t forget taxes and incentives!
There are so many things happening right now in this particular market that create an environment where equity can really POP.
One big story of this area is … the space coast.
For many years, the space industry was 100 percent a government entity. You had NASA … and that was it.
But when the shuttle program stopped … everything changed.
Individual businesses and entrepreneurs came in to fill the void and pick up the slack … and things really blasted off!
We see a lot of similarities between what is happening in Central Florida now and what happened several years ago in Silicon Valley.
These organizations are growing and bringing in a new workforce to fill jobs … but there aren’t enough houses. It’s a great opportunity as an investor to help find a solution.
Growth and opportunity in Central Florida
Our good friend Jean Gillen and her team at Gillen & Associates are Central Florida investment property specialists.
For nearly 30 years, Jean has been actively helping investors cash in on opportunities in this marketplace … she knows this place like the back of her hand.
For Jean and the investors she helps every day, the space race is real.
The Central Florida market is uniquely nestled within an hour of three international airports … Orlando, Orlando Melbourne, and Orlando Sanford.
It’s the number one visited place in the world … 75 million people come through each year.
Some are passing through to other connections. Others come for theme parks and to hop on cruises. And the rest … it seems … come for NASA.
And so many of those people come to stay.
Over 350 space industry companies have moved to the market … after all, it’s the only place in the United States from which you can put a man in orbit.
A huge amount of millennials have followed those companies for job opportunities … but baby boomers are moving in as well.
With no intention of retiring any time soon, baby boomers want to live around other baby boomers. The 55+ communities come calling … and they are cheap and cheerful.
But it’s not just the space industry that has come to town. Infrastructure has to grow to serve all those new residents … like doctors, retail, and restaurants.
Florida is also a prime spot for tax incentives … and there’s no state income tax.
“I don’t think there is a better economy in the United States right now,” Jean says. “Oh, and the weather’s good.”
Another important thing to note, Jean says, it that many of the people coming to the area aren’t necessarily coming for a full-time gig.
Many of the workers in these industries come on a one or two year contract … which means that these folks will always be tenants … and you can plan on a steady flow of tenants for rentals.
Properties with potential
Most of the houses Jean and her investors work with are new builds that come in at around $210,000. Insurance … including hurricane insurance … comes out to about $600 a year.
“The hurricane risk in the area is very low. That’s why the insurance rates are so low. It should make you feel fairly safe on that front,” Jean says.
Another unique factor in the Central Florida market … it’s actually a better deal most of the time to buy a new build over a resale house.
And tenants are definitely attracted to new … and all the amenities that come with them … granite countertops and stainless steel appliances anyone?
Jean also feels it’s important to keep most of the homes owner occupied.
“It keeps the neighborhood up, so we usually keep the amount of houses owned by investors in a development at 10 percent. It works out so much better that way for everyone,” Jean says.
But as with any market, there are unique considerations to keep in mind.
Jean says she never helps investors buy lots that are in flood zones. The properties have to be turnkey … and a good school district is always a plus.
Many of the tenants in the area work several days a week from home … so extra bedrooms that can function as a home office space are a must.
And Jean is all about beautiful backyards … most lots are a quarter of an acre … and there is no HOA.
Typically, tenants stay for three years … and tenant-landlord laws are very landlord friendly.
Joining the space race
Jean and her team work exclusively with investors … but those investors come from a variety of situations and backgrounds.
Some are 30 years old … others are 70 … but they’re all looking for a profitable deal.
We’ve said it before … and we’ll say it again … the key to a great deal is finding a market that makes sense, finding the right team, and THEN finding the right property.
To learn more about Central Florida … and to find out if this it the right deal for you … listen in to the full episode.
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From Disney World to Bizarro World …
More From The Real Estate Guys™…
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
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Jacksonville
Jacksonville
Florida’s most populous city is growing in every way. Affordable prices and a large tenant base make Jacksonville real estate a great source of CASH FLOW.
Jacksonville is the LARGEST CITY by land area in the contiguous United States … and it has the PEOPLE to match!
Since the 2000s, the population of Jacksonville has been inching steadily toward 1 million residents. That number is expected to increase exponentially with a population growth rate that is more than double that of the entire U.S.
From 2010 to 2017, Jacksonville’s population increased by an incredible estimated 8.5 percent, according to the Census Bureau.
With such a large population and landmass comes a large tenant pool. In fact, as of 2019, about 44 percent of the city’s current residents were renters … and that number is expected to remain stable, which means a HUGE opportunity for real estate investors.
The tenant pool is also largely stable and reliable. Employment stats mirror the population, with a job growth rate that in 2019 was 82 percent higher than the national average.
This is NOT the typical “Florida retirement community” you may be picturing in your mind.
Many corporations and their employees call Jacksonville home … including Amazon, IKEA, Maxwell House, and Bank of America … and more move to the area every day.
In fact, Forbes ranks Jacksonville as the 7th best city for future job growth and the 8th biggest city with the fastest growing economy.
Once they arrive, residents find an area with year-round sunshine, open space, and low taxes … not to mention that the current market is one of the most AFFORDABLE in the country.
The median rent for a one-bedroom apartment in 2019 is approximately $1,050. And the median price of a Jacksonville investment property is about $163,000 … significantly lower than the rest of the United States.
But reports show that homes for sale in the area are projected to slowly increase in price … so sooner is better than later to buy and hold properties for large investment returns.
The numbers aren’t the only thing that make the Jacksonville market an attractive place to both live and invest.
Don’t forget about the pristine beaches, world-class museums, and lively entertainment.
Discover 840 square miles of investment opportunity and potential cash flow in Jacksonville, Florida! Learn more about the Jacksonville area through the list of helpful resources below.
Radio Shows
Reports & Articles
Market Field Trips & Property Tours
- Coming Soon!
Boots-on-the-Ground Teams
- Southern Impression Homes – Chris Funk – Build-to-Rent SFR’s
Clues in The News
- Unprecedented Multifamily Demand Leads to Record High Deliveries in Jacksonville – August 22, 2019
- Jacksonville ordinance amended to allow breweries, Mayor eyes economic impact – May 12, 2019
- Jacksonville’s average rent rises 6.3% in a year – April 10, 2019
- 20 Cities Where a $50,000 Salary Goes the Furthest – March 7, 2019
- Jacksonville to Upgrade Surveillance with High-Tech Crime Fighting Tools – February 20, 2019
- Florida remains hotbed for deals between credit unions, banks – February 20, 2019
- Florida Chamber calls for AOB reforms, skills training, infrastructure investments – February 20, 2019
- Winsupply Plans Regional Distribution Hub in Jacksonville, Florida – January 15, 2019
- What’s ahead for 2019 in Northeast Florida – December 28, 2018
- MedTrust Expands Service to Jacksonville, Florida – December 18, 2018
- Jacksonville is on the cusp of becoming a minority-majority city – December 10, 2018
- Wayfair picks Jacksonville for new distribution center; 250 jobs expected – December 3, 2018
- Median home prices up overall in Jacksonville — but the lower end of the market is where the action is – November 15, 2018
- Aerotek to open a corporate office in Jacksonville – November 14, 2018
- Jacksonville gets $2.8 million from United Arab Emirates – October 15, 2018
- This Secret Gem on the Coast Is Actually Getting Cool Again — August 3, 2018
- Market Spotlight: Jacksonville, Florida – December 21, 2018
- Spirit Airlines picks Jacksonville as its newest city, adds two new routes – September 20, 2018
Market Spotlight – Jacksonville, Florida
It’s the first week of our market spotlight series … and we’re starting with a city that has been on our radar for a while … Jacksonville, Florida!
There’s a lot to like about this Northeast Florida city. To start, it’s the fourth largest economy in Florida and has the largest population in the state … which means HUGE opportunities for real estate investors.
Listen in as we visit with some of our favorite boots-on-the-ground experts and explore all Jacksonville has to offer.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your sunshine-loving host, Robert Helms
- His sunny-side-over co-host, Russell Gray
- President and co-founder of Southern Impression Homes, Chris Funk
- General manager of Southern Impression Homes, Chandler Janger
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Why Jacksonville?
There are so many places for you to invest in real estate. So, for the next few weeks we are highlighting some of the markets we find interesting this year.
Jacksonville, Florida, is a place we have been looking at for a long time because there are SO MANY reasons to like it.
Jacksonville has the largest population in Florida and the fourth largest economy. And did we mention it’s a no-income-tax state?
Florida is the No. 1 location that baby boomers choose to retire in, but the year-round sun attracts younger tenants too. Variety and diversity is the name of the game.
Whether you’re a single-family-home investor or are interested in multifamily properties or even vacation ownership, Jacksonville is full of possibilities.
Opportunities for high returns in new construction
Our guest today is Chris Funk of Southern Impression Homes. Chris started out in the dry-cleaning business … and then the ’08 crash happened.
Like many business owners, Chris lost about 20 percent of his revenue. He needed to find a new source of cashflow. What he found was real estate.
Ultimately, Chris bought up about 25 homes. He bought them cheap, renovated them, and rented them out. The cash came in … and Chris was hooked.
He expanded his portfolio and soon went from buying 50 houses a year to buying 50 houses a month!
The biggest challenge for Chris was finding good property management, so he decided to do it himself.
Before he knew it, Chris was running a large property management company and expanding from renovations to land purchasing and new construction in Jacksonville.
Chris says that renovating older homes is still his bread and butter, but he realized there are great opportunities for profits from new construction.
New homes come with limited maintenance costs, and when you build from the ground up, you have 100 percent control over every aspect of the build.
New construction is often more attractive to tenants … much of the growing labor force in Jacksonville has chosen to settle in new construction.
And more interested potential tenants means properties are more attractive to investors like you.
It’s this aspect of business that makes Chris’ approach to the market unique. Instead of focusing on selling to individual owner-occupants, Chris tries to sell most of his inventory to investors.
“Investors have been our lifeblood ever since we started in our real estate business,” Chris says. “We’re investors ourselves, and we built our property management company as a company that is built by investors for investors.”
Chris says he doesn’t want to just sell a house and go away. He wants to become part of the investor’s team on the ground and manage their assets … all of them!
It’s a long-term opportunity instead of a one-time sell. And investors who work with Chris do more business, more often.
Investment opportunity in Jacksonville isn’t confined to single-family homes. Chris knows this and builds new duplexes, triplexes, and fourplexes as well.
Like many other markets, the cash-on-cash yield for a multifamily property is higher than that for a single-family home … but you do give up some appreciation.
One of the most attractive elements of the Jacksonville market is affordability. Single-family homes range from $150,000 to about $200,000. The highest priced fourplexes clock in at about $550,000.
What investors need to know
Jacksonville … like the rest of the sunshine state … has had double digit population growth every year since the census was created.
It’s not a town full of retirees either. Young professionals settle there to take advantage of affordable prices and job opportunities.
The city has a booming financial district with major corporations like Fidelity National Title, Ameris Bank, and Wells Fargo.
There’s also a thriving industrial sector. Companies from Coach to Mercedes and FedEx have major distribution centers in the metro area.
The United States military maintains a large presence in Jacksonville … and they are expanding their ranks.
From a tenant perspective, Southern Impression Homes General Manager Chandler Janger says this means the average resident is middle to upper middle working class … largely reliable and looking for a great home at a great price.
By keeping property management in-house, Southern Impression Homes can give investors in-depth insight into each of their properties. An online portal offers instant access to occupancy, payment, and tenant information.
Owners are paid electronically the month after rent collection and receive a monthly statement broken down by property.
Chandler says if there’s one thing investors should know, it’s that communication is key. In property management, there are a lot of moving parts … clear communication makes everyone’s job easier.
With great teams in place on the ground and beautiful properties, Jacksonville is a market worth looking into.
To discover if Jacksonville is a good fit for your portfolio, check out the Jacksonville Market Report prepared by Chris and his team at Southern Impression Homes.
More From The Real Estate Guys™…
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
Love the show? Tell the world! When you promote the show, you help us attract more great guests for your listening pleasure!
Jacksonville Market Report
Jacksonville Market Report
Affordable rates, a thriving economy, and world-class beaches … it’s a property investment paradise!
Jacksonville, Florida, is 840 square miles of investment opportunity. It’s the largest city by land area in the continental U.S. and Florida’s most populous metro.
It’s not just the city that’s big. Florida’s economy is the 4th largest in the U.S. … and in Jacksonville, job growth is off the charts!
That means a large pool of stable tenants for you to choose from … 44 percent of the city’s residents are renters, to be exact.
In this special report, discover the many reasons Jacksonville is great for cash flow, including:
- Affordable home prices and rental rates
- Year-round sunshine, open space, and low taxes
- A growing population
- A thriving economy
- And more!
Find a piece of investment paradise in Jacksonville!
Simply fill out the form below to access the Jacksonville Market Report.
Southern Impression Homes – Chris Funk
Southern Impression Homes – Chris Funk
Great Market. Brand New Property. Strong Cash Flow. Affordable Price. Top Property Management Team.
In today’s changing real estate market, it’s hard to get inventory at a price that gives you a good cash flow yield.
Chris Funk’s team has the answer …
Build-to-Rent your own investment property!
Chris Funk and his team entered the real estate game like many investors … acquiring and renovating foreclosed homes after the ’08 crash. As the economy recovered it become harder and harder to get bargains on their acquisitions.
So they expanded into development and new construction … and Southern Impression Homes was born.
Now you can ride their coattails into developing your own portfolio of single family homes.
Chris knows the success that comes from a good real estate investment. He wants his investors to get a great property for a great deal in a great market.
While their primary market is Jacksonville, Florida … Chris’ team is also building and managing portfolios for investors throughout Northeast Florida and in Atlanta, Georgia.
The market in Northeast Florida is BOOMING. Chris’ team is your key to success! Chris and his team have locked up prime land at prices that allow them to pass those savings onto investors …
What exactly does this mean for you?
You can get a NEW property that cash flows just as well (maybe even better) than existing, older properties.
Better cash flow. Better tenants. And less maintenance!
PLUS their sister company, SunCoast Property Management, is renowned for their top class property management. And with over 2,000 properties under management … You better believe they’ve got their operations dialed.
Jump on better returns without settling for lower quality.
Simply fill out the form below … And a Southern Impression Homes team member will be in touch!
Profitable Niches – Lifestyle Investing
You may have heard that it’s bad to mix business with pleasure. But, when it comes to lifestyle investing, part of the fun is owning property in a place you love.
Yes, it is possible to make lifestyle investing make sense for you … as long as you follow some important guidelines to line up the numbers, location, and opportunity.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your vacation ready host, Robert Helms
- His in dire need of vacation co-host, Russell Gray
- Guest, Nick Rohrbach, from The Grove Resort and Spa in Orlando, Florida
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Why a lifestyle investment might be a good fit
Life is too short to be involved in an asset class you don’t enjoy. Too many times in real estate, we get hung up on the ROI and let it rule the day. Lifestyle investing spices things up by adding personal enjoyment and personal use into the mix.
With the right strategy, you can tap into a FANTASTIC opportunity for growth. Premium properties fetch a premium price from renters and vacationers. Of course, you’ll also be able to enjoy the property with your family and friends.
We’ve all been on vacation and experienced that “I never want to leave” feeling. But remember, just because a place is nice to visit doesn’t mean it makes sense from an investment point of view. Here are a few recommendations to keep in mind.
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Know the market
As with any real estate investment, your research into the market will be worth its weight in gold. This is especially true for lifestyle investing where the durability of rent, the ability to fill occupancy, and the property’s long-term profitability will be the difference between a fun investment and a bust.
With a good location, property, and market your investment has the opportunity to weather downturns. People in higher income brackets can afford to go on vacation even if the economy is down.
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Bring on a stellar management team
The difference between a fun, hands-off lifestyle investment that you’ll love visiting and a drag is a good management team. Property management comes at a higher cost than single-family homes … sometimes upwards of 50 percent … but it gives you peace of mind AND access to amenities that delight and excite high-end vacationers and renters.
Your management team will handle all the bookings, and they have access to wholesale outlets such as Travelocity, Hotwire, Priceline … all the big names people use to get their vacation rentals.
And bonus! When things break, they fix them.
Opportunities abound in Orlando
Orlando, Florida, is the #1 traveled to place in the world. Thanks to Disney World, Universal Studios, and a THRIVING convention market, there’s no end of things to do for business travelers and families. And did we mention it’s a no income tax state?
We could go on and on about the many reasons why Florida is a consistently hot market and one of our favorite places to visit:
- It’s centrally located to beaches
- It has access to direct flights out of many places from the beautiful Orlando airport
- The weather and attractions are top-tier
- Convention business is strong and growing
Nobody knows this better than Nick Rohrbach, our guest from The Grove Resort and Spa.
Beyond tourism, Florida has a vibrant, booming economy. “There are 19 [amusement or theme] parks in central Florida alone,” Nick says. “Medical City is booming, we have one of the largest universities in the country, University of Central Florida, and over 150 VA hospitals.”
Plus, unlike many destinations, Orlando is not seasonal. The average occupancy is about 75 percent year round. Even during the economic recession in 2009, average occupancy never fell below 60 percent.
All of these elements make Orlando a place you might want to keep your eye on.
Filling a niche in the lifestyle investing market
When you’re looking for a lifestyle investment, one of the important questions you need to answer is how a particular property sets itself apart from competitors.
Florida’s economy is one of the reasons The Grove is such a unique opportunity. Rohrbach explains that the project was originally built in 2007, 2008, and 2009, and all the units were sold to UK investors without closing on a transaction.
While all the units were structurally built, only 184 condos were completed. With some additional cash, amenities, and building out the insides, these units are essentially brand new.
The new ownership at The Grove Resort and Spa has a couple strategies to fill a niche in Orlando:
- Amazing amenities including restaurants, 800 sq. ft. of convention space, and a newly opened water park.
- Spacious condos with 2-3 bedrooms perfect for families.
- Close proximity to Disney World … only 3 miles away!
For potential investors and owners, there are plenty of opportunities as well. The Grove has a stellar management company that keeps the property looking fantastic, takes care of you and any guests, and manages all the bookings, repairs, and maintenance.
“The key is really the management,” Nick says. “When you talk about having everything in place for lifestyle turnkey investing, you need that professional management so you don’t have to deal with anything. The guest experience is very important.”
Not only that, but The Grove is continuing to expand, with 878 total units coming online at completion. Only 450 rooms are available now, and they’re at 100 percent occupancy! As demand goes up, so will rates … and cash flow from a potential investment.
Make sure the deal works for you
Lifestyle investing can sound like a dream come true, but it still has to make financial sense for you.
Look at a market that appeals to you personally, and then start running some numbers.
For instance, syndication might be the right way to go. You could get creative and discover investment opportunities in a few locations so you’ll have access to a bunch of prime vacation spots.
Blurring the line between a pure ROI, detached investment and something you get to enjoy too doesn’t have to be out of reach. If the numbers, market, and property make sense, don’t be afraid to go for it!
Want to know more about turnkey lifestyle in Orlando, Florida, and things to avoid in the marketplace? Send an email to lifestyle@realestateguysradio.com. We’ll hook you up with a special report with all the details.
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter and visit our Special Reports library.
- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook and our Feedback page.
The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.
When it rains, it pours …
If you’re a mass consumer of financial punditry as we are, you’ve probably heard the term “black swan”.
In the context of investing, a black swan is some completely unexpected event that has a substantial impact on financial markets and investors …
… like back-to-back mega-hurricanes which wreak many hundreds of billions of dollars of damage.
Even as the millions of affected people are working through the enormous task of sorting through the damage and cleaning up the mess …
… investors far away from the stricken areas are assessing the potential ramifications of these huge and unexpected events.
As we discussed in a recent broadcast, there’s certainly opportunity and a role for investors to play in helping these areas bounce back from disaster.
But it could be the affliction isn’t purely physical.
Consider this recent CNBC headline …
Harvey’s hit to mortgages could be four times worse than predicted—and then there’s Irma
“As many as 300,000 borrowers could become delinquent on their loans after Hurricane Harvey …”
“The sheer volume of homes hit by Hurricane Irma will likely cause an increase in mortgage delinquencies as well …”
The article references a report produced by Black Knight Financial Services … so we took a look and found these notable excerpts:
“More than 3.1 million properties are now included in FEMA-designated Irma disaster areas, representing approximately $517 billion in unpaid principal balances.”
“Harvey-related disaster areas held 1.18 million properties – more than twice as many as with Hurricane Katrina in 2005 – with a combined unpaid principal balance of $179 billion.”
That’s $696 billion of mortgages that could potentially go bad because property owners are underinsured, have negative equity, or are owned by displaced people in financial distress.
For context, according to this 2007 article from Associated Press:
“Subprime mortgages totaled $600 billion last year [2006], accounting for about one-fifth of the U.S. home loan market. An estimated $1.3 trillion in subprime mortgages are currently outstanding.”
In other words, the value of outstanding mortgages on ONLY those properties inside the disaster areas is over half of what the TOTAL of ALL subprime mortgages were leading into the 2008 financial crisis.
But, you say, all those mortgages aren’t sub-prime. Prime borrowers wouldn’t walk on their mortgages … potentially triggering another debt crisis … would they?
Of course, no one knows what property owners affected by the CURRENT crisis will do … or how helpful banks and the government will be this time …
… but thanks to a research report by the National Bureau of Economic Research, we know the REAL reason people defaulted on their mortgages during the 2008 crisis was … lack of equity.
“ … data show that the crisis was not solely, or even primarily, a subprime sector event.”
“… but … a much bigger and broader event dominated by prime borrowers …”
“Current LTV is a powerful predictor of home loss, regardless of borrower type.” (LTV is loan-to-value)
“… the role of negative equity remains very powerful.”
Basically, people who own underwater properties (no pun intended … okay, maybe a little intentional) are more likely to walk on their mortgages.
So if that’s true, and these afflicted area properties lose substantial value, it’s possible the next “storm” will be a surge of bad mortgages … to the tune of hundreds of billions of dollars.
In other words, it’s not just the mortgages on PHYSICALLY damaged properties, but ALL properties in the region whose values are dragged down …
… the way prime borrowers’ properties were dragged down by sub-prime borrowers’ foreclosures in 2008.
Does this mean another bad mortgage fueled financial crisis is looming?
That’s hard to say. If Wall Street has once again levered to the moon and issued trillions in derivatives against these mortgages, then things could get ugly.
However, this potential crisis is different than last time …
One major problem leading up to the 2008 financial crisis was household debt service payments as a percent of disposable personal income was sky high.
Back then, borrowers across the United States were tapped out.
Sub-prime borrowers were at the margin. So when teaser rate loans reset higher, mortgage payments became unaffordable and sub-prime borrowers defaulted.
But these defaults were scattered over many markets because it wasn’t a geographic problem … it was demographic. So MANY markets were affected.
When prices fell, they took the values of prime borrowers’ properties with them … and prime borrowers began to default too … not because of affordability, but because of lack of equity.
Each new default put more downward pressure on home values, eroding more equity, and drawing more prime borrowers into default.
Today, at least according to this chart from the St Louis Fed, debt service to income is much lower.
Of course, if interest rates rise, wages fall, or inflation erodes purchasing power, once again, borrowers at the margin could default … and that could trigger widespread defaults and collapsing prices.
But that’s a worry for a different day.
As far as the fallout from these hurricanes, our bet is defaults and falling values are likely to happen primarily only in the affected areas.
However, we also suspect any spike in defaults is likely to be mitigated quickly because of the lessons gleaned from 2008.
Lenders know playing hardball with distressed borrowers only makes the problem worse. We’re guessing they’ll be much more flexible with loan workouts and short sales this time.
And because this is a physical disaster, not a financial disaster … government aid is likely to be fast and generous … at least on behalf of homeowners.
Plus, Uncle Sam knows if they don’t put out the fire fast, it could quickly spread and burn up their banker buddies. We doubt they’ll let that happen.
Better to bail the bankers out BEFORE an implosion by helping afflicted property owners and preventing price crushing foreclosures.
So … with all that said, we think there could be some serious TEMPORARY downward pressure on prices …
…and opportunities for private investors to step in with fresh funds, pick up some bargains, and help distressed property owners out of untenable situations.
That’s because owners of investment properties may not get the same level of help as owner-occupants. They’ll need to turn to private capital for assistance.
Fortunately, both Houston and most of the affected markets in Florida were strong investment markets before the disasters.
And in spite of the horrific damage, most of the basic market fundamentals remain unchanged. So when rebuilt, they’ll probably solid investment markets.
Even better, these areas are likely to see a spike in economic activity as money is invested in reconstruction. A lot of money will be pouring into these regions.
So we’re watching these areas carefully … because when the window of acquisition opportunity opens, it may only last for a short while.
Until next time … good investing!
More From The Real Estate Guys™…
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Yet another BRUTAL storm forming …
And the hits just keep on coming …
We know you’d like investing to be simple and drama free. We do too.
But while real estate investing itself is a simple activity … the economics of real estate investing has become more complex.
There’s a LOT going on in the world. Some things interconnect by cause, and others by effect … meaning they don’t appear to be related, but then converge.
As Jim Rickards points out repeatedly … economies and ecologies are complex systems. They are difficult to understand and even more difficult to predict.
But even though no one can say with certainty what will happen, it’s still important to take precautions when it’s clear SOMETHING BIG is coming …
… just as Floridians watched Irma and prepared, not knowing fully what to expect. Better to be prepared and not have a disaster than vice versa.
So let’s take a look at what’s forming on the horizon …
Hurricanes Harvey and Irma
While the total financial and human impact of these back-to-back disasters is yet to be calculated, one thing’s for sure … it’s going to be expensive.
Short term disruptions to gas prices and orange futures aside, disasters like these redirect HUGE amounts of capital … which has a ripple effect.
For example, money insurance companies might otherwise put into financing NEW multi-family apartments in other markets …
… will now pour into re-building properties damaged and destroyed in Houston and Florida.
Federal money which might have been focused on infrastructure spending or tax cuts will also be redirected to damage recovery.
And it’s likely the demand for construction labor and supplies will rise, driving up total construction costs in many markets … not just those affected by the storms.
That’s because just as demand for concrete in China creates price increases in the U.S. … the demand for reconstruction resources will probably be felt throughout the United States.
Distressed inventory
Just like the financial disaster of 2008, there may be many problem properties coming out of all this … because many weren’t insured for flood damage.
Federal aid may help some of those homeowners. It’s less likely such relief is offered to investors who were under-insured.
While it’s no fun to profit from someone else’s loss, there’s a role for profit-seeking capital to play in repairing damaged communities.
We wouldn’t be surprised to see tax breaks, loan subsidies or other incentives offered to entice investment capital to flow into affected markets … like when New Orleans was hit by Hurricane Katrina.
The Debt Ceiling
In other news, President Trump and Congress managed to get the debt ceiling temporarily increased … while raising the prospect of simply eliminating it all together.
Talk about calling a spade a spade. The ceiling hasn’t capped spending … ever.
Now billions of dollars are ear-marked for hurricane relief, and everyone can take a short break from “worrying” Uncle Sam might default on his debt.
So it looks like it’s back to over-spending as usual. Not surprisingly, the dollar’s year-long fall has resumed velocity.
Then again … maybe the dollar’s fall (and gold’s rise) is part of a bigger story which has nothing to do with U.S. business-as-usual deficit spending …
Gold-backed yuan already finding friends
As we recently noted, China announced plans to settle its oil trade in yuan.
And to entice sellers to accept yuan, the Chinese are backing it with that “barbarous relic” … gold.
Days later, oil-rich Venezuela announced they’d start using yuan … and other currencies … to “free us from the dollar.”
It’s no surprise Venezuela would jump at this. After all, just two weeks earlier President Trump signed an executive order sanctioning Venezuela … whose economy is 95% oil.
But as we note in our Real Asset Investing report, China began its plan to supplant the dollar way back in 2010. So none of this is new.
And the first country to sign a bilateral trade agreement to “renounce the U.S. dollar” was … wait for it … Russia … followed by Brazil, Australia, and a LONG list of others.
We think this is a HUGE story that few in mainstream financial media are covering. But we are.
In fact, we’re putting together an emergency conference call with Brien Lundin and Chris Martenson to discuss the ramifications … so stay tuned for that!
Is the U.S. dollar doomed?
This is the big WHY IT MATTERS … especially for Americans and everyone denominating wealth in American dollars.
Like Hurricane Irma, no one can say exactly if, when, or how disaster will strike. And it’s possible the winds will change and the storm will miss your portfolio.
But what if it doesn’t? Right now, the winds appear to be headed your way.
Are YOU ready? Are you getting ready? Many people don’t even know what ready looks like. That was us 10 years ago.
It’s a complex problem so there’s no simple solution. If there was, it probably wouldn’t be a problem.
Peter Schiff has been warning about this for years. As has Robert Kiyosaki, Richard Duncan, Simon Black, Chris Martenson, Jim Rickards, David Stockman … and the list goes on and on.
Each has their own ideas about when … and how to prepare.
There’s no one-size-fits all answer because everyone’s situation, portfolio, investing IQ, advisory network, access to deals, and investment objectives are different.
MISSION: POSSIBLE
Your mission, should you choose to accept it, is to get informed, educated, connected and activated … as quickly as possible.
And if you think getting educated is time consuming and expensive … it’s nothing compared to being ignorant and apathetic.
When storm clouds form on the horizon, some decide to pay attention and take pre-emptive steps. There’s no guarantee of safety, but their odds are better.
Others only hope for the best, but don’t prepare for the worst. Yet the higher the stakes, the more important it is to be preemptively cautious.
The storm warnings are loud and clear … for everyone paying attention.
But storms often approach slowly … and because most blow over … it’s easy (yet dangerous) to assume every storm will.
Slowly at first … then all at once
Longtime listeners know we’ve been watching this whole story unfold for years.
We talked about the very real possibility of China making a run at reserve currency status almost two years ago. We said then we’d keep you informed and so we are.
Now things are picking up speed. So if you’re new or haven’t been all that interested … NOW is the time to accelerate your understanding.
If you’ve read this far, we trust you’re interested and concerned … as you should be.
So we STRONGLY encourage you to SERIOUSLY consider attending BOTH Brien Lundin’s New Orleans Investment Conference (coming up FAST!) and The Real Estate Guys™ 2018 Investor Summit at Sea™.
These events each feature lots of big brains … with critical perspectives every serious investor needs to have to help understand and navigate these stormy times.
Sure, these events are capitalist ventures … we each make some money producing them.
But we’re not after your money … we simply use to it for event costs and to pay some bills along the way. Your support makes these events possible.
We organize events so we can get brilliant minds in one place at one time. And the only way to make it affordable for us … and you … is to share the cost with hundreds of others.
So yes, we need your help. And in exchange YOU get access too!
With that said, these events are happening with or without you. Your absence or presence, while nice for us, could be LIFE-CHANGING for YOU … and that’s true of most important ideas, opportunities and relationships.
So with the winds of sea change blowing fiercely on the horizon, it’s a good time to consider carefully whether or not investing in preparation is a good idea.
We think it is.
Until next time … good investing!
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter and visit our Special Reports library.
- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook and our Feedback page.
The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.
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