Sunday, January 04, 2009

Naples Getaway

Check out the library at my rented condo. I rotated the image for the laziest of my readers.

When I first called the owner of this condo, I noticed a 917 phone number. A New Yorker? I learned that this 40 year old gentleman left the Big Apple after 9/11; got out of the "market data" business; and moved to Florida to "invest in real assets".

So I guess these books were the artifacts of past trading endeavors. A lot of traders who quit go into related fields like "market data" or peddling trading software. One thing about New York is that just about everyone up there dabbles with trading to one degree or another - that's in contradistinction to the rest of the planet. Heck I can walk through the entire airport in Boston - IN BOSTON - and not find a single bar television tuned to CNBC. And Hawaii.....forget about it. They don't even carry CNBC in some very pricey hotels.

Alright I'm rambling. I am so out of blogging mode not having had much time in the past 3 weeks to sit at my PC. And now I'm here in Naples working off a laptop with the most annoying of all technological innovations - the touch pad mouse. Whoever invented that should rightfully be in line for public stoning. I'd put him just behind the sonofabitch who invented women's flannel pajamas.

Now getting back to Naples.

The first 5 days here have exhausted me. We've been to playgrounds, a water park, the Naples Zoo. We've strolled around Fifth Avenue, shopped, seen friends and family, and just flat-out worn ourselves out. I may need to go back to *work* just to catch my breath.

Speaking of *going back to work* I am delighted to hear that I missed a foot of snow on the South Shore of Boston last week. What's that? Three feet total in about two weeks time? It's so warm here that I had to apply sunscreen twice today. Actually it's not really warm. It's as cold as Naples gets, January that is. Highs around 77 and down to 52 or so at night. My body is in shock from this relative warmth. And I am seriously questioning whether or not I could live here when it's a heck of a lot hotter.

Alright I could. Though I would disappear from May-August, probably up to the Hamptons, if I was wealthy - independently OR dependently!

If you know Naples, I'm a block south of Vanderbilt Beach Road, right at Tamiami Trail. The condo is twenty years old - that's ancient for Florida. The doors and windows don't shut flush so we've had a few gecko incidents. Either I've gotten slower (not likely) or those little buggers are fast. I spent fifteen minutes capturing one the other afternoon on orders from Mrs. C-Nut. Between the little lizards, the dead bugs everywhere, the dirt (vacuum doesn't suck), and some odd screeching birds/raptors nearby, I'm quite sure my weak-stomached MIL wouldn't last down here. The Ritz-Carleton across the street would be beckoning.

This guy who bought this condo just has to be taking on water. Zillow didn't reveal the price he bought at but I can do the math. These places as seasonal rentals just make zero financial sense. At best he was getting $3,000 per month for the season. So that's $9,000 for January, February, and March. But then what? How can you rent a place for 9 months in the off-season? And what could you possibly get? My local realtor buddy tells me that at best a rental like this would bring in $800 per month. So assume that best case scenario - $800 times 9 months for another $7,200.

Those numbers don't total up too poorly. $16,200 of rent would approximately pay the bills (mortgage, HOA, and taxes) for about a 200k condo.

Surprise, surprise. The condo owner has it listed for sale at 199k.

Now here's the problem. The *best case* scenario is a long way from today's reality. He only received $2,000 for rent this January, AND it's currently unrented for February. So when you reduce the annual rent by $1,000 + $1,000 + $1,000 the *fair value* of this *investment*, at today's 6% mortgage rates, drops by $40,000.

[Remember, at 6% rates, every $100,000 of house costs about $600 per month. In the example above, I divided $3,000 by 12, got $250 in lost monthly revenue.]

So now the break-even value has fallen to $160,000. I could chop it further quite easily by lowering the 9 month rent total, adding in upkeep, cleaning, the time/cost of managing it, furnishings, rising taxes, etc. And who the heck wants to own any asset who's best case scenario is merely covering the expenses? Remember that land is essentially unlimited in Florida. There are condos still popping up everywhere. What will happen to the value of this *dated* condo when mortgage rates hit 8% or higher?

This condo only begins to make sense as a seasonal rental at a value near $125,000. As a buy-and-inhabit it may be viable closer to $150,000.

Again, these condos went for $88,000 twenty years ago - at the peak of the last real estate bubble. I've learned from the neighbor that the original owner ended up in foreclosure.

Imagine that! Imagine losing your shirt on a mere $88,000 *investment*. Will this unit foreclose again? Stay tuned!

Rambling over. Time for bed. Have to take the wife (and sleeping kids) to the airport tomorrow at 4:45 AM. The cabs and shuttlers want $80 for the short jaunt.

I won't give it to 'em on principle alone.

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