Orlando, FL: 22.5% Return on Investment (2011)
The city of Orlando experienced a tremendous increase in market prices from the year 2000 through 2006, and a downward correction in prices since the beginning of 2007. As 2010 concludes and 2011 unfolds, we expect to see prices stabilize and regress toward a long-term linear growth trajectory. Currently, approximately 68% of listings are from foreclosures.
In practical terms, prices in Orlando have declined to less than half of what they were at the peak. This has resulted in a tremendous improvement in the ratio between cash flows and the price of investment properties. However, the extensive inventory of foreclosures is still being worked through by the banks, and is expected to suppress future value appreciation. The current situation is a case where values in Orlando grew so rapidly that they no longer justified income property investment, but have now adjusted down so that they are back in line with the underlying economic fundamentals. The city economy is very heavily intertwined with the entertainment industry, so it is likely that a full recovery will lag the overall economic recovery.
The combination of these market dynamics create an environment that is friendly to investors because of cash flows that have strengthened significantly, and values that have the potential to rebound from a precipitous decline as the inventory of foreclosures are dissipated. With multiple foreclosures currently available, investors may have the opportunity to purchase properties near or below the cost of construction. This can create ‘natural’ price appreciation as market values regress toward replacement value. This effect will only happen when net in-migration resumes and new construction begins again. However, for people who took action at the right time, it can be a tremendous opportunity for gain that is hiding behind a shroud of current economic difficulty. These factors make the Orlando area worthy of consideration.