We have a very special episode today because we are doing another market spotlight. And as you guys know, we have been in Florida for over a decade, probably close to 15 years. In fact, I remember back when in 2005, we were in Southwest Florida and we were selling a lot of property to clients back then. And it was a great time because these properties not only cash flowed, but we were building new construction homes and we were benefiting from the strong growth and price appreciation. At that time back when there was just all this growth and momentum and population migration down to Florida, especially in Southwest Florida. Well, it seems like history is repeating itself because we are back in Florida, in multiple markets. And as you know, we’ve been in Jacksonville for a long time, but we have a strong emphasis right now in Southwest Florida. And one of the markets is many of, you know, we are in is Cape coral. However, if you just go 40 minutes North of Cape Coral, there are some other great pockets experiencing growth with new construction homes, such as North port and port Charlotte. So what I am doing today is bringing on our amazing and fantastic property provider down there in Collier County. And his name is Reed.
So Reed, welcome to the show.
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Hey, thanks a lot Marco for having me on today. I really appreciate it.
Well, it’s great having you on this episode actually is long overdue because you know, we’ve got you on board as a property provider and we’re working with you and we want to ramp things up because there’s a lot of opportunities down in your neck of the woods in Southwest Florida. And your timing is great because we’re finding it more difficult to find inventory in other markets where clients want an inventory, but we just can’t get it on a consistent basis. So the opportunities down there is we’ve got great new construction that you guys are providing great rent, strong rent growth. In fact, it’s in the top 10% of the country from the data that I’m pulling. There’s been strong price appreciation over the last five years, and that is expected to continue just because of the number of people down there. So today I want to talk about the market, the neighborhoods, and the properties that you guys are providing. So how does that all sound?
Let’s talk about it. It’s a, it’s a pretty exciting time here in Southwest Florida, even with all the craziness in the world right now, we’re pretty close to back to normal, you know, whatever normal is for Florida.
Okay. yeah, no, Florida’s been interesting cause it’s just been such a strong state for growth, low taxes, great business climate. People are moving down there from all over the US especially the Northeast, you know, that’s just the migration trends. So, but you also have industry, you have jobs to support it. So let’s just start off at a high level. I always like to start off asking the question from a high level, why invest in a Collier County, you know, specifically the markets that you’re in,
You know, and we’ll start with employment. The employment climate here is really, really good. I mean, obviously Southwest Florida, we are a destination for retirees. So healthcare jobs are plentiful. They’re out there. And that industry just continues to grow. My wife works in that industry. So I’m very tuned into it. Also, of course, we’ve got tourism and it’s tourism down in 2020. Yes, of course it’s down. But you would be surprised how many people are coming here on vacation know, going into hotels and restaurants and seasonal rentals where you can rent a house for a month or two. Obviously we’re down from Europe right now because of some of the travel restrictions. But the a lot of people are wanting to get out of the house and they’re coming to Florida. We also have a strong manufacturing base when it comes to a lot of building components are manufactured here. You know, trust companies, lumber companies, window companies. A lot of that stuff is manufactured here very, very locally. And with this huge influx of people at new construction, being at some of the all time, best numbers, those jobs are very, very plentiful. So, you know, economically, we’ve all, we’ve taken a little bit of a hit, you know, in the last six months, the amount of people moving here has only increased from where it was a year ago, 18 months ago. So we’re experiencing some pretty good signs.
Yeah, no, that’s fantastic. I know healthcare is a big one retail trade construction. I was just looking up a list of finance and then insurance. I mean, there are a lot of service based businesses in that area.
Gartner, the big IT company. A lot of people have heard of the company Gartner that does a lot of, and they have a huge campus here, not far away in Fort Myers. And they, they provide a ton of jobs as well.
Are those the biggest employers there, or are there other major employers?
Employers are, are your healthcare systems, you know, they employ thousands upon thousands of people. Of course, you’ve got your retail and tourism jobs. You’ve got Gartner, Hertz, the rental car company has a, their world headquarters here. You know, there’s just a ton of different industries. Like I said, the manufacturing, when I moved here 20 years ago, there wasn’t nearly the manufacturing jobs that we’ve had that have popped up. So there’s some very, very strong, you know, job opportunities for people. The other big thing that we’re seeing is with, you know, obviously the virus and the way our lives have all changed a little bit. There is a ton of remote type workers that are moving to this area. I personally know of several and I don’t do a lot of general real estate. I do a little bit, but a lot of people moving from the Northeast to where they don’t have to be in their offices anymore.
One migration trend that I’ve never seen in my 20 years here is people moving to Florida from California. I had never seen that. No Californians typically when they move out there, what Arizona in Texas, right? Nevada are your hotspots. I’m literally moving an entire family out of the LA area. You know, the mom and dad are coming two sons or daughter, and they’re like, we need to find four homes right away. And with our lack of inventory, I said, you know, we’re going to have to build it. And so, so that’s what we’re doing, but we’re moving the whole family. I mean, I know a lot of people track like the U-haul and the writer stats like that. And right now it’s difficult to rent a vehicle to move to Florida.
Yeah. Yeah. The U-haul index as they call it definitely there’s a lot of people moving out of state to all kinds of places. Florida is a far place to go, but you guys have zero state income tax. You know, property taxes are very low. There. It’s about 1%, which it’s about the same here. It’s cap who because of proposition 13 at 1%. And it only changes marginally each and every year, but you’ve got low property taxes and your property values are much lower. You can get an equivalent house there for about a quarter of the price with the climate, that being the same and you know, just a great local economy. It’s actually a smart move. So I know some people who’ve moved to Florida and they just love it. You know, personally, I love Florida. I just don’t like the high, high humidity in the summer and the big bugs. But aside from that, it’s great.
I hear ya. I hear it. It takes a little bit of getting used to it.
So you guys have had tremendous strong growth. I mean, you guys are in the top 10% of rent growth across the country, you know, compare it to other markets. Why is rent growing so fast and strong? Is there a particular reason or is it just because there’s just a lot of population growth from migration?
I think that there’s a, there’s a lot of population growth, you know, from the migration, of course, we’re seeing a lot of people that move here called our core move in people, the baby boomers. A lot of times, they’re not sure exactly where they want to live when they first move here. So whether it’s Cape Coral or North Port or Sarasota, so what you’ll see them do is move your rent for a year or to kind of get their bearings on what little community they want to be a part of. And then they’ll, they’ll go ahead and buy a house or build a house or make an offer on a lot of times, the clients that I work with they’ll rent to somebody for two years and ended up selling them that house and retraining into you know, another new property. So it’s, it’s pretty common. And the rent growth also, you know, you do have a fairly higher percentage of renters. I think in Florida, we were the epicenter when, when things went crazy in 07 and there’s a lot of really good people out there who just don’t have seven 50 credit scores anymore, you know, and they just haven’t fully recovered. So, you know, I think that that’s why we do have a little bit of a higher rent base here as well.
So kind of a, taking a step backward here with this question, just, can you kind of paint a colorful picture? Like just a visual for people who are not familiar with, or even heard of North port or port Charlotte, it’s like, what is that? You know, I’ve never heard of it. I’m sure a lot of people have heard of Fort Myers and Naples may be Cape coral. You guys are only like 30, 40 minutes North of Cape Coral. So can you just kind of paint a picture of what it’s like there and people would experience or see if they came down?
Sure. I mean, it’s, it’s kinda what you think of when you think of Florida in both of those towns. There’s a lot of canals that run through those towns, both freshwater canals, which, and I’ll explain the difference in a minute and also saltwater canals with the difference being the saltwater canals, you can park your boat in the backyard and make it out to the Gulf of Mexico. It’s golf courses, it’s boating, it’s fishing, it’s prototypical, Florida life. Also here in those towns, we have a minor league baseball teams. We have spring training here. We have the Atlanta Braves just moved their big complex here. Tampa Bay Rays, the Boston Red Sox, Minnesota twins, all have big complexes here. There are outlier towns to the major cities, port Charlotte and North port are kind of bedroom communities, which the people live there, but they work in Sarasota or they work in Venice. Some of them commute as far as Tampa, especially people that move in from maybe the Northeast or Midwest where an hour commute is not that big of a deal to them. So it’s, they’re inexpensive places or people to live that maybe you can’t afford to live in the bigger towns. Most of the bigger towns are not only the houses more expensive, but you’re going to deal with 300 to $700 a month HOA fees. And it’s just not as affordable where all the communities that we build, there is no HOA fees at all. So it’s a much more affordable place and very nice place for people to live. And whether it’s retirement or raising a family or, you know, whatever their situation is
As a frame of reference, how far South from Tampa and Bradenton are North port portraits?
Yeah. North port would be about a 45 minute to an hour drive to Tampa, or Charlotte might be an hour to an hour 15 in that ballpark. Okay.
Okay, cool. I would suggest that people just go to Google maps and type in port Charlotte or North port and just zoom in and out. So you can see where it lays relative to Tampa, Fort Myers, Cape Coral, Bradenton, and whatnot. You know, you called it like an outlying community, which calls it a bedroom community?
Yeah. We kind of refer to it as the bedroom community because there’s jobs and there’s restaurants and there’s things like that. But your higher-paying jobs are going to be more in the city. So a lot of people will live in North Port or Port Charlotte or Cape coral, and they’ll commute across the bridge. They’ll commute 20, 30 minutes to, to get the higher-paying jobs.
Got it. Cool. Well, let’s drill down into the types of neighborhoods, cause this is always something I like to focus on because I like markets that have population growth and a healthy job market because to me that the fundamental bad that everything rests on. So now let’s talk about the neighborhoods to me again, they’re very important. And I like to stick in B class neighborhoods, mostly with my rentals, but you know, they range from C plus to A-minus, and that’s just how we grade them. But what kinds of neighborhoods are you guys focused on down there and why?
Well, we really try to do is we try to pick areas. And, and let me back up a minute. I not only work with the investors on the backside, as far as the selection of houses and what makes sense, and why, but I also do the land acquisition for our company. So I scout out these lots. And what I’ll do is I’ll look at certain pockets of growth and growth. Meaning I track building permit trends. I look at who’s buying what I look at, you know, where renters are going. I know what builders build more rental style property, and what builders build exclusively for end users. So what I’ll do is I try to find a pocket of good activity. And inside of that pocket, the land will be much more expensive. So what I try to do is I draw about a quarter-mile or half-mile radius around that pocket of hot activity.
And then we try to acquire land in that zone. That’s just outside of the hot zone. That way as that pocket expands, the client’s property value is going to expand right with it. As things fill in around it. Also, like I said, we track the building permit data and I look for neighborhoods or blocks of houses that are going to be 90 to 95% owner-occupied. I don’t like communities where it’s just rental house, rental house, rental house, rental house. You know, we try to keep all the lots that we acquire in. Like I said, 90 to 95% owner-occupied areas.
How do you know that from building permits though?
It’s because of who the builders are that are pulling the permits. We’re one of maybe two or three builders that kind of specializes in this build to rent model. We do it a little different, but let’s call. So if builder X who does something similar to what we do is pulling a bunch of permits in an area. I typically stay away from that area. I’m looking more for, and I’m not going to get into naming names, but I’ll say DR Horton, they’re a national, DR Horton doesn’t sell to investors. So DR Horton’s picking up a bunch of these scattered lots in an area. I know those are all going to be end-users.
Got it. Okay, cool. So just at a very high level, from a demographic perspective, what would you say about these neighborhoods? What kind of occupations, age ranges, income levels, how would you describe these neighborhoods?
It’s going to be a mix. You know, you’re going to have a certain percentage of retirees anywhere you go in Florida. Our typical Retter profile is going to be a retiree or it’s going to be, you know, there are typically two-income households that could be in the medical field, could be construction, could be manufacturing, income. You know, we’re probably looking at 70 to 100 K a year, you know, combined income. We do rent to a lot of families. So there’s a lot of that. Both of these areas are very well known to be lower on crime. And they both have been rated by outside publications and magazines is best places in America to raise a family. You know, so there’s a lot of info that you can get into about that out there. It’s really a mix and, you know, a mix of blue-collar, white-collar, you know, it’s a pretty good mix.
I was actually surprised to see how high the average school ratings are, where you guys are building in your locations. So I was doing some research before we started recording here is just to get a snapshot of what is down in those neighborhoods. School ratings on average are higher than what I typically see in many of the other places that, you know, we have property, both new construction, and renovation. I was very surprised to see how high the average income is in those areas. It is considerably higher measurably higher than a lot of the other areas that we are selling property in, which is a great thing. But what’s interesting is that as a proportion, it’s, the income is much higher relative to the price of the properties there than in other areas. So you think that the affordability for those people is much higher and there would be a higher percent of owner-occupied homes. So I went and looked at that and sure enough, the percent of owner-occupied homes in the greater area was in the 70% range, which is very high. So I mean that’s well above the national average, that was actually a very pleasant surprise when I took a look through stats. So I think you’re in some great areas, some great neighborhoods.
It’s been, you know, I think 2020 was going to be a very, very good year. Anyway, I’m, I’m a little bit of a stats nerd. And I was looking at our January and February numbers and we were on track to have probably the best year in the last 15 years. Not only in sales counts and volume, but in, you know, and we haven’t like an Oh six when things went crazy. When mortgages, when you could fog a mirror and get a mortgage, you know, the pricing did this, but we’re on about 10 years of just, it kind of feels like where I grew up in the Midwest. I mean, we’re getting three to 6% a year at appreciation. You know, this is an Oh six where you could buy it in January, sell it in December and make 20%. Those deals.
No. Well look, anything between three and 6% is expected normal and healthy. If you’re seeing four or 5% per year, that’s a very healthy price growth year over year on average. So anything above seven or eight is pretty abnormal. So no, that’s great. I mean, if we continue to see, you know, three to 6% in these areas that translates to a lot of equity growth and, you know, net worth growth, and as long as the rents are keeping pace, that’s a strong investment. That’s a great deal.
Yeah. It’s and the rents, we have nudged them up in over the last, I would say 30 to 45 days. We kind of did it as a trial run. When we started to see all the people moving here, you know, the performance that I put out to people three or four months ago, don’t really apply to today. Cause we’re getting about $50 a month more now than what we were getting just three or four months ago,
Right on, well, let’s, let’s dive right into the properties. Let’s talk about the deals that people can invest in today. So describe the typical property that you guys are building right now in these neighborhoods and areas that we’ve been talking about.
Okay. Yeah. Right now it’s really pretty simple. We build a one-floor plan because it works. We are in production with a second-floor plan. We’re going to do a four-bedroom plan too. We build a one-floor plan. It’s 1,548 square feet, three-bedroom, two-bath, two-car garage, granite tile, stainless steel appliances, all concrete block, exterior wall construction, which is very important in Florida, typical asphalt shingled roof. You know, it’s just a real solid house. We, we go beyond what a lot of other builders do in our price range. We’re going to get nine foot four ceilings instead of, you know, like your traditional eight-foot ceilings just makes the house feel a little more brand. When you walk in, you know, a little more volume in there. I said, granite countertops, it’s a really sharp floor plan. Also in Florida, we have a thing that we call lanai here, which is basically just a covered back porch. And this has got a 13 by 22 lanai. So the people pick up an extra 350 square feet in living space, which is, comes in handy in the winter months. Those are the months where you really sit outside and enjoy the wonderful Florida weather. So it’s, it’s a really great house.
So I often ask what’s the price range of your models or, you know, the inventory offering. And it almost appears that there’s no price range with yours because you have one floor model. But I would imagine that the lot price has changed. So there’s still going to be a price range. So what are these homes typically going for?
They are gonna range in the 213 range in Port Charlotte and 218 in North Port. The differences like you said, the land, the port Charlotte, lots, we can get there a little less expensive. And they typically aren’t full of trees where the North port lots, when we get, I mean, there’s a significant amount of clearing in the trees, but when you look at your overall return on investment, their cap rates come out almost identical because in North port you can get about $50 more a month in rent. So that extra five grand in North port gets made up for in the rent.
So what is the rent range for these properties?
In Port Charlotte? We’re getting about 1650 per month and that’s with no incentives on the front side. I mean, that’s just a straight-up 1650. And then in North port, we’re getting between 1675 and 1700.
So at this point, I just want to remind the people who are watching or listening to this, that we often talk about, you know, the 1% rule kind of that target. You have to put into perspective that when you talk about new construction, those numbers are going to have to change a little bit. They almost always are going to be lower with new construction, just because that’s the nature of the beast. So what you might want to target or shoot for with newly renovated properties, being around percent with an, a rent to price or rent to value ratio with new construction, you’re probably almost always going to be at the 0.8%. So even though the properties are 210, 215,000 ish plus or minus, it is not unrealistic to expect rents that are going to be 16, 1800, whatever it may be. You also have to understand that with new construction, that there are no capital expenditures, your maintenance and repairs, although you should budget for it are not going to be high. If anything, at all, especially in the beginning for the first year, two, three years or more, unless you just have a bad, bad tenant, which is not very common. Also just as a reminder of the property taxes in Florida are very low. It’s about 1% and correct me on any of these things here, Reed.
No, I think, I think you’re right on. The only other thing I would add is the landlord-tenant laws in Florida, especially I know a lot of your people are California people. You’re really gonna like Florida. We have a saying here, no pay, no stay. And so our eviction laws, it’s under 30 days, less than $500. It’s, it’s very, very easy, you know, and it happens one out of 50, you get a, you get a knucklehead tenant. It happens, but it’s very easy to get them out of there. And none of these horror stories of a year plus, which I’ve heard, you know, many investors over the years, tell me about in other States.
So I’m not going to ask this to put you on the spot, just off the top of your head. We can talk around the numbers. If you were putting 20% down on a new construction home, like what you have being realistic with the numbers, what could someone expect to have in terms of monthly cashflow net?
The last pit I saw, and it was at 25% because lenders are weird right now you get a much better rate at 25% down than you get 20. So the last one I saw for our client the rate was in the high threes, the pit, I was 1083, I believe. And then, you know, obviously, if the rent’s at 1650, you’re at a gross 550 per month, 560 per month, positive cash.
Yeah. And we’ll have those detailed proformas on our website for the ones that we post. And of course, there’s always other inventory in the pipeline, which might be slightly different. So this is where I always say, talk to your investment counselor here. They’ll give you the specifics, the actual numbers, the availability of inventory, which actually segues to my next question, the availability of inventory. If you were renovating properties, you might be having a challenge finding inventory, but you’re building new construction. So what’s the availability of the lots that you need in order to build that new construction. And also what is the build time?
Well, what we do, this is one of the biggest differentiators for us than maybe other new construction build to rent type models is work. We have a constant flow. We’re breaking ground on 20 to 40 houses every month. So I’ve got about a hundred that are under construction now. And then I’ve got about another 75 that are in service, various stages of getting surveys, pull, permits, things like that. And then we’ve got another 200, some odd lots that we just own that will we’ll gradually, you know, funnel into the pipeline. So for clients, one of the ways that we’re able to help people a lot of times is, Hey, you don’t need a construction loan with us. All you’ve got to do is do a small deposit. When the house is ready, it’s ready. I’ve got a product, that’ll be ready next week, next month, two months, three months, six months. So we’ve got a constant flow of inventory at any given time. So great for people with 1031 money that they need to place, or I’ve got a client right now that needed to get some money placed before the end of the year or end of the year for a reason. And we’re able to fulfill these orders because of the constant stream of inventory that we’re producing.
That’s a great touch on any warranty information. And then let’s just wrap things up with management and what you do there.
Then, the warranty information is pretty simple in the state of Florida. The general contractor covers that house the first year, basically, anything that goes wrong, that’s not tenant damage. You know, the, the GC has to eat that for the first year. And then what we do is we supplement it with a third party warranty. I’m sure you and your listeners have heard of the two 10 warranty company. We supplement that. So years two through 10, all your major mechanicals are covered. Structurally you’re covered. It’s basically a 10 year one.
All right, cool. Now, who does the management or is it outsourced? And if you do it in house, let’s just talk about the terms and your management services.
It’s outsourced to a company called great Jones. They’re huge in Florida, big throughout the Southeast, you know, they manage 10 to 12,000 doors at any given time. They do a great job. They’re very, very automated. You know, something happens in the house. You’re going to get an email that says, Hey, the door handle to the master bathroom is broken $45. You’re going to click accept, and then it’s just going to be done. So they’re very automated. They do a nice job. They’ve got several management structures as far as fees and lease-up fees and the monthly fee the most popular one that people go with is six and a half percent and three-quarters of the first month’s rent for up fee. And, you know, as clients come on board, I can get you in touch with great Jones, their representatives, and they can walk you through everything that they do.
Yeah, cool. No, they were great. Actually, they one of their business development managers reached out to me only a few weeks ago and they’re wanting to form some sort of joint venture or partnership with us just because they’re looking to grow, we’re looking to grow and they felt that we would be a natural fit. So I’ve been impressed so far with them. They’ve been great.
Yeah. They’re the real deal. We’ve gone through a couple of them. We’ve paid the dumb tax already because we have our own portfolio of about 80 homes. So yeah, we got hooked up with them about a year ago and it’s been smooth sailing ever since.
Right on. Cool. We’ll read anything else about the market or these investment opportunities that you want to talk about or share that I haven’t even talked about?
I don’t think so. I think we’ve covered everything pretty thoroughly. I really appreciate the opportunity to work with you and your clients and mine. I’m already working with some right now and we’ve got the inventory and right now Florida is, it’s a good place. It’s a good place to, if you’ve got some, some investment money that you want to get employed into the market, I think you’d be hard-pressed to find a better spot.
Yeah, no, I agree. I think it’s a great opportunity. The problem is, is most people don’t know about these markets in Southwest Florida, like North port or Port Charlotte or, or Bradenton, or, I mean, that’s not a market you’re in, I mean, at least not right now, but you know, I’ve been in many of those areas and the opportunities are huge, so it’s a growing area for sure.
So anyway, let’s just wrap it up, reading it. Hey, I want to thank you for coming on the show. Thanks for all your time. We’re going to definitely be in contact with you. I know you’re working with my team already. So if you’re listening to this and you want more information, just contact your investment counselor here, and we can certainly tell you more about the specific investment opportunities out there, the different markets, and go into the weeds, as they say with you. Other than that, you know, if you haven’t talked to an investment counselor here and you want a free strategy session, just contact us through our website. You can call, you can fill out the form on our website and we’ll certainly talk to you about what is available and all the services and opportunities that we can provide you. If you have a question about real estate investing, don’t forget I do the Ask Marco episodes twice a week. Just submit your question to me at AskMarco.com or go to passiverealestateinvesting.com. And you can just click the button at the top of the site. Other than that, remember to subscribe if you haven’t done so already. Reed, thanks once again for coming on the show, it’s been a pleasure.
Thank you very much. No, I really appreciate it.
Awesome. No, thanks for coming on. And then for everybody else, thanks for listening. We’ll see you on our next episode.
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