- February 18, 2011
Two views on Real Estate
Real estate by Rod Thomson | Executive Editor
John Schaub and Harvey Vengroff, two successful veterans of the Gulf Coast real estate market, offer divergent views on the residential market.
There are no rosy scenarios in the near future for Gulf Coast residential real estate, according to a pair of veterans of the market. But there are opportunities for those willing to take risks and be patient.
"Things are going to be flat for a number of years," says Sarasota-based John Schaub, one of the country's premier experts on buying rental homes as investments.
Schaub has built a small empire of single-family homes that he bought for the long-term to rent out, and he spends the rest of his time running seminars and counseling thousands of people on how to do what he has done. He's also writing his third book under the apt working title, "Buying in a Changing Market."
To round things out, Schaub is a big believer in sharing the success. He serves on non-profit boards, makes donations and is a big supporter of Habitat for Humanity.
"Real estate has cycles that are not very predictable as far as when," he says. The Gulf Coast market will come back, he says, there is no doubt about it based on demand driven by baby-boomer demographics and desirable geography.
"Long-term, this is solid gold around here," Schaub says. He figures there are at least two good years for every bad year over the long term. "It's hard to predict the economy. You just need to be able to react to it."
Schaub says every market presents opportunities for the patient and diligent. "There are people who will sell for less than market," he says. He is not selling anything, but largely holding and looking for the right buys.
But he does not see the market turning around in just a matter of months, or even in 2007. "There's a lot of inventory, and that flattens the market out. There is a lot more supply than demand."
"A lot of people are hanging on by the skin of their teeth, with negative cash flow," Schaub says.
Harvey Vengroff sees the short term about the same, but is less optimistic about the long term. Despite that, his firm - Sarasota-based collection agency Vengroff, Williams and Associates - is still buying, if the opportunity is right.
"We're buying apartment buildings if they are distressed," he says. "We don't flip."
His company owns 1,400 apartments in the Sarasota-Manatee region, plus some industrial sites and other properties. The apartments are at the low end of the market, generally renting for between $400 and $800. That experience suggests to Vengroff there are long-term problems for the Gulf Coast economy.
"I see trouble in our area," he says. "Even in the rentals, there is trouble."
Most of the people in his apartments are in the construction trade, primarily the unskilled laborers that physically put things together. With the downturn in the construction industry, many of these guys are laid off and unable to make rent payments, he says. It's tough on them, and tough on Vengroff's company.
"We have more vacancies and evictions than we have ever had," he says. For the long-term health of the regional economy, those workers are a necessity, and he is worried that they are leaving because they cannot afford to stay.
Vengroff has tried at least twice to get affordable housing proposals past the city of Sarasota, but has not been successful, in part because he has 350 employees, most of which have trouble finding affording housing in Sarasota.
Sometimes, an investment doesn't happen for reasons beyond the market.
Vengroff recently passed up the chance to buy 160 duplexes in Palmetto because it would have meant evicting the 3,000 residents, mostly Mexicans working low-wage jobs in the region and sharing the housing. He knew that was far too many for him to manage properly for that number of units, but, he adds: "We couldn't just kick them out."
TIPS FOR INVESTING
John Schaub and Harvey Vengroff have met with great success investing in Gulf Coast real estate, but they invest in different types of properties. Here, they share five tips for real estate investing.
• Plan to buy houses you want to own, not just those that are good deals. Expect to hold them for at least five years.
• Line up financial resources. Find a friendly lender or others to invest with you.
• Don't buy something you don't know how to manage. Learn to manage first, as Schaub did.
• Start with the smallest increment you can. Says Schaub: "I want to make little mistakes."
• Be patient. There may be better deals down the line. The real estate market is not a six-month cycle.
• Expect to work. There is a misconception that you can buy something and just sit back and watch it appreciate.
• Commit time. Plan to visit a property at least three times weekly to make sure it is being kept up right. "Enforce the good neighbor policy."
• Look for distressed buildings that can be bought below market.
• Stay out of neighborhood disputes.
• Monitor your purchase constantly.