Something Big Just Broke in Florida’s Housing Market

Florida just shot itself in the foot and it's costing real estate investors big time. So you probably know that there's many of the cities in Florida that are like on a 12-year low for sales and inventory at all-time high. So Florida has been one of the hottest markets in the country for years. People have been flocking there for the sunshine, for the low taxes, and of course for the lifestyle. But the tide now is starting to turn and not necessarily in a good way. So what happened and how can you protect your investments before it's too late? And what can you learn from this? So let's break this down. So like anything, it's all supply and demand. So if you go back to 2020, let's say around the pandemic, there were states that were losers and were winners. And Florida since 2020 has added 1.5 million people. So that's what I would call the supply. And then their existing inventory or their housing stock or whatever it is, that's their demand. So you have a supply that all moved there during that period of time and it created all these bubbles. And then we know what happened during that period of time. We had high inflation in 2021 and 22. And then we had the Fed jacking the interest rates, which corrected the real estate market. So that's where we are. So we had all these people and then we had the shocks of inflation. And of course, the interest rates that went up high. And of course, the interest rates that immediately made any kind of investing negative cash flow. So now, of course, we have an exodus of people, mostly investors out of Florida. So why? So the very first sign to look for is the exodus of Wall Street or regular investors moving out of Florida. And here's why. This is exactly what happened in 2008. The very first people to move out of Florida, of course, are going to be the real estate investors because they rely on cash flow. And it's always the same model. It's the cost of the house plus the mortgage payment, which, of course, is high because of interest rates and, of course, cash flow. So the very first people to leave a market like this will always be the investors. And that's happening right now, just like it happened in 2008. So the interesting thing about a real estate investor as well is they're not going to be as emotionally tied to the real estate. In other words, they're going to make quicker deals, a low market, and they're going to get the heck out of that because they don't know how far this is going to fall. The regular homeowners, of course, they're holding on because they started to take a look at the equity that they used to have. And that's all moving down each and every month. And not in every market, but in a lot of markets. Zillow predicts that over 24 markets are going to have negative growth in the next 12 months. So a lot of people are saying Florida could be the next California. And here's why. Because for years in California, people bought based on the future capital gain or appreciation of the real estate itself and not on the fundamentals. In other words, everything was capital gain based. Everything was based on the prices in California are always going to go up. Well, now we, of course, know that's not particularly the case. And now that's happening in Florida. But here's the real reason. So if you're investing in Florida or you've invested in Florida, you have to know that inventory is up, expenses are up and occupancies are down and concessions are also in the marketplace. In other words, when you have a lot of inventory, which is what it has right now, you do not have the rent growth or the price growth or anything like that that a lot of healthier markets might have. But now here's the kicker. And this is particularly what I want you to pay attention to, because this is happening not only in Florida, but across the country. So first, let's start with the headlines. Florida insurance premiums have doubled. Some are up over 300%. And that's if you can get insurance. Just in the past couple of years. This is, of course, because of the hurricanes and the different kinds of things that have happened. So we're talking $8,000 to $12,000 a year in addition to what they used to pay just to insure a typical home. This alone has started to crunch any kind of cash flow and squeeze any homeowner that lives there already. The people that are tapping into their insurance policies and getting all these insurance to fix all these things from all these hurricanes and all these storms, the rest of Florida is now paying for that. And the insurance companies are charging that to the rest of the people in Florida, even if you didn't have any losses. So you may not have had anything wrong or any damage at any time on your residence in Florida, and you're getting penalized and paying for any losses for anybody that did. And that's just the beginning. The local municipalities are now also hiking the property taxes, especially in hot areas like Miami-Dade County, Tampa, and Orlando. And why? Because the state's growth hasn't been able to keep up with its current infrastructure. And somebody has to pay that. And the only person that can pay that now, of course, are the people that actually own real estate. And they tag this through property tax. So this is already happening, and it's going to continue to happen. So you have insurance and now property taxes are getting jacked. And by the way, this is not only happening just in Florida, it's happening across the country for the exact same reason. So guess who foots the bill? You, the property owner. Now let's sprinkle in the HOA problem or the homeowners association issue. Now, for those of you who may not know, that homeowners associations actually collect the money that they need to maintain the physical asset. And that gets charged equally amongst all the condo owners or homeowners in an area. Well, generally, these are managed by complete morons, and they have no idea how to run a business, let alone run real estate deals. And so what's happening is they're underfunding their homeowners association dues, and they have no money left in their reserve account. So when things are needed, like a parking lot, or streets, or gates, or roofs, or common areas, or whatever it is, they bang the existing residents because they don't have the cash. And so those are called special assessments. Those are starting to come in now, and they're starting to piss people off. Even the governor has come up with a bill regarding this. You guys remember that Surfside building collapsed. That was all a result of unfunded HOAs and reserves. Because if they would have had the money, and they would have had a competent homeowners association board, none of that would have happened. And of course, let's not forget about all the legislation that's pushing back against investors themselves. Florida recently passed legislation restricting foreign ownership in that particular market. And whether or not you agree with it or not, the signal is clear. The state is starting to pick winners and losers in the real estate game. So let me be clear, cash flow is always king. And in Florida right now, between insurance, taxes, homeowners association, and of course, all the issues from supply from after the pandemic growth, it's getting harder and harder to pencil any kind of a deal in Florida because of the cash flow, and let alone even break even. So when people are looking to invest in Florida right now, they are now seeing these higher expenses, higher HOAs, higher special assessment, flat rents, declining property values. And so people are pulling back and they're looking to other areas. So I've been investing for over 30 years, and I've seen states go through these boom and bust cycles. And the fundamentals always, always win. But when the property expenses outpace growth and income, then the music stops and it's done. And this does not look like it's going to stop anytime soon. So look what happened in California. Investors, they got priced out. At some point, people just relied on a capital gains strategy or for prices going up. This is exactly what's happening with Florida right now. So Florida's heading down that exact same path because the people are now leaving. They can't afford it. And the economics are just no longer making any kind of sense, especially for cashflow investors. And the canary in the coal mine is that the institutional and the investors themselves are already leaving. This is exactly why I say real estate is a local game. You can't just buy because the state seems hot. You have to go deep into the micro fundamentals of every single county, city, and state to really look at the nuances, to check out the cashflow before you even enter the game. So today, expenses, rent, growth, supply, and regulations are all at risk. So how did Florida ruin its real estate market? Well, first we had the bubble, and now it's actually deflating. Second, skyrocketing insurance costs, rising property taxes, and now fees that are being implemented on the homeowner and the investor. Heavy-handed regulation on property ownership. And then of course, structural risks and special assessments, which we talked about with the HOAs. And that all leads to decreasing cash flows, which makes people look for other areas to live, and of course, for investing. Because we are, as you know, in a huge affordability problem, and Florida is going the wrong way. You put all these things together, and we're seeing a shift from what used to be a landlord-friendly state that's now becoming one that's tougher and tougher to invest in and to live in. But here's the shift. Just don't follow everyone else. Follow the cash flow. If you're in Florida, just reassess your numbers. Look at your insurance renewals, and look at your property tax increases. If the deal doesn't work today, it's only going to get worse tomorrow. Because trying to go backwards on some of those things that are now in place is virtually impossible. So if you're thinking about investing there, you need to get hyper-local. Find sub-markets that have less exposure to some of these insurance shocks, property tax increases, HOA problems, and of course, the most important thing is to look for strong rental demand. Buy on fundamentals, not emotion. That's how you survive the shifting markets. That shouldn't be your only concern, because there are many collapses that are catching a lot of real estate investors off-guard today. To find out why, just click this video next.