When you think of Hurricane Irma, you think of devastation. You picture debris sitting on roadsides and people displaced from their homes. The hurricane also had a devastating effect on the real estate market. Counties in Central Florida reported over $100 million in damages from the hurricane, with $60 million of those damages in Osceola County. This damage caused the Orlando area real estate market to take quite a hit. Buying and selling hit a standstill while people tried to rebuild their lives.
Sales Come to a Halt
This is always a slow time of the year in the real estate market. Homeowners and realtors alike expect home sales to slow down, but no one expected the sales to plummet as much as they did in the Orlando area. The Orlando area saw home sales drop by 30 percent from August to September, compared to 20 percent from a year ago.
The extra homes are due to property damage and a slow inspection process. Inspections were backlogged, and that created a housing surplus.
That’s already changing, though. Inspections have picked up, and that’s allowing homeowners to close deals. Homeowners are finally replacing “For Sale” signs with “Sold” signs, and it looks as if the trend will continue.
In fact, sales are now up 7 percent from last year, a good indication that the market is about to get hot. As it continues to heat up, don’t be surprised if real estate investors start pouring money into Orlando.
What It Means for Buyers
For a little while, it seemed as if the Orlando housing market might turn into a buyers’ market. Buyers had a lot of the power, and it looked as if prices might start going down.
However, the market rebounded faster than people expected, and prices have held firm. The median price for an Orlando area home in October was $218,000. That’s just 3 percent less than it was in September. That means buyers can expect to pay full price for homes. They aren’t going to get a discount due to the hurricane. They don’t have the same negotiating power they had just a month ago. Homeowners aren’t desperate to find buyers. They know they have their power back, and they’re going to use it to get good prices for their properties.
The rebounded market also means buyers have fewer choices. People are quickly snatching up the property they can find, so buyers don’t have as many choices as they had. They don’t have the time to put as much thought into the process. If they find something they like, they need to snatch it up before the next buyer comes by and grabs it.
Foreign Investors Step In
Orlando’s real estate market isn’t just bouncing back because home inspections are going through and there is a demand for the property. Foreign investors are also helping. Foreign investors, especially those from Brazil, have shown an interest in the Orlando area all year long, and interest hasn’t waned, even post-Irma.
It’s somewhat surprising that international investors are throwing so much money into Orlando. Exchange rates lean in favor of the dollar, and the country is facing immigration concerns that could shut investors out. Also, Brexit adds to the uncertainty of the market. Still, wealthy Brazilians and others are putting money into real estate. International investors put over $2 billion into the Metro Orlando market through July, and they continue to make big purchases. In fact, a Brazilian investor just purchased a $1.6 million home in September. Purchases like that prove the market hasn’t stalled. It is still finding ways to bring in big-time investors.
On the flip side, Brazilians are also selling off some of the Orlando real estate they purchased in the past. Many of these homes were purchased in 2013 and 2014. At that time, the exchange rate tipped in their favor, so they’ve seen quite an appreciation on their investment. They are unloading the properties now, meaning there are some luxury homes available for sale.
Is Affordable Housing on the Way?
Brazilian investors aren’t in the market for affordable housing. In fact, they spend an average of $390,000 per property they purchase in Orlando. That’s over $130,000 more than other foreign investors. While Brazilians might be willing to put down the big bucks for Orlando real estate, not everyone has that option.
That’s especially true for the Puerto Rican evacuees that are now in Florida. The state is expected to absorb tens of thousands of refugees, with many of those ending up in Orlando. Many have lost everything, so the idea of spending hundreds of thousands of dollars on a house is out of the question. Even renting a normal property is too much. While rent increases are par for the course, they’re increasing at record rates in Orlando.
Rent prices increased by around 8 percent from November of 2015 to November of 2016. That’s about twice the national average. Those prices aren’t slowing down, either.
Realizing that most refugees cannot afford such high prices, there is a push for the state and federal government to step in and help. Some believe that state legislators can fund affordable housing by utilizing the real-estate taxes that have been earmarked for housing. Lawmakers have relied on a large portion of that money to keep the government running in the past. However, Florida Realtors hope they can shift gears and pour it into affordable housing for both refugees and Florida residents.
The issue is also being addressed on a national level. Legislators have drafted the Disaster Displacement Act. If passed, the bill would increase the number of Section 8 housing vouchers available to low-income people. It’s expected that many of those vouchers would go to evacuees. Orlando Mayor Buddy Dyer supports the measure, but it still needs to make its way through the Senate Finance Committee.
If more Section 8 vouchers become available, real estate investors might find themselves renting to Section 8 tenants. There are some things to keep in mind if renting to a Section 8 tenant for the first time.
Get Ready for Inspections
Section 8 inspections are a big part of the process of renting to Section 8 tenants. Someone from the Public Housing Authority will come out one time each year to inspect the property. This occurs even if the same person stays in the property year after year.
The inspector ensures the property meets HUD’s Housing Quality Standards. The inspector will look at the water supply, sanitary system, smoke detectors, electric system, and more.
While no one likes to fail an inspection, it might happen. If you do fail, you will get time to fix the issues. The inspector will give you a list of items to fix, and it will be up to you to fix them in a timely manner. Then, the inspector will come back and check everything once again.
Get a Lease Agreement on File
When you rent to a Section 8 tenant, the Public Housing Authority actually pays the rent each month. That causes some landlords to think they don’t have to worry about getting a lease agreement. That’s not the case, though. You always need to have a lease agreement on file. Customize the lease to include information about the Section 8 voucher and have the tenant sign it.
The Government Doesn’t Pay the Security Deposit
You need to protect your interests with a security deposit, but the government won’t pay it. If you want to collect a security deposit, you need to get it directly from the tenant. You might need to charge a lower security deposit to make it possible for low-income people to pay it. For instance, someone who needs a Section 8 voucher might not have $3,000 for the deposit, but he or she might have $500 to put down.
Keep in mind that the government will not compensate you for damages, and it will be hard to collect from the tenant after he or she moves out. Section 8 tenants are low income, so even if you get a judgment in your favor, it will be hard to get the money. That is why it is important that you collect at least a small security deposit.
Don’t Expect Upfront Funds
As a landlord, you are used to getting some money before the tenant moves in. The federal government does not provide those funds, though. In fact, you won’t receive any money until the tenant moves in, and it might take a month or longer for the first payment to arrive. That is definitely a downside to renting to Section 8 tenants, but there is a silver lining. Once you receive the first payment, you can expect the subsequent payments to arrive every month without fail. This is much easier than chasing down rent from a tenant. You know the money is coming in. You just have to wait for that first payment to arrive, and then it’s smooth sailing.
You need to let potential renters know that you accept Section 8 renters on your advertisement. Add it to your vacancy listing, and consider creating a second listing that doesn’t mention it. That way, you can attract both types of renters. You can get people who use Section 8 and those who don’t. That will make it easier for you to find tenants. After all, the more replies you get, the better.
Screen Section 8 Tenants
It’s true that the federal government screens Section 8 applicants. However, you should not rely on the government to handle all the screening for you. You still need to run a tenant credit check and tenant background check. You can look at previous addresses to find out if the tenant has a habit of moving around. You can also use the information to contact previous landlords to find out what type of tenant the person is. Then, of course, you can find out if the potential tenant has a criminal history. These reports will give you a much better idea of who the person is and if he or she will be a good fit for your rental property.
Keep in mind that you need to run these same checks for traditional tenants, as well. You should screen all applicants before renting your property.
Rent Amounts Are Capped
In a hot market, you might want to charge as much as you can. That explains why the rent in Orlando keeps going up. Landlords keep charging more and more because people will pay it. You can’t do that if you rent to a Section 8 tenant, though. HUD determines the fair market rent price for each area. It publishes a new list each year, and you can’t charge Section 8 tenants any more than what is on the list. That means you might be able to make more if you rent to a non-Section 8 tenant. Of course, it depends on various factors, so you will need to look at the property and the market to determine if you will make more or less with Section 8 renters.
You Can Increase Rent
Rent increases are necessary from time to time. The federal government understands that, and you are allowed to increase rent for Section 8 tenants. There is a protocol you must follow for this, though. You have to contact your local Section 8 office to request the increase. You will need to fill out a form, and then you will wait for approval. You can do this one time a year.
Are You Ready to Dive into the Orlando Real Estate Market?
It doesn’t matter if you want to rent to traditional or Section 8 tenants. The Orlando real estate market is improving, and it will likely get better and better in the coming year. Hurricane Irma did some damage, but the market has rebounded quickly, and it will continue to improve if the government steps in and provides affordable housing to refugees. Combine that with the money coming in from international investors, and it’s easy to see why all eyes are on Orlando for 2018. It is proof that a market can take a hit and come back even stronger.