With interest rates so low, summer rents could actually make your vacation property cash flow positive. This has rarely been the case in the past. My friend who is a mortgage banker told me his bank was offering their lowest rate in bank history on a 5/1 Jumbo ARM mortgage up to $4MM-2.375%!!! That is far from normal. The bank actually had to raise that rate .5% this week to cool the deal flow because its infrastructure could not handle anymore deals and it is a very service oriented bank. So, let’s do an example.
There is a property listed for $3.25MM furnished, that one could probably buy for around $3MM. The property has a new house, pool and pool house in a desirable area. It could rent for $20k/wk. for July and August and $10k/wk. the last two weeks of June and first two weeks of September. So, the gross rent would be $200k. Subtract the expenses, $2.1MM debt at 2.375% amortized over 30 years (approximately $100k), 15% brokerage commission ($35k), taxes ($10k), maintenance, landscaping, cleaning, trash pick-up ($15k), utilities ($10k), insurance ($10k) and misc. ($10k), $190k total. Net $10k.
Not saying that this property is the property one would invest in if all that person wants is cash flow, but it is an opportunity to take advantage of the historically low interest rates and the depressed Nantucket real estate market, two phenomenons that are not common, and have a comfort net to know that the property can more than cover itself if need be.
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Today, there are:
640 properties actively listed and 54 properties are under agreement or 7.8% of total market.
One year ago, there were:
725 properties actively listed and 52 properties under agreement or 6.7% of the total market.
So, despite the wild stock market, inventory is down 12% and deals are up 4% over a year ago. Both stats. pointing to a bottom…
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As of today, there are:
-629 properties actively listed for sale
-55 properties under agreement
So, a little over 8% of the whole market is under agreement. That is a good sign, as the market has not reached the 8% mark since late August/early September over the past two years. Couple that stat. with the fact that there is 5-10% less inventory now than there was at this time over the last two years and one might say we are seeing an improving market…
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We are off to a decent start of the main selling season. Currently, there are 39 pending deals ranging from a $245K (asking) piece of land to three lots sold as a package for $7.45MM (asking). There were 38 pending deals at this time last year, so basically the same amount of deals, but there were 682 active listings this time last year and there are currently 605 active listings. The trend continues, more deals in the pipeline and less inventory-strong signs of a bottom. We have not seen any monster deals yet, but just like the striped bass, the schoolies almost always come first… Happy fishing!
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Paper roads for sale in Surfside. The town is currently undergoing their second round of yard sale program. How the program works: The town has marked off a considerable amount of paper roads that they deem will never need to be opened up and or constructed. The town then takes the paper roads by eminent domain. After the taking, the town offers the roads to the abutters split evenly down the middle. When the abutters purchase the paper roads from the town for approximately $2,500-$5,000, depending upon the size of paper roads, the paper road lots then merge with the abutter’s lot. Once the paper road lots have merged, the new, larger lot has no restrictions except per zoning. This is a great program. If you abut a paper road, make sure to call Andrew Vorce at the planning board to see if the paper road you abut is eligible for the yard sale program.
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Seems that with all this money getting pumped into the economy, inflation is inevitable. Actually, there have already been signs of it and that’s excluding energy and food prices which have sky rocketed. So, a great way to hedge against inflation is to buy hard assets, like real estate, because the price of hard assets is surely going to go up with the rise of inflation; more money chasing the same amount of goods means prices are going to inflate. The main advantages of real estate over other hard assets, like gold, are 1) you get to enjoy it and 2) you can rent it and be paid a dividend. So, time to buy the hard asset that the money will chase first-Nantucket real estate (right in time for summer, too!). To hedge or not to hedge-I know which one I pick.
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To a layman looking on at a real estate auction, it seems straight forward-a bidder has the max she will bid, she’ll go back and forth with other bidders until a) she is tapped out or b) she wins the auction. Au contrair mon ami. Auctions have a lot more to them than meets the eye. They are dynamic and to be successful one has to understand many factors, including, but not limited to, the time, place and weather (are we on Nantucket on a cold May day with 50 mph gusts when the boats aren’t running or are we at the Copley Place, 68 degrees with a cold drink and plenty of space in the parking garage), the players (are there builders and/or bankers bidding) and the motivation (is WaMu foreclosing and happy with 30 cents on the dollar or a private developer and happy with 110 cents on the dollar). Answering these as well as other underlying questions will help you put together a winning strategy. Another reason why a good broker is invaluable and worth well over 6%. Bonne chance mes amis!!!
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My dad always told me that Nantucket is one of the last ones in and first ones out of a bust. That’s another way to say that Nantucket is a very safe place to invest and/or park your money. Another way to see the strength of an investment is to look at capitalization rates. Cap rates on Nantucket’s prime commercial real estate are around 5.5%, which are extremely low for commercial real estate-cap rates are basically a function of risk, lower the cap rate, lower the risk. So, I called Nantucket Island Resort’s (NIR), who is the biggest commercial landlord on Nantucket (Team Frazier is two), today to inquire about what spaces they have available. The leasing agent’s answer-we have a small art gallery, about 200 sf, available on Old South Wharf. Excuse me, you have 200 sf out of tens of thousands of sf available?!!! That’s a sign of the Strength of Nantucket.
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Properties on the open market, 4/28/09, 602.
Properties on the open market, 4/18/10, 560.
Properties on the open market, 4/20/11, 482.
Properties under agreement, 4/28/09, 18.
Properties under agreement, 4/18/10, 32.
Properties under agreement, 4/20/11, 50.
I think I see a trend… Get in while the interest rates are still low!
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Nantucket is not perfect, but it is pretty close. Once the new Dreamland Theatre is done,
it will be directly across South Water Street from the Atheneum.
So, Nantucket will have two, amazing, multi-faceted learning/cultural centers that complement each other perfectly a stone’s throw away from one another. I find that very cool and that’s not even to mention the beaches, restaurants, historic downtown…
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