Kathy Fettke: Demographics & Hot Markets with Florida Expert

Wondering where's the best place to own real estate over the next decade? Follow the demographics.

When Rich and I started buying properties out of state in 2004, we chose Dallas, Texas because it was one of the fastest growing metros in the country. We paid between $120,000 to $140,000 for brand new homes in Rockwall, Texas that rented for $1,300 to $1,500 a month. Those homes have since tripled in value.

Where can you find that kind of opportunity today? Stick with the same fundamentals and follow the demographics.

Economists predict that Florida will add 1.4 million new residents by 2025. Developers are trying to keep up with demand, but can they build fast enough? It's pretty tough these days. As a result, both home prices and rents are on the rise.

In this episode, our guest represents a trusted RealWealth property team from the Tampa area, and he's here to give us an update on what's going on in the Sunshine State.

You can also take a deeper dive into the Florida market by listening to a webinar with our Florida expert. Simply join RealWealth, for free, at realwealthshow.com and log in to the investor portal to hear the replay. As a member, you can also view sample property pro-formas and connect with our network of resources, including experienced investment counselors, property teams, lenders, 1031 exchange facilitators, attorneys, CPAs and more.

And please remember to subscribe to our podcast and leave a review if you like what you hear! Thank you!

TRANSCRIPT

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Speaker 1: You're listening to the Real Wealth Show with Kathy Fettke, the real estate investors in resource.

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Kathy: Are you wondering where the best place to own real estate is over the next decade? Well, follow the demographics. I'm Kathy Fettke and welcome to the Real Wealth Show. When Rich and I started buying properties out of state in 2004, we chose Dallas, Texas because it was one of the fastest growing metros in the country. We paid between $120 and $140,000 for brand new homes in Rockwell, Texas. The rent in for about $13,000 to $15,000 a month. Those home have since tripled in value.

Where can you find that kind of opportunity today? Just stick with the same fundamentals and follow those demographics. Economists predict that Florida will add 1.4 million new residents by 2025. Developers are trying to keep up with that demand but can they build fast enough? It's pretty tough these days. As a result, both home crisis and rents are on the rise. Our guest today is one of Real Wealth's trusted property teams based in the Tampa area. He's here to give us an update on what's going on in the Sunshine State. David, welcome back to the Real Wealth Show. So good to have you here.

David: Kathy, it's a pleasure. It was amazing to be added on your amazing house guest quite recently, so it's good to see the recording studio once again.

Kathy: For our listeners, once or twice a year, it's usually twice a year, we bring all the property teams that we work with nationwide together in a mastermind. Even though they're technically competitors, they share their best practices and how to find more inventory for our members and they really act like one team, like they're on the same team for the benefit of our Real Wealth members. I'm glad you mentioned that. It was great to see you and be able to see each other in person.

David: It's absolutely invaluable. I really love everybody. I mean that sincerely. I just [00:02:00] love each one of these teams. I love their sincerity. I love their professionalism. As we said at the time and I'll say it again, it's always an honor to come out and be part of such an elite group of people.

Kathy: Aw, I appreciate that. I don't know when it happened. It seems like it was maybe five years ago when one of our teams said, "I want to be more involved with whoever is part of the Real Wealth Network because whatever they do reflects on me and I want to make sure everyone is at the top of their game."

David: That's right.

Kathy: We all have solutions and answers. We should be sharing that and not having one team learn the hard way, something we just learned right.

David: That sounds vaguely familiar, Kathy. It may even have been me at the time [unintelligible 00:02:42].

Kathy: It might have been you. [laughs]

David: It makes life so much easier when the same standards are being upheld to regardless of the market that you're in. Again, creating that standardization across Real Wealth Network groups has been amazing over the years. It's been amazing to watch our great results as well.

Kathy: Aw, that's cool. Anyone new to Real Wealth and what we're talking about here, we are an educational company. We teach people the ins and outs of owning rental property. Then we are a referral business as well referring to companies nationwide who help investors build a portfolio by finding them the properties, renovating them if needed, working with builders. Obviously, those properties don't need renovation but they better be in good areas and they better be good builders. There's not always good builders out there. Then offering the on-going property management to really take care of people who are buying investment property out of state.

We have about 15 teams. Everybody's standards were different 10 years ago. Tampa is going to have different standards than, say, a property in Ohio because of different weather, you have different different laws. Some of the basics need to be standardized across the board, and that's what you guys created together. You were demanding excellence from each other, that [00:04:00] took the pressure off of us. It's kind of like being a parent saying, "All right, brothers and sisters. [laughs] You make sure you're all behaving."

David: You are exactly right though. We wanted and we still hope to create an environment where the buyer's experience is similar no matter what market they buy in. All of these teams are incredible in their own way. To create a standard buying experience and a standard buying expectations, it allows buyers then to build up their portfolio with a bit more confidence. If they have experience A in market A and they have experience Z in market B, it's kind of hard to build up your portfolio. Here in my group and here in my city and what is it that we try and achieve is it's very important that investors have the confidence to build their portfolio beyond that first house or two or three or four.

Anyone whoever talks to me, Kathy, knows I preach all day long the fundamentals of real estate investing. You cannot create really meaningful wealth in real estate investing by doing one or two houses. If you have a terrible experience on your first or second house and decide not to do it again and say, "Well, that's it for real estate. I'm not going to invest in it again." That's awful because you've just closed off one of the most productive channels for creating wealth in your life just because you had a bad experience with a swere in Cincinnati. Sorry, Cincinnati.

Kathy: Right. It's kind of like Rich. He proposed to two girls before he got to me. If he gave up, we would never have this 25-year awesome marriage.

David: That's right. Poor old Rich, I didn't quite understand he was trying so hard.

Kathy: He just hadn't met me yet though. Tampa has had its ups and downs, right. Tampa got hit so [00:06:00] hard in 2008, 2009 because it was kind of a speculative place before that. People all over the world were just buying property expecting it to go up in value and maybe not having the fundamentals in place. Were you in the Tampa market during that time?

David: Yes. In 2008, '09 and '10, we were all over the Florida market. We were buying at that time broken condominium communities. Basically, these developers who were doing condo conversions and they couldn't tell them because finance buddies were not funding on them. They were not lending on them. There's nobody literally in the United States that wanted to buy that type of product. These are typically two-bedroom and three-bedroom condominiums that would rent for $1,000. While the builders and these condo conversion guys were trying to sell them in 2005 and 2006 at, let's say, $200,000, we were picking them up at $90 and $100,000 in 2009 and 2010.

There was one thing that was static and that was the rent. When I look back at that time, yet Tampa, Florida in general was hit, various markets were hit very, very differently. The Orlando market, if you have experience in the Orlando market, it's very different from the Fort Myers market. Different neighborhoods in the same city. A-class neighborhood, really high quality A-class neighborhoods where your doctors and your lawyers and that type of folk live. Their experience of the downturn, the neighborhood experience, was much different than the lower-income neighborhoods.

The lower-income neighborhoods, that downturn went on for an awful lot longer than it did for the A-class neighborhoods. It really boils down to just the neighborhood you're in, the product that you're in. Were you in single family, were you in multi-family, what type of products you're in. The one thing that stayed constant and I created right through it, Kathy. [00:08:00] This is the most important thing that any real estate investor should know and learn is that my experience of the last downturn was that rents stayed constant.

I really don't know why people were selling when rents stayed reasonably constant throughout the last downturn. If rents stayed constant and you take a long-term view on real estate investing, which we're going to talk about today, you're going to do very well. That was my experience of it. Tampa had a fair share of problems in 2009, '10, and '11 with the financial crisis.

Kathy: I can tell you probably why they sold. They probably paid too much for the property and it never cashed flowed from the outset. If they did spend $200,000 on a condo and they were getting $1,000 in rent, plus the condo fees, plus the taxes and everything, they were negative cash flow from the start.

David: That's just it, Kathy. Real estate investing starts with sound underwriting. If you're underwriting in sound from the get-go, you should be able to navigate your way through any real downturns. Always remember that. I think that they're very wise words. Coming in and "investing" where you're underwriting doesn't pencil out and it's really just on the speculation basis that prices would go up. If you can't weather a few years of lower cash flow, you examine why you're really investing. If you're investing just because you hope prices will go up, that's a really, really unsound way to approach real estate investing in general.

Kathy: If we just go back to that time because a lot of our listeners maybe weren't investing at that time or if they were, they didn't understand investment.

David: That's right.

Kathy: It was so easy to get a loan. You could get a 100% financing. I could go to Florida and buy five of those condos, I could buy 10 of those condos with a no-money down loan. In some cases get a teaser rate where maybe it did cash flow for [00:10:00] a minute until the rate adjusted to where now all of a sudden you're negative cash flow and you're trying to carry 10 of those properties that are all negative cash flow. That adds up and then now add to it that the value of those properties is cut in half. That's why people couldn't hold.

If they had bought right, you're right, why would it matter? One more thing, the interest rate was 6% to 8%. It was easy to get loans but the rate was much higher. Today, it's half that or a third of what it was and it cash flows, for the most part. Not everything cash flows anymore, but you can get that. Let's say you bought a $200,000 property today, what would that rent for today?

David: We all remember the days of the 2% rule and then the 1% rule. I still work along the basic premise that if a property rents for about 1% a month, on the outset, it can be .9, it could be .8, it rents possibly, so a $200,000 home can rent for about $1,700. You're right there. You're in the zone where it's starting to make sense. That would be just like 0.8% of the value of the home, of the purchase price of the home and that's day one.

Now, remember, inflation and anybody who's been to the store recently or doing anything else, anybody who's dealing with inflation right now will notice that rents are rising and the cost of everything else and the ecosystem is rising with more dollars in the economy right now. Usually, the day that you buy a home from a rental perspective, that's probably about the tightest it ever will be. Over time, your rents are going to rise and, over time, inflation is going to lift the value of the home and lift all the aspects of the home and your tenants is going to pay off your amortized mortgage.

[00:12:00] If you look at all of these numbers and you pre-look at them, you're probably going to be reasonably okay. The issue I have is when I'm out there and I'm working with realtors. I was just out in Phoenix this week. I was looking at potential Airbnbs for myself and my family. I like to diversify as well. I was out in the Sedona area and it struck me how few realtors knew how to underwrite. I met a bunch of realtors last week out in the Arizona area.

It struck me just how few of them knew how to actually underwrite. They were like, "Oh, this is 1.1 million. Can we get the taxes on this? What's the monthly rent on it? What's the long-term rent? What's the short-term rent? What are the fundamental backstops to the underwriting?" Very few realtors knew how to answer any of my questions. That's one thing I love about about Real Wealth Network. Everything in your organization is underwritten with a sound basis and numbers, facts, and data. That's how you protect yourself.

Kathy: Yes, and that's one of my dreams is to educate these real estate agents so they really know how to sell properly because clients are expecting them to be able to do it. Although there are some DRE rules around that that licensed real estate agents are not necessarily supposed to be giving investment advice. Anyway, you need to know numbers. [laughs] You need to know numbers and understand a proforma.

David: Exactly. It's sound underwriting because as they say, there is one thing that's reasonably constant in real estate and that is that the demand for rental housing will remain reasonably constant and the rents will remain reasonably constant. That is my big takeaway. Quite frankly, it's how I invest right now and how I look at the market. People like, "Oh, do you think about this? What do you think about that? Where's the top of this, that, or the other? I know I traded through the last downturn on the basis of well underwritten rents. I could see what those rents were before the downturn, I could see what they were now, and I could see [00:14:00] what they were after.

Rents stayed reasonably constant. I'm not saying that nobody out there has said, "Well, in my market, rents are down a little bit," but it's my experience rents that they stayed reasonably constant. That's very important to understand.

Kathy: Yes, absolutely. That was a look back at the past and why Florida got a bad rap for being not a great place to invest because so many people were coming in speculatively, buying stuff that never made sense at the outset. It was purely based on appreciation and it did work for a little while. If you bought between 2002 and 2006 and got out, you made money.

David: Yes, that's right.

Kathy: If you didn't, you had to sit and hold those properties for 10 years or just let them go. Wow, have things changed. Fast forward, 12 years, and what we're seeing right now, I've got a few data points here that the Tampa area came in as one of the top places for rental increases. I think it was, what was it, 11.5% nationwide is the increase in rents in the past year. There are parts of Florida where it actually went up 31%. I don't know where those areas are, maybe you do-

David: I do.

Kathy: -but rents have gone up significantly. Have you seen that personally?

David: Yes, I have. I've had to re-analyze even my own personal portfolio copy. I think it's in the denser urban course where you're going to see it, but even out in the outer suburbs. I think the reason being is Tampa and Florida is very, very, very different place now than it was in 2004 and 2005. The economy here has changed dramatically in that time. It's a much more tech financial corporate-based economy than it was. The Tampa market is not a tourist market at all.

I've got some really cool slides that show just quite how diversified the Tampa market is. Florida, in general, whilst everybody knows we have quite a large inputs of [00:16:00] retirees and the like, and if people traditionally think of Florida back in the '70s and '80s and '90s, it's almost like an agricultural retirement place. That's how older people visualized it. But it's not like that anymore.

People are moving down here from all over this nation because it's dynamic. It's much younger than it used to be. Most of us can work somewhat remotely now, so it's still reasonably inexpensive on a national level. It's a really, really super high quality of life. Florida has an awful lot more going for it now. It's just the economy has changed. So many of us can work from home. So many of us are almost job optional. I think that's had a massive, massive effect on just who considers moving here.

I think our rents have increased top level just simply because given the option, people would rather live here than in a cold northern state, in my view. I know I do.

Kathy: Yes, and those cold northern states are far more expensive. Even if rents went up 30% in Florida terms, for many of those people from those northern cold states, it's still probably a bargain.

David: That's right. Think about it like a $1,000 rent going to $1,300. That's what it is. It's not eye-popping because that's not really were rents should come from. Rents should come from like, I always said, $1,000 to about $1,500 is your average rent here. I think now, it's somewhere probably between $1,300 and $1,900. It's not that much and it still pops out at about $2,000 across the market. Say that to somebody living in San Francisco or Los Angeles or New York, and it sounds positively bargain-like.

Kathy: Oh, yes. I just talked to my friend who visited yesterday and her daughter's renting a room, just a room, for $1,200 in LA with three other roommates who are also renting rooms, so [00:18:00] yes, to be able to get your own place and pay about the same with more space, right?

David: Yes. I live in downtown St. Petersburg and anyone who has been here, I know you already know, but it's just so beautiful here, really genuinely. My quality of life is insane, 20 minutes to airport, I get to live in an amazing place right downtown. Like I've heard all you Californians, downtown St. Petersburg is kind of a waterfront city, kind of like La Jolla in a little bit of a way, in that it's like college, great bars, great restaurants, beaches, amazing lifestyle for a fraction of the price, so why wouldn't they come?

Kathy: Well, listen, David, I really should have listened to you a lot more and I'm going to just smack my head a little bit because you're still been bringing so many opportunities to me. We are ready to jump, but I would say, when I did visit you in St. Petersburg and I did ended up buying a house. At least I did. I wish I bought 10. Bought one at least.

David: Yes, you did.

Kathy: We had the Opportunity Zone opportunity and you showed this whole area where we could buy lots for almost nothing. I waited and all of a sudden they went up 10 times in the time that I had to figure out the Opportunity Zone. Did anyone end up buying those?

David: Yes, they did. I don't know if you want to hear the next minute of what I have to say.

Kathy: Of my tragic story of not listening to you?

David: Yes. We were picking up lots at that time. This is right at the start of the Opportunity Zone opportunity and we were picking up lots of between $9 and $13,000 and everything lot there now is between $30 and $80,000. You know what it is, is that if you go into this Opportunity Zone program was really, really powerful. I didn't quite appreciate just how. I knew there was an opportunity, but I didn't understand quite how. You visit those neighborhoods now and they're right by downtown. People were buying these rundown homes in really troubled neighborhoods. [00:20:00] They were buying these homes for like $100,000. Well, guess what. Enough people come in and buy those homes and they built like seven, eight, $900,000 neighborhoods in these neighborhoods. Now, it's just taking so much velocity that the neighborhood itself now is highly desirable.

Kathy: Oh, yes, but you knew that. You knew that?

David: I could see it happening. I could see it happening, for sure.

Kathy: Yes. I mean, because it was too close to all the awesomeness you just talked about, all the nice restaurants, and the waterfront, and the little bike path, and the boats, and the beaches.

David: That's right. That's right. The little are going to run down homes. It went against everything that I do because I'm a B Class operator. I think you know that I like the concrete block homes. In my investments that I own myself, they're upper B, they're what I call vanilla ice cream. They don't offend anybody. They just do what they say on the tin. They're very functional. People like them. It's very uniform product.

If you go into these older neighborhoods with rundown homes and more questionable when you're driving around, just more questionable dynamics, and you say to somebody, "Hey, this neighborhood is changing." I don't like to bring somebody from California and drive them in and say, "Hey, if you speculate in this neighborhood," because I'm not a speculator. I like to bring people in and say, "If you do this over the long-term, you will do well. If you do this, and you do enough of them and you hold them long-term, you could create meaningful, meaningful financial wealth for yourself." I'm not a speculator. Don't feel bad about it, Kathy, I'm not a speculator either, I'm more of a sound underwriter.

Kathy: It was just simply a matter of just not getting around to it. Sometimes that happens. You know what? On certain opportunities, you don't have that privilege to wait and be lazy.

David: You don't. You did plenty of other things-

Kathy: I did.

David: -so you can't do 'em all. Right. I wouldn't go [00:22:00] and lick your wounds too much. You did amazing things over the last few years. Kudos to you.

Kathy: Thank you. All right. We have a webinar at Real Wealth with you on Thursday. That's this week.

David: That's right.

Kathy: If someone's listening to this podcast past this date of September 21st, then you just go to realwealthnetwork.com and you'll find the webinar there recorded. If you want to hear it live, you would go to realwealthnetwork.com. Join, it's free, and you'll get to hear a much more in-depth webinar with you on what kind of opportunities exist.

Listen, opportunities are changing all the time. When I first came to Tampa, I was there during the whole boom, the whole mortgage boom, so we were looking only at new homes because that's all there was. Then, of course, in 2009 we were only looking at foreclosures. That's all that there was. Now fast-forward to today, everybody's chasing stuff in Florida, specifically Tampa, super hard, super competitive to find inventory. What's the opportunity today?

David: I've just come back from a big seminar with all of the top hedge funds and institutional people in this country. I know what they're talking about. They have much better data than me. They've much better data than any of us. I know where they are looking. I know what their plans are for the next three, and four, and five years. Basically, it's a Sunbelt. This is the biggest institutional buyers in the nation. They currently own about 82% or 83%, I believe, of the commercial world. They own about 3% of the single-family home wealth, and that is where they are going to be chasing yield for the next decade.

They are going to try and create a situation where they own vastly more residential real estate than they currently do. Their attention is all in the Southeast and the Southwest, so to a degree in the Texas area but largely in the Florida, Georgia [00:24:00] states. That's where they're going to be targeting. I'm happy to be in there right now.

In terms of where the opportunities are in Florida, there are a very, very certain pockets, very defined pockets, some densely urban and some suburban, some suburban cities throughout the nation. Suburban cities, in general, are growing exponentially because the inner, the downtown cores of a lot of these cities become too expensive or they don't have the right type of inventory. A family looking for a good school with a three bedroom, two bath, for under $200,000 is not going to find that in Tampa at all, just in the entire metroplex of Tampa. Where those work, who's looking for what, where.

One of the things I also have noticed over the last number of years, certainly in the last year-and-a-half, is there's no finished inventory. Everybody's selling new. There's a lot of supply chain issues around the world. Permits are getting delayed. Construction is slower than we'd all like it to be. There's a lot of investors out there right now who want to buy their 1031 exchange, or they want to lock in their cheap interest rates now and they want to get their investments going now.

Well, on Thursday, I'm going to launch 10 in construction, single-family home, renovated home. They're already there. They're already built. I already own them. We're just finishing off roofs. We're putting the last touches of paint and kitchens into these 10 homes. Anybody with a 1031 exchange right now, who wants to look at the Florida market, I would tune in on Thursday. It's not very often you're going to see anybody that has any inventory that's available uniquely for Real Wealth Network buyers. Thursday, tune in, and I'll give you the skinny on these 10 homes. They're ready to go, and I look forward to working with anybody who's got a tight timeline.

Kathy: Very exciting. All right. I always want to jump in and be one of the buyers, too, but of course, we let our members go first. [laughs]

David: Please. When they're scarce, [00:26:00] please let the members get in front of you on that one.

Kathy: Yes, exactly. All right. That's wonderful. People can go to realwealthnetwork.com. If you are not a member, you join, it's free. If you're already a member, then you'll already know about this about event on Thursday. All right. Well, thank you so much for all your knowledge. You have so much more input and insight on how to build wealth, which I hope you'll be sharing a bit on the webinar.

David: I really do, Kathy. It's one thing to have real estate, it's one thing to be an expert in one market, but it's quite another thing to really understand why. I'm trying to teach my kids right now why they should do their homework. I'm looking at myself as a child, and I say, "Well, what was it that was missing for me?" Or, "What is it that I got?" Whenever I'm going to do anything, anything in life, that I'm going to do it to completion. I need to know why I'm doing it and I need to know the incentive for doing it. Why and the incentive.

I'm very passionate about those two things. I think that there's quite a big disconnect in investors really understanding the why and the incentive of how it actually works out. I will definitely be touching on how to build wealth with real estate on the webinar. I look forward to that.

Kathy: The why. Yes, the why. Why this over, say, a stock, something like that.

David: Yes, and how to avoid short-term thinking, short-term narratives, how to get your head out of your social media that's scaring the pants off you about this, that, or the other. How do we keep our heads over the long-term when there's just so much noise out there? How do we achieve that? As I get older and I become a more successful investor, it's one of my core tenets of my belief is, "How do we just put all that to the side and invest for ourselves and for the long-term?"

Kathy: Great. Yes, especially if you did make a bunch of money in Bitcoin, well, maybe it's time to cash that in and put it to work. All right. Well, so great to have you here on the Real Wealth Show.

David: Thank you.

Kathy: I look forward to your webinar on Thursday, and I look even more forward to seeing you somewhere in the world. [00:28:00] We still have ice cream in our freezer from the last time you were here, and we have it.

[laughter]

David: Thank you so much, Kathy. I really appreciate your time, and I look forward to Thursday.

Kathy: Thank you for joining me here on the Real Wealth Show.

If you'd like to become job-optional with rental property income, join Real Wealth Network for free and log into the website. As a member, you have access to the investor portal, where you can view sample property performance and connect with our network of resources, including experienced investment counselors, property teams, nationwide; lenders, 1031 exchange facilitators, attorneys, CPAs and more, and they've all been highly recommended by over 56,000 members in Real Wealth Network. To join, go to realwealthshow.com.

Speaker 1: The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities, or to make or consider any investment or course of action. For more information, go to realwealthshow.com.

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