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Waiting for Your Banker with a Handgun

By Tom Dyson, publisher, The Palm Beach Letter
Friday, August 24, 2007

Last night, I had dinner with a businessman, Paul, in Fort Myers, Florida...

"We were driving down this back street," said Paul. "There was only one house on the block. And that was the house we were looking for..."

Paul loves buying cheap houses from distressed sellers. He studies the county records every day, looking for people who can't afford their mortgage payments. When he finds one, he drives out to the house and offers the owners an escape route: Sell their house to him.

"As we pulled up to the house, we spotted the owner in a lawn chair. He was in his underwear and, between his knees, he was clasping a large revolver with both hands. He was waiting for his banker. I didn't even stop the car..."

Fort Myers is in southwest Florida, about 100 miles from Miami. It's a beautiful place. The weather is great, and the beaches are a cliché of tropical paradise. Put it this way: In 2005 and 2006, Fort Myers had the hottest property market anywhere in the country... even hotter than Miami... or Las Vegas. House prices tripled in five years. You could say Fort Myers was the epicenter of the nation's housing bubble.

This year it's a different story. Fort Myers now has 27 months of existing supply (compared to three months at the top of the market). Banks are dumping huge inventories of houses, newspapers are full of sensational bust stories, homebuilders are going broke...

And now Fort Myers residents greet their bankers with handguns.

Hovnanian is one of the largest homebuilders in the country. It has operations in 19 states and 48 markets. Altogether, it offers homes for sale in 427 communities around the country. Last week, Hovnanian's CFO called Fort Myers "by far the worst market we're in."

I'm starting to suspect that we're near the bottom in Florida real estate... and it's time to start buying. So I came to Fort Myers – the epicenter – to find out. Last night, I had dinner with three local business owners in the Fort Myers real estate scene.

Jim is a senior executive in the SW Florida Real Estate Investors Association. He takes investors on bus tours of Fort Myers, showing them foreclosed properties, and teaches them to invest in distressed properties.

Paul and his wife own a title company here in Fort Myers. And they own property all over the country... from Fort Myers condos to farmland in Ohio.

Basically, these three people have a fantastic view of conditions in the local market. The vote was unanimous:

Now is a fantastic time to be buying property in Fort Myers.

Prices in Fort Myers are down about 50% from the high 18 months ago, they told me... no joke. The banks are feeling the pain, and they're dumping more foreclosed properties onto the market every month. If you know where to look, they said, buying properties for 60 cents on the dollar is the norm.

"There may be further to go still," said Paul. "There's so much inventory still, it's like trying to squeeze a pig down a hosepipe. And ARM resets will peak next year. I think the bottom will probably hit early 2008. I'm not trying to time the market though. I know if I buy now, by 2009, I'll be in great shape, no matter what happens over the next few months."

I asked them if there was much competition.

"There are a few other people out there like us," said Jim. "But there's more than enough cake for everyone."

Later today, I'm meeting up with a developer and a realtor. I'll give you the full update in my next column...

Good investing,


Market Notes


Two weeks ago, Bear Stearns CFO Sam Molinaro called the subprime mess "the worst fixed-income market I've seen in 22 years." The mini-panic sent the Dow down 300 points on the day. Gold, the ultimate "anti-panic" asset, responded to the news like a bump on a log.

We don't get emotional about gold... we don't think the U.S. dollar is collapsing anytime soon... and we don't stack canned ham, bullets, and drinking water in the basement. We own gold like a beachfront resident owns hurricane insurance... with the hopes of never using it.

Yes... the failure of gold to rise during our great credit panic has knocked a dent in the bull argument. One of the most ominous signs for an asset is the failure to rise on bullish news. Gold's string of "higher highs and higher lows" is in jeopardy.

So what does a long-term gold investor do if gold continues its soggy behavior and breaks its uptrend? Use the "insurance sale" to accumulate more ounces.

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