Real Estate Investment Discussion
My wife and I are debating on whether or not we want to purchase real estate when we move to STX this Spring. We plan to stay at least a year and based on what I've seen available on the market for rent, we'll need to spend about $2,500/mo to $3,000/mo to get the kind of place we're looking for. We're not crazy about spending $30,000+ on non-tax deductible rent for a year, when we could use that money towards equity in a "second" home. I plan to do loads of research between now and our PMV (probably March), but I was curious if any of you have insights you want to share on the subject.
My initial thoughts were to buy something like a 2BR/2BA house with a 1BR/1BA studio or guest house, somewhere in the vicinity of Christiansted (initial preference without having seen the place in person). From an investment perspective, this seems like it would be in fairly high demand as a long-term rental or possibly vacation rentals. Some of the questions I have include:
1. What kind of real estate on STX (condos, villas, detached, townhomes, etc.) get closest to positive cash flow (under $550,000)? What part of the island has the most potential for appreciation?
2. Does anyone know the average vacancy rate over the last few years on STX?
3. How has the credit squeeze affected home values on STX over the past year? Has the island been insulated or are property values declining? If so, how much?
4. How is the supply/demand relationship on STX for real estate? Are there tons of deveopments in the works, or does demand consistently outpace supply?
5. Any recommendations for a seasoned realtor that can address these types of questions?
I know some people prefer not to discuss these things on an open forum for a variety of reasons, so feel free to PM me if you prefer. Since we all seem pretty much anonymous, I figured there might be some investors and real estate professionals who want to weigh in...
Hi Racoe, I have just come from Michigan where it has seen home prices decline to where they were in 2004. The rest of the nation was on an upswing but now are following suit. I have been thinking of the same thing lately since our realtor told us that if we didn't get out now, (just closed last week) we would have been stuck with it forever since the variable rate loans and 3 year ARM's are starting to catch up with everyone and by spring another surge of forclosures will be seen. The mainland and the island saw an upsurge of buying in 2004 and 2005 with these variable interest loans and prices rising very quickly (too quickly and too high) and I am wondering what will happen when the people that got these loans try to re-finance and their loan won't go through as easy, and the interest won't be as good so we may see some of these homes start selling about now with people off island panicking and holding on to every cent they have. Alexandra, what do you think?
RE/Max of ST Croix
#5 Company Street
Christiansted VI 00820
Give them a call, they will send you a flyer with old stats and current stats ,on how long properties have been on the market, sales price etc.
I would contact Alexandra, she is a poster on this board, and IMHO, is one of the best on STX.
Some beginning answers to your questions:
1) 2-unit villas typically allow the greatest chance of positive cash flow and also split your risk since you won't often have both units vacant at the same time. You can live in one and rent out the other to cover a chunk of your mortgage or rent out both if you leave island. Some inexpensive condos also cover their costs pretty well, but condo fees sometimes make it tough to break even. many investors count more on the equity increase over a few years making them a profit as long as the rental income covers most of the monthly output.
Properties in the Christiansted area and points east have had the best appreciation rates over the past decade+. There are some other specific areas that also do well. The entire island has seen rising prices the past few years, but some areas definitely do better than others.
2) The actual vacancy rate is a tough thing to gauge since most properties are handled directly by the landlord with a smaller percentage being managed by Realtors and property management professionals. Vacancy tends to be almost non-existent during the winter snow-bird season (mid-December through much of May) but then increases somewhat through the summer. Anytime the oil refinery has major expansions or retrofit projects going on, the demand is far in excess of the supply of rentals available.
3) The islands have never had the 0% down loan programs or no-cost refi programs that are now decimating the industry on the mainland. Property values continue to increase on St. Croix. When we see some properties on the market have price decreases, many times that is more due to unrealistic starting prices set by the seller that eventually undergo readjustment. The rate of increase was crazy for a while a few years back but has settled into a more slow/steady rise at a realistic rate in the past year or two.
4) Our continuing price increase is largely due to the fact that there is virtually no development going on at this time. Some developers are in the early stages of trying to plat land and get permits to construct new neighborhoods. Demand far outstrips supply and it isn't likely to change significantly for at least a few years as builders will have a large backlog of buyers to catch up with before they can meet the ongoing/new demand from the next wave of buyers. Baby-boomers are part of the equation and they will be retiring no matter what over the next 10-15 years. Younger professionals (30's - 50's) also are coming in a fairly steady trickle. Young people (20's) also come in each winter to work the snow-bird season and some stick around. The population over all is slowly increasing on STX.
5) If you would like to call or email me directly to discuss the topic further, feel free to do so at your convenience. firstname.lastname@example.org or 340-514-5591.
Your questions are all ones that are best answered with a longer conversation as there are many elements that play into the rise and fall of real estate markets in different areas. Cash flow on investment properties depends on a multitude of factors, including hurricane insurance, HOA fees, mortgage payment, view, amenities, and location. Some investors target vacationers as their primary tenants and others market to refinery contractors and other long-term tenants with high-dollar housing stipends.
There are good real estate investments on STX, but there are also some that wouldn't pay off as well. Asking questions is a great start on the homework necessary to make the right choices when you are ready.
Ms Alexandra has put her finger on the reasons STX real estate has done well lately. The creative loans that are beginning to destroy the American dream on the mainland are not usually a part of things here.
In my opinion there has been some spill-over due to people who invested in STX and the states. My casual look at the MLS shows that many higher priced properties have been slow to move lately.
Rentals have been hot and they have been driven by Hovensa. I often worry that Mr Chavez will take his heavy crude to another place because of his hate for all things Norte American. If Hovensa ever stumbles, STX housing will be a bloodbath.
If that happens there will be some real bargains and a few screams of pain.
That could happen, but it is my understanding that he owns half of Hosvensa. I would worry more about our government not permitting him to ship his oil here.
Lizard/Terry, thanks for the referrals...
Marlene, I live in Las Vegas currently, which is one of the top 5 foreclosure markets on the U.S. My wife is a mortgage broker and she has seen this day of reckoning coming for some time. Congrats on your closing! Negative amortization and no-doc loans have a place in the market, but not for the average homeowner. Still, for those who haven't overextended themselves, I think there will be tons of opportunities in the real estate market over the next couple of years.
Ms Information/Terry, thanks for the info on the oil refinery. I had no idea that the refinery is such a significant portion of the rental market on STX. Does anyone believe that the refinery could actually be shut down or does this seem unlikely? Does anyone know how many people Havensa employs (roughly)?
Alexandra, thanks for taking the time to answer my questions. It's interesting that developers aren't piling on the island, given the demand, but I suppose that is due to the slow permit process or perhaps environmental preservation? I am a buy and hold type investor, so appreciation is my aim. I look forward to speaking with you.
I know realtors are optimistic here, but I am not as much so. Having lived here, and working in a place where I see firsthand how hard it is for landlords to enforce their rights *especially* from remote locations, I have concluded that I would not buy anything here I did not intend to live in myself, and for a long time.
Property management is hard enough, especially from a distance, in any state. Working with contractors, tenants, and property managers is normally a chore, but here it can be a downright challenge, and nearly impossible for people who are relying on phones/email to do so. The forces of entropy prevail, and expenses run high.
Also, IMHO, the rental market is more volatile than stateside in the sense that a small change in one of several things could severely affect it (e.g., Hovensa, tourism, a hurricane, gas prices).
I did look around at land for a while after I realized I really liked it here, but once I got to checking the historical prices down at Government House, I was disappointed at the appreciation over the past twenty years as compared to mainland property. This is just my personal viewpoint and your mileage may vary. My real estate experience is limited to the DC metro area, and a few rural states.
You bring up a good point. Part of my research plan is to investigate the protections afforded landlords in the VIs. We are moving to STX, so whatever we buy would be owner occupied for a couple of years, but I intend to evaluate a property primarily on investment/rental potential. Renting might be the smartest move for us, but I always like to evaluate all the options. Thanks for your insight!
I would have to agree with Letahl on Prices being effected by hurricanes, the condo market went in the tank after Hurricane Hugo devastated the island with a direct hit in September 1989 and again with Hurricane Marilyn six's years later September 1995. It took until 2005 for prices to be at Pre Hugo Levels. Hovensa which use to be Hess 100% until a joint venture of 50% ownership with Chavez's nationalized oil company is one of the largest Oil refineries in the world and one of the few that can refine heavy crude as well as sweet. If something happened with Hovensa it would hurt more than just the Real Estate market on ST Croix. The spikes in Tourism have a smaller impact on STX economy as compared to STT or STJ. It is my opinion we will have another Hurricane rather than Hovensa closing shop.