Insurance Impact Fees and Taxes

Volume 5 Number 2 January 12, 2007
Insurance, Impact Fees, and Taxes
From Will Rogers, "...out here I had been putting what little money I had in Ocean Frontage, for the sole reason that there was only so much of it and no more, and that they wasn’t making any more..." April 13, 1930 (Note: this is the line that is often paraphrased to say: put your money in land, because they aren't making any more of it. This is the most "famous" of the Will Rogers quotes on land or real estate.)
Real Estate has not changed much since 1930, they still are not making any more waterfront land, but now what land there is, is getting taxed, insured and other wise burdened with the ever increasing cost of government.
As investors in commercial and residential property here in Florida, the triple whammy of Insurance, Impact Fees, and Taxes will open up opportunities for us, not just problems.
Older properties are costly to maintain and insure, and yet on the other hand new properties will be much more expensive to build and permit. In between lie the opportunities; opportunities in newer construction and buildings that are under construction.
(By the way, Hurricane Charlie’s EYE OF THE STORM went right over my then brand new Grand Isle in Burnt Store Marina – I had ZERO damage to the condo and only minor damage to the roof air conditioner units. New construction with out a doubt in my mind can withstand amazing stress.)
My update to Will’s famous quote would be something like, “Buy properties that have been built since 1994 but before they raise the impact fees in mid 2007, cause after that it will be too darn expensive to build.” Once this inventory is gone, those condos and buildings that need to be built after that – will be SO much more expensive.
Let’s take a quick look at each of the three “challenges” we have – Insurance, Impact Fees, and Taxes and where they may actually open up an opportunity for us:

Insurance
The Problem: Skyrocketing insurance premiums for improved property.
Very simply, older buildings cost more to insure than new buildings. Older income properties will have to increase common area insurance charges to their tenants and will sometimes cost more to rent than newer builders of a like kind, just because of the higher CAM charges. Older condo will have condo associations that will have to pass through VERY high insurance premium renewals.
Furthermore, when income properties change hands the new owner will have a higher insurance cost than the previous owner. (I am not sure why, but we have seen this to be the case time after time) - This means that sales prices will have to be adjusted to compensate for the lower returns cause by higher insurance costs or simply the higher cost of ownership, in the case of residential.
High insurance costs open up opportunities to the knowledgeable buyers that make use of this information to either negotiate a better deal or make a smarter buy on a newer building. Smart investors will make sure that their leases are drawn up properly with insurance costs pass-throughs. This puts the burden of the increasing insurance cost onto their tenants.
Savvy investors also realize that many tenants will be vacating older expensive leaseholds in favor of buying new energy and insurance effective buildings. This is why new office condos like Brantley Commons are selling well.
Impact Fees
Road impact fees are the fees that a builder or developer has to pay the county for the right to pull his permits and the money theoretically goes to build roads. These impact fees are set to triple come the end of this month. This means where the road fees were about $3000 for a single family home they will now be about $9000. A 10,000 square foot office building road impact fee was $23,000. Now it will be $74,000!! For the full schedule of ALL impact fees click here.
There is a mad scramble by builders, developers, and architects to get their plans submitted in time to get under the fee increase deadline the end of this month.
The buildings that will miss this deadline are simply gong to cost that much more to buy or rent. What is the effect of this? Higher costs for every one. Make no mistake, prices will not come down lower to meet the pre increase price, all buildings will ratchet up in price to the new levels.
What is the opportunity? Buy buildings that did not have to absorb these higher costs; lock in rental and purchase prices now. This big inventory we now have DOES NOT HAVE THESE FEES ON THEM.
Soon there will be a slow down in building, which will decrease supply, which in turn will increase prices because of the demand imbalance. We need to buy at the right time in this cycle.
Existing buildings, residential or commercial are a wise buy – until things even out because of supply and demand. (This is a GOOD time to buy). Let me put it to you this way, if I told you that there would be a mandatory price increase from all sellers on every building that will be built after, say June 1st, wouldn’t it behoove you to buy NOW? Of course it would.
Taxes
The Save our Home Initiative places a limitation of 3% on annual assessment increases on homestead exempt property. This generally is a good thing. But the unintended effect of this SOH was to, in essence, trap home owners in their homes. Many cannot afford to move and lose this ceiling on their taxes. Ken Wilkinson, the author of SOH, is a big advocate of the portability of this exception (See article here). Until this portability issue is addressed and approved, taxes on all new homes and commercial property will be the same. Homesteaded property will, however, have only a 3% increased in assessed value.
Once this portability is approved there will be many opportunities in the residential market. Homeowners that want to down size or simply change residences will be able to.
For more information on this issue, please visit www.leepa.org and click on Exemption Information on the left column.
As buyers of real estate in Lee County, Florida, you must have a thorough knowledge of the issues I mention above. My conclusion and I cannot repeat this often enough, is that prices will go up, not down. Be it a second or first home or an investment property, now is the time to buy.
To find our condo opportunities: www.investinwaterfront.com.
For some of our commercial listings click here
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Thanks! Happy New Year!
Gregg Fous
Gregg@ma-realty.com
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