Author Topic: Florida Real Estate: A cautionary tale  (Read 1307 times)

clarkfan1979

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Florida Real Estate: A cautionary tale
« on: March 19, 2023, 07:19:17 AM »
My dad bought a retirement house in Florida in January 2007 (age 57) for about 556K and sold it for about 431K in January 2016. My dad was planning on retiring in September 2011 (age 62) but they bought 4 years earlier due to FOMO. Because of the run-up in prices (2003-2006), they felt like they wouldn't be able to afford a retirement house in Florida if they wanted until 2011. In reality, if they waited until 2011, they could have got the same house for 350K.

New house was purchased in June 2014 for about 288K. It was a foreclosure that was on the market for a long time because it's a very low elevation lot near a river and canal with required flood insurance. The FEMA flood insurance program was constantly on the news around that time because the federal government said that they are going to start to pull back on funding for flood insurance. FEMA told everyone that flood insurance is going to increase a little each year for the next 10 years. From my dad's perspective he was getting a deal because the house was in bad shape. From my perspective, he was ignoring the cost of flood insurance, which is a big reason why the purchase price was lower than comps in the area.     

I explained to my father he should probably consider the cost of flood/home insurance into his calculations if this is going to be his forever home when he bought it in 2014, two months before his 65th birthday. He scoffed and said based on the lower price point of 287K that insurance doesn't matter. I explained to him that a mortgage can be paid off, but the cost of insurance will be forever and flood insurance is pretty much guaranteed to increase based on what the government is saying in 2014.

In 2020, I started to hear some unprovoked grumblings regarding the increased cost of the flood insurance. However, those grumblings were eventually evaporated by the hot real estate market. The neighbors next door sold their house for 630K in February 2022, so they immediately claimed their house is worth 800K because their house and property is larger. However, their neighbors house had much better upgrades. They gutted the house and re-did it. Their house was also 2-3 ft. higher and does not require flood insurance. In reality, at the peak, my parents house was worth 600K to 650K, in my opinion.

Post hurricane, their new combined flood insurance/home insurance is $950/month, so total PITI is around $2425/month.

My dad told me 3 days ago that they can't afford their new payment due to the higher insurance cost and will be putting the house on the market when it's complete.

Median house price for the area is 400K. Because they don't have enough equity to buy something in cash they are now going to be subject to the higher interest rates and getting a new 30-year mortgage at the age of 74 years old. I'm interested to see what happens with their next purchase. Will they buy something reasonable in their budget or stretch themselves to the max? Time will tell.

Total income for them is around 90K/year, so they are not going to starve.
« Last Edit: March 20, 2023, 07:25:14 AM by clarkfan1979 »

Dicey

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Re: Florida Real Estate: A cautionary tale
« Reply #1 on: March 19, 2023, 07:57:51 AM »
Sigh.

LaineyAZ

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Re: Florida Real Estate: A cautionary tale
« Reply #2 on: March 19, 2023, 08:56:24 AM »
Frustrating.

And I know I've mentioned this before, but 55+ senior housing can be a great option.  Worth checking out.  And your dad could make easy cash doing always-needed handyman services in that community.

scantee

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Re: Florida Real Estate: A cautionary tale
« Reply #3 on: March 19, 2023, 09:34:45 AM »
Blows my mind that they canít afford  ~$2500 in PITI even though they are bringing in $7500 a month. What in the world are they spending the other $5000+ on?
« Last Edit: March 19, 2023, 09:41:42 AM by scantee »

uniwelder

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Re: Florida Real Estate: A cautionary tale
« Reply #4 on: March 20, 2023, 07:01:49 AM »
What happened to their original Florida retirement house?  They one they bought in 2007 and then sold in 2016?  I guess they found a house they liked better in 2014, kept the original as a rental for a couple of years, then sold at a loss anyway?  Was the new retirement house that much better?

I'm also scratching my head as what they spend all their money on, that with 90-100k income, they can't afford the house or pay someone to do their taxes. 

Something I would caution @clarkfan1979 about is writing so much detail about your extended family's finances.  Writing about your own is entirely your choice, but I doubt your parents would like all this personal information revealed.  And meanwhile, here I am asking for even more info.  Maybe its because I'm asking about their reasoning, rather than financial details, but you can definitely choose not to answer.

clarkfan1979

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Re: Florida Real Estate: A cautionary tale
« Reply #5 on: March 20, 2023, 07:09:41 AM »
What happened to their original Florida retirement house?  They one they bought in 2007 and then sold in 2016?  I guess they found a house they liked better in 2014, kept the original as a rental for a couple of years, then sold at a loss anyway?  Was the new retirement house that much better?

I'm also scratching my head as what they spend all their money on, that with 90-100k income, they can't afford the house or pay someone to do their taxes. 

Something I would caution @clarkfan1979 about is writing so much detail about your extended family's finances.  Writing about your own is entirely your choice, but I doubt your parents would like all this personal information revealed.  And meanwhile, here I am asking for even more info.  Maybe its because I'm asking about their reasoning, rather than financial details, but you can definitely choose not to answer.

I will take your advice and refrain from getting more specific in the future regarding my parents numbers. The sales of the houses are public information. However, their insurance refund is privileged information and I'm guessing I may have crossed the line with that one. Because I have been doing their taxes for the past few years, it would be easy for me to make additional future mistakes and provide too much sensitive information. Thank you for the help.

Metalcat

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Re: Florida Real Estate: A cautionary tale
« Reply #6 on: March 20, 2023, 07:21:07 AM »
I also don't understand why they can't afford their home on their income.

It also sounds like they refinanced the house on top of selling stocks to cover their spending. What on earth are they spending on??

Their housing issues are tiny compared to their spending issues, which is the real cautionary tale here.

six-car-habit

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Re: Florida Real Estate: A cautionary tale
« Reply #7 on: March 20, 2023, 11:22:32 AM »
 If they sell the house, both scenarios will both be correct ---

  Dad will have gained roughly $100K on the sale of the flood-prone home [minus sales commissions, and the cost of improvements they've already sunk into it ] - and much less $$ than they had predicted. Hopefully he will not be bitter about " potential windfall lost ".
   Your thoughts that they'll get driven out by flood insurance costs is also correct, which makes it all the worse since you saw it coming, and tried to warn them away.

 To paraphrase another poster on here { sorry i can't remember who} - " Last time Dad, i gave you my best advice and you didn't want to follow it.  If you want my advice this time - should i offer my 2nd best advice instead ?. "

GilesMM

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Re: Florida Real Estate: A cautionary tale
« Reply #8 on: March 20, 2023, 12:44:13 PM »
Unless people are really keen for your financial advice, it is best not to offer it.  This goes double for family.

TheGrimSqueaker

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Re: Florida Real Estate: A cautionary tale
« Reply #9 on: March 20, 2023, 02:15:28 PM »
Unless people are really keen for your financial advice, it is best not to offer it.  This goes double for family.

When people want my advice, they ask for it. If they really want my advice, they offer to pay for it. If they aren't asking or offering to pay for my opinion, I take it as evidence that I ought to keep it to myself.

The_Big_H

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Re: Florida Real Estate: A cautionary tale
« Reply #10 on: March 20, 2023, 08:28:53 PM »
Alot of people really should just rent.

yeah its "throwing money away" but so is taking a $100k+ bath and paying thousands a year in flood insurance.


I'm also very suspicious of the term "forever home".  You cannot know where life will take you in advanced age (or really any age) or what will be ideal for you 5/10/15/20 years from now.  MOBILITY as a senior is actually quite important.  To quote an older friend of mine "your forever home is your coffin"

clarkfan1979

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Re: Florida Real Estate: A cautionary tale
« Reply #11 on: March 22, 2023, 05:12:04 AM »
The original intent of the post was supposed to be some info regarding Florida real estate and insurance concerns. However, there ended up being a rant regarding my parents and their money problems. I guess I'm a little frustrated. There is a little more to the story, but it was suggested to not get too specific with details and I think that is good advice.

Interestingly, I spoke to my brother on the phone yesterday. He actually called me, which doesn't happen often. He knew that I was hanging out with our parents for a few days and he called to ask how I thought they were doing. Unprovoked by me, he then explained that he had concerns about our parents being a little irresponsible with their spending. I think it's been slightly emotionally difficult for the both of us seeing them struggle at their older age. It then becomes frustrating when you see them do it to themselves. However, we both agreed to back off and let them figure it out.

I also wanted to say that I am thankful for this community, that I joined in 2014. From 1979 (birth) to 2011 (age 32), my biggest influencers regarding money and personal finance was probably from my parents. I appreciate their efforts. The problem is that their money advice is really bad advice. They have strengths in other areas, but money is not one of them. They are still very good people. I didn't really start to question their money advice until 2012-2013. My concerns were then validated in 2014 when I joined MMM. I am very thankful for the advice from this community and the positive impact it has had on my life. It's a little scary to think what my life would be like if I still took the money advice from my parents. 

 

Metalcat

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Re: Florida Real Estate: A cautionary tale
« Reply #12 on: March 22, 2023, 06:13:58 AM »
This place is literally filled with similar stories about people's financially irresponsible parents, mine included, so you are in very good company with many who have the same, or far, far worse stories than yours.

Vent away, IME, dealing with financially ridiculous parents is one of the most frustrating experiences like has to offer.

merula

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Re: Florida Real Estate: A cautionary tale
« Reply #13 on: March 22, 2023, 07:23:10 AM »
I work in property/casualty insurance. $950/month including flood is going to look crazy cheap in 10 years, so getting out now is for the best. The entire Florida insurance market is in a death spiral and these new regulations aren't going to fix the core problem of climate change.

jinga nation

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Re: Florida Real Estate: A cautionary tale
« Reply #14 on: March 22, 2023, 09:47:42 AM »
@clarkfan1979 I have a few rentals in the Tampa Bay area. Insurance increases are 20-30% annually, that's inland, not in flood zones. Plus property tax increases that are absurd. I'm contemplating selling as prices are 3-4x from when I purchased.

clarkfan1979

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Re: Florida Real Estate: A cautionary tale
« Reply #15 on: March 22, 2023, 01:19:08 PM »
@clarkfan1979 I have a few rentals in the Tampa Bay area. Insurance increases are 20-30% annually, that's inland, not in flood zones. Plus property tax increases that are absurd. I'm contemplating selling as prices are 3-4x from when I purchased.

@jinga nation I have one rental in Fort Myers that is not in a flood zone and about 3 miles inland from the gulf. My insurance went from $950 in 2020 to $1450 in 2021 and $2150 in 2022. This is all pre-hurricane Ian. My current policy expires August 7, 2023. I will get pricing for my new policy around June/July. The original policy provider (United Casualty) already left the state of Florida. They sold my policy to another company (Slide Insurance) about 6 weeks ago. Due to the hurricane there is a housing shortage and I'm expecting continued rent increases every year, so I"m keeping my rental at the moment.   

merula

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Re: Florida Real Estate: A cautionary tale
« Reply #16 on: March 23, 2023, 08:06:08 AM »
Y'all may get a short term reprieve in rate hikes with the new insurance legislation that was passed, but unfortunately even things that are "inland" in Florida are still showing up in the long-term wind models as being subject to potential total destruction within 30 years.

Basically the insurance companies are trying to collect the total replacement cost of your property over 30 years, plus non-wind perils, plus expenses and profit. 

Chris Pascale

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Re: Florida Real Estate: A cautionary tale
« Reply #17 on: March 23, 2023, 09:17:32 AM »
Sorry for your dad. I bought a home in NC in 2007 after balking in 2004. I balked because I didn't know the area very well and about to go to Iraq, so it wasn't an all-round terrible decision to wait.

The home I bought for $113,000 in 2007 was sold in Jan., 2020 for $131,000, bringing me a 1.1% return...........if you don't count any other costs.

Currently worth $207k, per Redfin.


 

Wow, a phone plan for fifteen bucks!