Orlando Real Estate Blog
October 15, 2013
A program to entice private companies to write flood insurance in the state–instead of having to use the federal program–is currently the goal of Florida regulators. Skyrocketing flood insurance rates have locked in thousands of homeowners, and The Florida Office of Insurance Regulation is hoping to help.
According to a statement from Rebecca Matthews, the department’s deputy chief of staff, to the Senate Banking and Insurance Committee, they are talking to insurance companies that are interested in coming to Florida and creating expedited flood insurance policies.
Matthews said, “This is an issue that may need to be taken care of a little sooner than [the 2014 session of the Florida Legislature]. A handful of companies have shown interest.” She also clarified that regulators do not plan to wait until legislators return to Tallahassee in March.
Responding to Unintended Side-Effects
“If there’s money to be made in this, and the flexibility is given to private enterprise, then we can get that started. The question, of course, is are we going to be able to do it fast enough,” said Sen. David Simmons, R-Altamonte Springs. He added that the Biggert-Waters Flood Insurance Reform Act of 2012 could very well harm the state’s economy, and that lawmakers must respond to these unintended side-effects.
The National Flood Insurance Program has a $24 billion deficit, so the act was passed in an attempt to close it through a series of rate increases. However, it has some troubling consequences:
- Approximately 268,000 Floridians whose homes were built before 1974 and are located in high-risk flood zones will be on the receiving end of a hard financial hit, and will lose their subsidized rates upon selling their homes.
- The increase in rates could even be as drastic as $500 to $16,000 for some of these homes.
- Thousands of others, some of whom purchased homes last year, will also be hit with spiraling premiums because of the act’s new flood mapping that will take effect.
These steep flood insurance rate increases could scare buyers away from purchasing older homes and consequently bring Florida’s slowly-recovering real estate market to “a screeching halt,” John Sebree, senior vice president of Florida Realtors, warned the committee. He advised legislators not to wait for Congress, which has not delayed the rate increases; instead, he asked that they promptly take the Florida insurance alternative into consideration.
Of Course There is a Plan B
However, Simmons also has a plan B. In the event that the private market can’t respond quickly enough, he hopes that the Legislature would instead create an insurance pool that could offer rates lower than those provided under the federal program.
Over the course of twenty years, Floridians paid $16 billion in premiums and saw less than $4 billion returned in claims. Floridians make up a whopping 37 percent of the entire federal pool, as nearly two million individuals carry flood insurance through the national program.
The $12 billion dollar difference between Florida homeowners‘ premiums and claims suggests that Florida suffers a higher-risk reputation than is actually the case, making the state potentially profitable for companies.
On the other hand, insurance experts also informed the committee that insurers would need extreme regulatory flexibility in the event that they enter the Florida flood insurance market. The federal government would not give them the data they would need to assess their risk and thereby determine what to charge, leaving them to start from scratch.
Locke Burt, a former state senator from Ormond Beach and an owner of Security First Insurance, said, “The private sector has not written flood insurance because, when you start a company you have to have a ‘me too’ filing of something that already exists.” No such company exists in the Sunshine State.
Leveraging for a Solution
“I don’t think anything is off the table,” said Rep. Bryan Nelson, R-Apopka, in regard to the OIR and Senate plans. “The big problem we have is we don’t have enough information to base a decision on and, until we have expected loss ratios, I don’t think the private sector is going to be ready to jump in.”
However, Nelson said he does believe there is sufficient capital in the market to draw new business to Florida. He just thinks that it would have to come from companies that are not already also affected by Florida’s hurricane risk.
Former state representative Don Brown, a lobbyist for Security First, and Burt urged the Legislature to create a task force to find an effective solution.
In the meanwhile, Simmons remains hopeful, saying that Congress will be moved to action by the impending threat that Florida homeowners will take their money out of the National Flood Insurance Program.
“We can provide leverage to get a solution,” he promised. Florida homeowners could face harsh financial changes in the event that the National Flood Insurance Program remains as it is and no private companies offer flood insurance. They are certainly keeping their fingers crossed that Simmons is correct in his prediction.
October 1, 2013
In their attempt to rectify the National Flood Insurance Program, Congress has approved certain changes to the flood insurance law that will lead to a significant price jump for property owners in the state of Florida. Not only could this greatly affect home owners around the Sunshine State, but it could also have a monumental impact on Florida’s economy as well.
As of October, property owners who choose to purchase flood insurance will have to contend with a 16 to 17 percent hike in their premiums. If you are already insured for flood damage, then your premiums are going to increase by 25 percent! To make matters worse, rates are expected to increase in 2014, and every year after, until the federal flood insurance program has been deemed actuarially sound.
A Great Threat to the Florida Housing Market
To be clear, these proposed increases are not only going to be affecting people living in big beachfront homes. People living on fixed incomes and who own homes in inland communities could be feeling these effects if their homes are within the lines of federal flood-zone maps.
Obviously, these proposed flood insurance hikes pose a great threat to the Florida housing market, which has been experiencing a period of tentative recovery recently. A development of this magnitude could send potential home buyers running for the hills, leaving lowered property values and frustrated sellers.
For this reason, we are hoping that Florida’s congressional delegation will take the steps necessary to stop these devastating premium increases, or at least slow them down long enough for their detrimental impact to become clear. The time for planning and talk has ended, and the time for action is now.
Given the tense climate in Washington right now, as well as the contention between coastal and inland states, it will take a tremendous effort to convince Congress to change their plans for coastal states like New York, New Jersey, Florida, or even any inland states that have high flood risks.
The Biggert-Waters Flood Insurance Reform Act
The Biggert-Waters Flood Insurance Reform Act was passed last year in an attempt to balance out the $24 billion deficit in the flood insurance program. These alterations are designed to do away with longstanding federal subsidies and have homeowners pay more to live in areas that are prone to flooding.
Lawmakers wanted to increase revenues and balance the deficit, so they chose to cap the premium hikes at 25 percent, believing this to be reasonable. This was an unfortunate miscalculation on their part. “Agents are bringing in examples of properties on the coast that have been insured for $3,000, but the real at-risk-rate is $12,000,” explained Jeff Grady, president of the Florida Association of Insurance Agents. “And that’s just the foundation.”
According to the Federal Emergency Management Agency , Florida holds more than 25 percent of the country’s 1.2 million flood insurance policies at this time. The economy here in Florida is reliant on a healthy housing market. These increased flood insurance premiums threaten to disrupt an already fragile ecosystem.
Voices in Opposition to this Flood Insurance Hike
The acting director of FEMA, Craig Fugate, agrees that increased premiums should not stand. In a recent report to a Senate committee, he explained how unfair these rate hikes will be for middle-class families that own homes in these flood-risk zones. This could be an unrecoverable blow for people who probably have never dealt with any flood damage, despite having lived in these areas for decades.
Fugate is quite familiar with Florida, having directed the state’s Emergency Management Division following the aftermath of four devastating hurricanes that hit in 2005. He is well aware of the improved building codes which have ensured Florida homes are now much more resilient against storm damage. Hopefully, his voice will lend some extra persuasion in the state’s efforts to battle these federal flood insurance hikes.
September 29, 2013
During the housing slump, potential investors could not expect to find many new homes being constructed in the Orlando area. Now, the pace of home construction here is surpassing nearly every other metropolitan area in the United States!
Along the streets of Winter Park, rows of dilapidated old homes are being bulldozed to make way for contemporary, custom-built houses. At Reunion Resort in Osceola County, buyers have been competing to reserve their own lots, even though their new home won’t be completed for another 18 months. Houses that are twice as big as the average home in Orlando are being sold; many feature ornate kitchen designs and multiple staircases.
“The reality of the situation is that Orlando was one of the worst hurt from all of this, and now we’re beginning to see that the market overcorrected to the down side,” stated Matthew Orosz, the co-president of Royal Oaks Homes. “Orlando has always been a high-growth area, and this is just getting back to a more normal pace.”
Building Permits Outpace All But Four U.S. Cities
Out of more than 360 metropolitan areas in the U.S., Orlando’s reported building-permit activity outpaced all but four in the second quarter of 2013. In the four-county metro area, the number of permits issued for single-family homes increased by 3,085–more than the reported growth seen in larger housing markets like Dallas, Houston, Atlanta, and Washington D.C.
In 2012, government-issued permits for homes, apartments, and townhomes totaled 12,000 for the Orlando Metro area. While that was four times the total reported for 2009, it was still not even close to the 36,137 permits that were issued at the peak of the housing bubble in 2006.
Recovery efforts in Osceola County have been strong, and new developments sparking up in the southern Lake County communities of Minneola, Clermont, and Groveland are quite promising. In fact, a significant chunk of the property that was fiscally underwater following the real estate slump has now been sold, aside from properties in the far reaches of the metro area.
New Strategies to Meet New Needs
One of Royal Oaks Homes best sellers is a 4,700 square foot home model featuring a 12-foot-long kitchen island and two stairways. According to new-home analyst Anthony Crocco, these are selling well because Orlando is a “big box” market. This means that there are a lot of buyers interested in small lots that contain bigger homes that can accommodate multi-generational families.
As the regional director of Metrostudy, Crocco believes that Orlando has hit its historic stride of about 10,000 single-family home starts per year. With Seminole County already built out, enterprising developers are staking their claims farther out in southeast Orange, south Lake, and west Volusia counties. He also added that there is a wealth of lots available in East Orange.
The latest housing boom has come only four years after the housing market had quite literally ground to a halt in Central Florida, leaving many promising developments abandoned. At its worst point, developers were putting up one tenth the number of homes they had produced during the peak of the housing bubble.
“It’s totally opposite now from ‘The Darkness,’ ” recalls Rick Bavec, the president of Tolaris Realty. “People are scrambling for land. There are major renovations and remodelings in Alaqua, Heathrow and Heathrow Woods. In Isleworth, you have a lot of teardowns.”
Challenges for Developers
With the housing market experiencing such a positive turnaround, some developers are actually finding it as difficult to secure a construction crew in Central Florida as it is to find a good property lot. Good construction crews are hard to come by, since many of them relocated to other parts of the country following the market slump. In particular, Bavec says securing a good framer could cost you at the moment.
Of course plenty of people view the market situation as volatile, and it is hard to predict how long this boom might last. David Guarino, a financial analyst working for Ledford Wealth Management Group in Orlando, says there are some concerns about the sustained formation of new jobs. Despite those worries, he says there are still plenty of opportunities for property developers, because the housing inventory is still quite low. Plus, many of the buyers who are looking at Florida are retired or looking for a vacation home, so they should not be as impacted by job availability as other markets around the U.S.
September 24, 2013
As the owner of a Distresses Real Estate Institute in Deerfield Beach, Florida, Lex Levinrad has been getting just about as many phone calls as he can handle recently. He has been dealing with a deluge of requests from regular folks who are interested in investing in South Florida real estate now that prices are on the rise.
A lot of the local people who frequent his monthly seminars have been brushing up on the art of “flipping” homes. This of course is the act of buying property at significant discount, sprucing it up, and selling it within a few months to long-term buyers.
Guiding Future Property Investors to Success
Levinrad himself has claimed to have purchased and sold at least 500 homes since he has been in the industry. Now, he is helping other aspiring property investors learn how to work it out and where to sniff out the best deals. Of course most lessons start out with two carefully chosen words, “be careful”, since risky mistakes can bring your investment dreams crashing down all around you.
One of the mistakes that investors tend to make is spending more than their budgeted amount on the home and then get into trouble paying for the necessary repairs. This can create a downward spiral where emotional attachment is made with the house, and owners become unwilling to part ways unless they gain some sort measure of profit.
According to Mr. Levinrad, there are three golden rules that should be respected when it comes to real estate investing:
- Don’t make your purchase assuming that your property is guaranteed to increase in value. As a result of the housing boom, a lot of flippers were burned when they chose to place their futures on something called fast price appreciation. As the market inevitably start to dip, so did they.
Levinrad acquaints this with always betting big in Las Vegas.
Instead, Levinrad suggests ensuring enough of a discount that you are given instant equity in the home. By doing this, they won’t have to wait to prices rise in order to flip the home. Look to purchase a home for no more than 65 percent of the market value following repairs. So if the price of the home is $100,000 after renovated, and they invested $10,000 in repairs, flippers shouldn’t be paying more than $55,000 for the property in the first place.
- Don’t leave the due diligence up to anyone else. An investor should have the resources to determine the true value of a home without having to resort on outside sources.
Levinrad suggests not relying solely on the word of the real estate agent.
Learn their value by visiting the neighborhood in person, see what competitors are selling for, and attend any open houses. Investors should consider pricing the renovated property just under the market value in order to garner fresh interest. This should help ensure shorter downtime between properties.
- Develop a good exit strategy before you buy. After you have made a purchase, make sure you stick to this plan.
Levinrad has seen many examples where flippers got cold feet and fell of course, only to regret it later. Some find that they aren’t going to see as much revenue from the deal, opting to rent it out instead. A couple months in, they realize they weren’t prepared to deal with the struggles of being a landlord.
When it comes to flipping homes effectively, it’s obvious that Levinrad has plenty to offer, but before you spring for the pen and paper, take a second to remember one of the underlying points that were made here. You don’t want to make too many assumptions when it comes to investing in the housing market. When these basic guidelines are forgotten, Levinrad warns that what was supposed to be a positive opportunity can become a nightmare before the investors even realize it.