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March 4th, 2010 7:59 AM by David W. Welch
Cash is king as the saying goes, and the table below shows where the smart money is going. Orlando real estate as an investment is very attractive to investors. The table highlights the changes in our marketplace over the last few years. Even though money was very easy in 2005, many people were taking equity lines out to purchase homes for cash to give themselves an advantage over other buyers bidding on the same properties. There were also people moving here from other areas with much higher prices that cashed out and purchased here. In the last half of 2006 the market meltdown hit. The Orlando real estate market did not look like such a good place to put your cash, and you can see the percentage of cash deals dropped along with total sales.
The rising tide of prices began to ebb after peaking around October of 2006. In 2007 sales fell significantly, as did cash sales although the percentage crept back up. Prices began to come down more significantly in 2008 when sales dropped to less than half of their 2005 peak. The bigger drop in prices enticed more cash into the market as cash deals doubled even though total sales were down from 2007. At least a part of the additional drop in sales in 2008 was caused by the financial sector meltdown. Financing dried up, but obviously there was still cash. Over 40% of the purchases last year and over half of the closed sales so far this year have been closed with cash.
It looks like the smart cash began bypassing the financing middlemen and started going straight into the real asset. If you think about it logically, mortgage rates are in the low 5's, and The Fed has been supporting the secondary mortgage market. So, there is not really that much confidence in the mortgage market yet. Real estate prices have been driven into the ground in areas like Orlando to the point that investors can expect an 8%-10% return on their investment. (I am looking strictly at cash to cash, not appreciation.) I have a transaction closing next week for $62,000. The monthly rent is $1,000 and the monthly expenses are about $500. The investor has a cash return of $6,000/yr or almost 9.7%. Until banks get smart and start making loans again, cash will remain king. Long live the king.
Orlando Real Estate, David Welch, Real Estate Optimist