Orlando's numbers are looking pretty hot these days.
It’s all about the numbers in Orlando, Florida, these days, and the numbers are looking pretty hot. The city recently made headlines as the fourth-hottest market in the nation, the “28th-Best Place for Careers and Business” and third-best city in the nation for job growth, per Forbes and online real estate data and sales giant Ten-X.
Add to that a nearly 9 percent year-over-year real estate appreciation in the metro area, 4.7 percent home sales growth, 43 consecutive months of payroll growth and 2.6 percent population growth (well over the national average), and you’ve got what looks to be a magic combination right next door to the Magic Kingdom.
Of course, just like any Disney fairy tale, Orlando does have a “darker side” to all this investing sunshine. The area was hit hard, late and long during the housing crash and continues to suffer from massive fallout from overdevelopment in the form of condominium communities that still, in some cases, sit empty or that have been converted nearly entirely to rental communities, making them less attractive to owner-occupants. Often, disrepair and disarray set in because condo boards are unable to collect monthly maintenance fees or enforce codes on absentee landlords. However, thanks to some upcoming easing in federal lending and mortgage insurance requirements, and growth potential that simply won’t quit, the Orlando, Florida, housing market appears to be, on the whole, on the mend.
Living Up to ‘The City Beautiful’
There are a few reasons why more than 2.3 million people call Orlando home and 62 million visitors make its airport the 13th-busiest airport in the country. The weather is great. The entertainment is outstanding. And the city has an often-overlooked backbone of technological industry supporting and actively engaging with many of the more obvious tourist attractions.
Not only is Orlando home to thriving film, television and electronic gaming industries, as well as Universal Studios, Disney World and a variety of other theme parks, it also supports multiple major- and minor-league sports teams and hosts a $13.4 billion tech industry. It’s home to the country’s seventh-largest research park, the Central Florida Research Park; Lockheed Martin; a number of U.S. military research branches; and a vast array of related companies and their complexes and headquarters.
Not surprisingly, thanks to all of this technological growth, coupled with an extremely attractive climate and affordable cost of living, Moody’s Analytics recently predicted that Orlando in particular as well as the state of Florida in general are headed toward a “multiyear upsurge” in terms of job growth and economic growth heading into 2017.
One economist did add, however, that the state is known “to be a boom-bust” rather than an area of steady, predictable growth. This is likely due in large part to the area’s heavy reliance on the tourism industry, which tends to react quickly and dramatically not only to actual economic turbulence, but also to negative consumer sentiment.
While that technological “backbone” can certainly help fortify the overall state of the economy in the area, investors must be prepared for potential volatility should they choose to put their money in the “Theme Park Capital of the World.”
Investing in Orlando: As You Like It, Literally
There are three local legends on how Orlando got its name. According to one, the city was named after the character Orlando in Shakespeare’s “As You Like It.” Some historians say that the area’s original name, Jernigan, was changed by a local gentleman named James Speer, who was a great admirer of Shakespeare and felt the area was truly as magical as the Forest of Arden as it is portrayed in “As You Like It.”
Whether this version or one of the other legends is actually true, when it comes to real estate investing in Orlando, you certainly can take your pick of strategies and avenues to profit. Not only are investors “getting in early” on new developments in the area in hopes of cashing in as the population continues to grow, turnkey rental aficionados are finding that properties can be purchased, rehabbed and rented out for cash flow to a solid renting population that is, in large part, unlikely to buy in the near future due either to income constraints or a growing modern, mobile mind-set that prefers renting to owning.
Perhaps one of the most exciting aspects of Orlando real estate these days, however, is the potential resurrection of the condo market. While the rest of the real estate sector has steadily edged toward recovery despite record-setting foreclosure timelines, robo-signing lawsuits and general market disarray, the Orlando condo market has continued to struggle in the wake of the housing crash and the Great Recession.
One major cause of this struggle lies with federal mortgage restrictions on condominium purchases. In the past, the FHA required condo buyers taking out FHA mortgages to prove that their building was at least 50 percent owner-occupied. In Orlando, where condominium prices are still foundering far below their peak prices, easing those restrictions will mean that the market will have a better chance at recovery.
At present, only eight other condo markets in the United States are recovering as slowly as Orlando, largely due to buyers’ inability to make a purchase in most developments unless they have cash or private funding. Although many investors will likely wish to purchase condos as rentals for either short- or long-term cash flow, easing restrictions on condo purchases will boost the value of the overall market and make these properties more desirable on all fronts.
Another indication that Orlando is still on a solid growth trajectory is the burgeoning presence of international investors in the area. Although traditionally foreign buyers—Chinese investors in particular—have focused more on West Coast luxury and New York City for their investments, developers are pushing these buyers toward Florida in general and the Orlando and Miami areas in particular because these areas offer far more affordable building options than major metro areas elsewhere. And they have the added appeal of being attractive tourist destinations.
International money also flows into the area regularly in the form of commercial development. In fact, according to the Orlando Business Journal, a new theme park based in the United States but backed by international money is looking at acquiring and developing as many as 200 acres on the city’s International Drive. While that rumor cannot be fully confirmed, it is not an uncommon event for international investors to target Orlando with an eye toward massive, commercial development.
Dolmar Cross, Florida investor and managing director at Maxall Capital, credits Orlando’s growth trajectory, in substantial part, to rising prices in Miami driven by national and international investors. “Prices in other cities like Miami have risen until they no longer make sense for investors,” he said, adding, “Orlando, the home of Disney and other major theme parks, has a unique selling point (that) makes it easily recognizable and a popular city for international investors.”
Cross predicted that prices would continue to rise as international and institutional investors “fuel demand and rising prices.” Many experts cite Chinese investors’ preference for buying in groups and more than one unit at a time as a reason that Florida’s housing markets will likely continue to benefit from this sector of international interest.
Putting the ‘Boom’ in Boom-Bust
Florida in general—and Orlando in particular—is commonly referred to by analysts as being a “boom-bust” market because things seem to go very well or extremely poorly. In reality, however, real estate investors who make educated investments and purchases on either end of the cycle tend to beat the cycle by focusing on cash flow. At this time, Orlando is poised to potentially be a prime location for cash-flowing turnkey rental purchases because of its growing population, its thriving job market that offers opportunities and advancement potential at all skill levels and at least another 12 to 18 months of statistical probability of above-national-average growth and appreciation.
With most experts projecting that the metro area will return to some state of “normalcy” within the next two years, now is the time for investors to make their move in the Orlando area before the competition heats up further and opportunities become harder to find and access.