Why property in Orlando and Florida?

on Wednesday, 27 April 2011. Posted in ,
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A cyclical sort of place

Summary

Orlando, like Florida in general was hit hard by the building bust. It’s economy is based on tourism and migration of retirees as well as general migration. During the economic slump these trends went temporarily into reverse, making the economy a manic depressive sort of place. When times are good, its go, go, go, but when the music stops, as it has several times in the past, then it is slow slow. This creates more volatility and this increases the risk, but also increases the potential returns if you enter at the right time in the cycle. There is a lot of fear around right now, so it’s a good time to be greedy.

rollercoaster3Orlando Strengths for Property Investment

  • Natural Barriers to Growth

After visiting Dallas, we realized that we needed to find somewhere that had natural limits to growth, such as mountains, lakes or the ocean. After considering states with strong growth such as Georgia or North Carolina, we had a look at Florida and realized Orlando with its numerous lakes and wetlands form natural barriers to continual sprawl.

  • Property is distressed but the economy has bottomed

We needed somewhere that was distressed and Florida was certainly distressed. Still its problems seemed more manageable than the problems facing Detroit, Arizona or Nevada where recovery seems less likely or more long term for a range of reasons.

  • No State Income Tax

Florida also has no state income tax and its state debt position is a little higher than normal, but is still in the lower half of US states so higher taxes in the future aren’t certain.

  • The weather.

 Unemployment is presently high but already dropping, but that is mostly due to the nice weather in my opinion. If you are going to camp through winter because you have had no job for the last year, it’s best to do it where it is warm and it doesn’t get warmer than Florida. The week we arrived it was the only state in the lower 48 to have average day temps above 20 Celsius. It was a lovely 26 degrees when we landed versus the -5 degree ice storm we left in Dallas. That warm weather isn’t going to go away.

  • Some protection from hurricanes

Orlando is centrally placed on the pan handle, with at least 100-150km of land protecting it from both the Atlantic and Gulf coasts, reducing the impact of Hurricanes.

  • Tourist Parks

Orlando is a tourist town. It has Disney, Universal Studios and Seaworld. Universal just opened Harry Potter World and Disney is planning another expansion to stay fresh. The airport also seems quite decent with some spare capacity and the city is also aiming for the convention market, so watch out Nevada. Their pitch is come for the convention, then fly your family down for another 2-3 days of fun. Retirees and people who had moved from interstate or overseas (which seemed to be pretty much everyone) also loved the fact that their friends and relatives ALWAYS came to visit.

  • Familiarity with Overseas Investment

This might not seem important, but I think it is. Orlando has many interstate buyers, as well as overseas buyers, typically of holiday homes, but also as investments. The agents are able to understand and cater to the requirements of different time zones and non-resident landlords, something that we didn’t see in Dallas for example. The market in Orlando was also active. Distressed properties were on the market, but they were selling (apart from those ghost suburbs – see next section) relatively quickly. It wasn’t, for the most part, a stale market.

Orlando Investment Weakness

  • Current Economic Conditions

Currently Florida has the highest unemployment rate in the US at 11.8% starting to dip from a peak of 12% late in 2010. The collapse of new construction as well as the slowdown in the tourism industry due to the economic crisis is the cause, although the cut-backs in the space program (Cape Canaveral is only 100km away from Orlando) with the completion of the space shuttle program with no confirmed replacement program. Still, warmer weather means that the unemployed have less reason to leave during winter which is a partial explanation. It also helps to bear in mind that things are cyclical and Florida is hostage to the wider US economy which is weak, but quickly improving.

  • Southern Sprawl

Like all US cities, Orlando has built and developed estates further and further from downtown. Kissemme, a working class southern suburb of Orlando, considered by many, to be the true edge of Orlando has further suburbs beyond where development has occurred. Many of these however are ghost suburbs, with occupancy rates of perhaps 10-20% (based on driving around for 14 hours). Bargains are to be had here, but the time to recovery in my opinion, given the current complete lack of shopping options (nearest fuel or food is 15 min drive) is too long for my current investment horizon. There is potential for this unsold stock to put a drag on the market, but my theory is that it won’t. These suburbs are not “good suburbs

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