There are many people moving to St. Pete, Florida and a lot of them are realizing it’s a great place to stay for the long term. When you settle in for the long term it seems natural to find a place to buy and make your own. There are a lot of factors that go into buying a property and some of those factors are specific to St. Pete. This article will go over the frequently asked questions that I get on a day to day basis at work as well as the real estate questions I see pop up on the St. Pete Subreddit. My goal is to provide an all around guide to explain general factors of home buying as well as the factors that pertain specifically to our local area. Some topics we will cover include buying vs renting, flood zones, home construction, different types of financing, single family homes versus HOA living, income properties including AirBnB, appreciation vs inflation and more.
Buying vs Renting in St. Pete
I decided that I will be in St. Pete for the long term so I bought a condo instead of renting an apartment. Here are my reasons for doing that.
1. My payment is now fixed. I pay about $900 a month with my mortgage and HOA fees. When I first moved to St. Pete in 2013 my apartment was $700/month, that same apartment in 2017 now rents for $1,250 because the demand for living space is increasing as the population goes up.
My condo is also bigger and nicer than anything I could rent for this price. One day I added up all the rent money I had paid while living in Florida and it was close to $40,000 that I’ll never get back. When you buy you will have a predictable payment instead of wondering how much your landlord is going to jack up your rent when you renew your lease.
2. I’m building equity. Let’s say hypothetically my property is $100,000. In 5 years I hope to pay off $20,000 of that and if it appreciates at a conservative rate of 5% which is $5,000/year, in 5 years I will have $25,000 worth of of appreciation for a total of $45,000 in equity. Once I get to this point I will open up more options for myself. One plan is to use this as an asset to help me purchase more property in which I will rent out and get monthly passive income. Another plan is to use this equity to start my dream business once I get to that stage of my life.
3. I have my own place and I don’t have to move. There is a big peace of mind you get having your own place and not having to worry about where you’re moving next. I’ve also dealt with less than stellar landlords before which has added unnecessary stress to my life.
4. Tax write offs. I’m able to write off the interest on my mortgage payment and my property taxes as a tax deduction. Mortgages are structured to pay off the interest first, so the vast majority of your mortgage payment will be a great tax deduction when you first own your home. As a 1099 employee I’m also able to write off the square footage of the second bedroom in my home because I use it as an office.
This is one of those things that is important to pay attention to if you’re going to buy in St. Pete. If you finance a home in a flood zone then your mortgage company will require you to carry flood insurance. This can sometimes double your insurance premium and on average add about $100-$150/month to your payment. Even if you buy your house for cash, it is smart to carry flood insurance because your regular homeowner’s policy will not cover damages in the event of a flood.
So should you avoid flood zones? I don’t think so but I would suggest being aware of how this could affect you. There are many different flood zones with different elevations that all are effected differently when it rains. For example Shore Acres is notorious for flooding. I would only feel comfortable buying a home in Shore Acres if I owned an SUV or some sort of lifted vehicle. These roads often turn to rivers, and I have personally experienced the hood of my low sitting car going underwater.
Keep in mind that not all flood zones are created equal. If I see a property in a flood zone and my client is interested, I will ask the neighbors how long they’ve lived in the area and what kind of flooding they’ve seen. Some of these neighborhoods are in a flood zone based on their elevation but their drainage systems are effective so it’s not as concerning.
When you start your home search you will notice that the homes in St. Pete have been built at different time periods over the last 100 or so years. There are primarily two different types of construction in Pinellas County, wood frame and block. Sometimes you’ll find a home that has a combination of the two, however most times it’s one or the other.
Wood frame Construction
In the early 1900’s through the 1940’s, the majority of homes were wood frame construction. There are pro’s and con’s to owning a woodframe house.
The advantages – Many of the homes from this time period are gorgeous. Have you ever seen some of the restored bungalows in neighborhoods like Kenwood, Old Northeast & Old Southeast?
They are many times something impressive enough to be on HGTV or in a magazine. Everything from the unique architectural styles to the original windows and wood flooring make these types of home unique.
What are the downsides? Well these older homes are typically higher maintenance and usually have higher insurance premiums than a similar sized block home.
Wood frame homes are susceptible to termite damage and this may effect the structural integrity of your home if it isn’t maintained properly. The insurance is a bit higher because they’re not quite as sturdy as block homes when hurricane force winds come through.
Concrete blocks form the exterior walls for block construction. This is the primary type of construction in homes from the 1950’s to the present day. If you’re looking for an affordable payment on your home, a block house in a non-flood zone is your best bet.
Unlike wood frame homes, block homes are more likely to hold up against hurricane force winds which is why their insurance costs are usually lower. Block homes built in the 1950’s typically have bigger bedrooms and closets. This is also the time period when attached garages started to become commonplace.
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Your choice for financing is best evaluated on a case by case basis. Depending on the type of property, credit score, down-payment and special lending programs, there will be multiple options to choose from and you will need an experienced mortgage professional to help you figure out which is the best fit for your needs.
I’ll be happy to refer you to one or two of our preferred mortgage lenders who can both give you rates. It’s best to shop around a bit and make sure you’re getting the best possible rate. Your credit will be lowered a bit when you have a lender pull your credit history for a possible mortgage however if you have multiple lenders pull your credit within a 30 day window, you will only take a hit for one.
As of today July 23rd, 2017 there is a downpayment assistance program that offers a $15,000 grant for first time home buyers. This program is for people that make less than 80k a year and can be applied up to a 312k home.
The government fund that provides this grant is expected to run out before the end of the year so I will need to update this blog post when that happens.
You will more than likely need to speak with a local lender that is well versed with this program because it is funded on a local level and national lenders will not know how to navigate this grant program. Different lenders usually offer different programs so it’s smart to ask around.
Single Family Home vs HOA
With any real estate purchase you make, there is always going to be a trade off. You may find an amazing home but then realize the flood insurance premiums are too high for your budget.
You might find a beautiful condo but then realize the HOA fees are too expensive when you factor it into your monthly payments. Perhaps you find the perfect townhome but they only allow dogs half the size of yours.
Like most things in life you will need to consider all of the factors to make an informed decision and find something that best fits your lifestyle. With that said, let’s explore the factors that go into deciding whether a single family home or a condo/townhome that’s part of a homeowners association is a better fit for you.
Living With A Homeowner’s Association (HOA)
I live in a condo that’s part of an HOA and I personally love it. My lawncare, security, roof, exterior maintenance and pool is all taken care of. Most of the things that I pay for through my HOA fee I would be paying for any way if I lived in a single family home.
My monthly HOA fee is currently $353 which covers many things I would have to pay for anyways. The rest goes into a reserve fund to maintain the parking lots, roofs, pool and any other community amenities.
Another benefit to me is that many of these things would take up some of my personal time which I would rather use for things that I actually want to do. I love not having to worry about my home, just lock the door and leave for however long I need to.
With that said, there are restrictions. If I wanted to own a dog larger than 20 pounds, I wouldn’t be able to. If I wanted to paint my door or rent out my unit, there would be an approval process. I share walls with other condos so I’m conscious about how loud I am. Luckily our walls are pretty thick so I can’t hear my neighbors and haven’t had any complaints from them yet.
Thankfully my association is pretty relaxed however these associations sometimes bring out the worst in people and you may have a neighbor who reports you for having the wrong kind of decoration outside, or possibly a different neighbor that calls the cops on your cat.
Single Family Homes
If you want to maximize your personal freedom you may find that a single family home is better for your lifestyle. If you have a dog, it is great to have a fenced in yard and a dog door.
If you want to do your own personal projects and customize your home the way you’d like, a single family residence will be better for you. If you don’t want your neighbors to be too close, this is also the preferable choice.
Usually single family homes will provide much more personal space both inside the home and outside in the yard. It’s also great to know that one day you will pay off your home and not have to worry about HOA fees, just taxes and insurance and the home is all yours.
The downside of a single family home is the time it takes to maintain your residence. Factor in a couple hours a week to maintain your lawn, plan to have money in reserves to replace your roof and be sure to have someone that is willing to look after your home if you’re gone for an extended period of time.
There are a few different ways to make money off of rental properties in the St. Pete area. First of all, let’s talk about the standard rental market. Our rental market is really strong right now, we are at about 95% occupancy for all rentals in the area. There are a lot of people moving here and most people choose to rent before they commit to buying. These properties are the most predictable, safe and low maintenance rental properties that you will find.
Can you buy any property and expect a good return? No not really, you need to look into properties and crunch the numbers to see what kind of return you can get relative to the purchase price of the property. You also need to factor in any future maintenance, taxes and insurance. These are all a case by case basis and we can help you once we learn more about your real estate goals.
One good place to start is to check out neighborhoods that are going to see appreciation. On top of rental income, you want your property to be going up in value as your renters are providing a return on your investment. Get your search started with the The Top 5 Up & Coming Neighborhoods In St. Pete.
Living in the 21st century we also have the luxury of using our personally owned residences as short term vacation rentals through services like AirBnB. Although many people are able to make money from these services, it is smart to check in with your cities regulations on these short term vacation rentals before you buy a property primarily for that purpose.
Right now the city of St. Pete is currently pretty lax on these regulations however many cities like New Orleans are cracking down on their citizens using personal residences for short term rentals. There are rules in place in St. Pete, however they just aren’t really enforced yet. If this is something you’re interested in we can help you research the potential options and income for a short term vacation rental property.
Another rental market in St. Pete is for those who rely on government assistance. Section 8 renters typically live in low income neighborhoods and they depend on a government stipend to have a roof over their head. Investors can pick up these homes for relatively cheap however it’s a bit of a risky business because your clientele may or may not respect your property.
These renters get a government stipend that may partially or fully cover their monthly payment. Some of these folks rely on government assistance their whole lives and are happy to rent out your home and treat it as their own.
Appreciation vs Inflation
Many people throw around the B-word when talking about the current market in the Tampa Bay Area. The B-word is Bubble. Some people think that we are currently at the height of the market and there will be a bubble that bursts causing property values to fall. It is true that real estate markets are cyclical but let me explain why we will never again see fluctuations as big as we did during the financial crisis of 2008.
Starting around 2005, banks were handing out loans to literally almost everyone that asked for one. There were very little checks and balances, just a lot of people with the ability to buy homes which created a ton of competition for the inventory that was on the market. With the limited inventory, prices shot up and many new construction homes were built with the assumption that the demand would stay high since there were so many people “qualified” to buy a home.
The truth is the vast majority of these people should have never been qualified to buy a home, my sister for example was a 20 year old waitress at a local diner and was able to get a mortgage for a 260k home.
During this time adjustable rate mortgages were being handed out. The people who signed up for these loans were under the impression that they could just refinance at a lower interest rate a few years later to keep their payments down.
This however was not the case – interest rates started going up resulting in higher payments and most people could not afford to stay in their homes which resulted in an enormous amount of foreclosures.
So why are things different now? The process to obtain a mortgage is now more rigorous than ever. These guidelines that are used today are a result of the irresponsible lending standards that resulted in the housing crisis.
With that said, there are still a ton of people moving to the Tampa Bay Area and many of them are realizing it is more financially savvy to buy a home here than to deal with rising rent prices every year.
In 2005 there was artificial demand for housing because an enormous amount of people that shouldn’t have been able to buy homes were suddenly able to. In 2017 in Tampa Bay, there are a ton of people trying to buy homes but the difference is that the demand here is tangible.
These people are all qualified to buy homes and the development in this area is only increasing the desirability to live here. Since this is such a hot topic I wrote an entire article with more research and information regarding Inflation vs Appreciation in the St. Pete area.
There is a lot to consider when investing in property and it’s important to educate yourself when making a real estate investment. Remember this -Not all property purchases are going to be a good investment. As you’ve learned in this article, there are many factors that come into play and you need to be aware of all the factors that go into buying a home. There are a ton of real estate agents and many of them won’t necessarily give you the full picture before they make the sale.
I would suggest finding an agent that has at least a few years experience for two reasons – They can provide you with a more accurate full picture of what you’re getting into and also they more than likely won’t be desperate to make a sale so they can take the time to look out for your best interests. As you may already know, St. Pete is an amazing place to live with a little bit of something or everyone. Best of luck to you on your real estate search!
Chris Formico & Ryan Eisenhower