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6 Bedroom Penthouse at Jade Beach Goes Under Contract – Asking Price $11M

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Yesterday, the spectacular 6 bedroom/7.5 bath penthouse at Jade Beach went under contract providing additional evidence that the luxury market in South Florida is flourishing.  The 3-story penthouse has 8,210 square feet of interior and 5,791 square feet of terrace.  The asking price is $11M, or $1340 per square foot, and is being offered fully furnished.  No word yet on who the buyer might be or how much was offered.

Recent Luxury Sales within the Past 30 Days

  • 88 La Gorce sold for $16M on June 11, 2010
  • The Setai Penthouse B sold for $15m on June 4, 2010
  • Santa Maria Penthouse 4901 sold for $11M on May 21, 2010
  • One Bal Harbour Penthouse 2108 sold for $8.7M on May 25, 2010
  • 40 La Gorce sold for $7.4M on June 11, 2010
  • Apogee #904 sold for $6.55M on May 21, 2010
  • Ocean Tower One #501 sold for $5.2M on June 3, 2010

Jade Beach penthouse terrace

Jade Beach penthouse terrace

3-story penthouse

Grand piano in Jade Beach penthouse

dining room

ocean view

living room

Master bedroom

Master bathroom


165 thoughts on “6 Bedroom Penthouse at Jade Beach Goes Under Contract – Asking Price $11M

  1. This is one nice penthouse! Actually a large unit vs these ‘penthouses’ that are 1 bedroom and located on a top floor.

  2. Wow, so about a month ago we had Renter Tom and Joe talking about how there were NO sales in the luxury market. But now we have post like this from Lucas showing luxury sales and quotes like this from the WSJ:

    “In Miami, 21 such sales of $2 million or more were recorded in the first quarter, up from 15 last year and close to the 23 that sold in that time five years earlier.”

    And it’s not just sales over $2 million. Here is chart showing sales and inventory of condos in Miami-Dade priced $750k and above:

    Sales in the last 3 months are up 71% over the same 3 month period last year. And if you look at the price per square foot of ONLY those sales you see that the months where the sales have gone up so did the price per square foot.

    So the increase in sales is coming from selling more expensive properties.

    And since Joe loves Miami Beach here is the same information just for Miami Beach:

    Sales up 140%!!!

    And again looking at the price per square foot of these sales they are clearly coming from selling more expensive units.

  3. Gixx:

    Not to rain on yet another one of your parades of “sunshine an lollipops” – – BUT I am curious.

    The charts you provided are nice. I enjoy a good bar chart just as much as the next guy. The problem with them, with all due respect to the nice folks at EWM – – is that these charts, as is always the case, merely summarize data.

    Do you have any numbers concerning these sales? Basis figures would be most helpful (cost, transferred, stepped-up, grossed-up, etc.)? While you are digging, if you can rustle up the bid and ask figures for comparison.

    Why? Because these figures answer the unanswered question common to the majority of your posts; that being: “what is really going on here?” Are “Whales” suddenly snapping up these properties – – – or, once again, are these sales more a reflection of market correction?

    Just curious.


  4. Once again you try to talk in complete babel with no understanding of what the heck you talking about.

    You want the bid price???? This ain’t the stock market genius, there is no bid price. Stepped-up , grossed up, etc. have to do with the market value of a property received from a decedent. Why on earth would you need to know the stepped-up basis for a real estate property??????

    I’m assuming that what you want is the individual ASKING and SELLING prices. And no I don’t have that every condo sold. Here is the closest thing I have:

    With a sample size of 348 condos the average condo sold for 5.8% less than the asking price.

  5. Gixxer 1000 — I love how you always (shamelessly) argue both sides of every issue so that you can never be wrong. In the other thread, you argued that the declining median sales price was due to a larger number of low-priced condos being sold. But now you’re cherry-picking a small number of $10 MILLION sales and pretending they’re representative of a booming market. Seriously, do you have any shame?

    Anyway, those charts you just posted show there’s still well over a 3-year inventory of condos priced at $750k and above, and, as I’ve been saying all year, it’s even higher if you look at truly luxury properties priced at $1M or $1.5M-plus. The truly luxury segment’s inventory = 48 months the last time I checked (last month). Hardly a booming market.

  6. Gixxer 1000 — Since you’ve been dodging this for a week — as is your habit when you get caught posting B.S. — I thought I’d bring this over from the “Miami Real Estate Review” thread …

    Gixxer 1000:

    This is what you said in post #17 [in the other thread]: “And again keep in mind this is information for the entire area.” (Pay special attention to the “entire area” part.)

    … and this was your quote/rebuttal in post #25: “… Although in most areas the median price is going down. Which is why Joe is arguing that the VALUE of houses must be going down because the median price is going down.”

    – Since you were clearly talking about median prices for the “ENTIRE AREA” — those are your words, not mine — rather than one particular neighborhood or another, I will ask again: Please show us an example of a long-term trend of home values RISING concurrent with DECLINES in the median sales price in that same area/region. Thanks.

  7. Joe,

    For the millionth time I’m not claiming the market is booming. The market collapsed and I now believe the market has stabilized.

    I’m not answering you’re question because I have already answered them. If you don’t understand my response I’m not going to keep repeating myself.

    I argue both sides because those are the facts and the truth is probably somewhere in the middle. Again for millionth time I’ve argued that the market will probably only be up 1-2%.

    The ENTIRE AREA is SOUTH FLORIDA. The Miami MSA INCLUDES all three counties. When most national places quote data it is for the entire MSA. Take case shiller for example, it is for the entire MSA. National people don’t care about the difference between Miami or Ft. Lauderdale.

    I agree that the numbers for the ENTIRE AREA are still going down. Heck I also agree that most places in Dade county are still going down and I pointed that out.

    Where have I claimed that the median price is going down and the value is going up??????

    The median price in Dade county is going up. The majority of that increase is simply from people buying more expensive units. So while there are zip codes showing 13% increases I would guess that the VALUE in those zip codes is probably only up 1%. Which is the same thing I argued about median prices going down.

  8. A few days ago iphoneapp guy asked something to the effect of “what happened to this blog?” as in “why has the quality deteriorated?” I don’t blame it on Lucas, but blame it on the mind-numbing, uninteresting, recurring debate among a few about median and mean values, case-schiller, year-over-year and the like. As a result, the humor has been completely sucked out of the blog too.

    Nobody else is posting anything else because no one else gives a sh*t about this particular issue…and the recitation of a bunch of stats is really not that enlightening or appealing to everyone (Sorry to break that to you, Gixxer. I know you feel otherwise.)

  9. The facts are the pull on the upside for the first quarter is off 3 percent in volume less gross. If you consider there are 395,000 unemployed if you discount the mean by a minimum of 7 percent, refactor in seasonal adjustments, discount for labor surplus factors in the future of 11 percent, you can clearly see there is as much downside as upside. The motivational equation relates to a quantum theory of absorbtion rates of -11 percent. Please note these statistics have not been updated or fully realized as of last week. If California reports a gross mean derivation of above 5 percent we can then realize a possible break even point in the second quarter, based on proper reporting.

  10. Drew — I mostly agree with you. I just comment on what’s here. Since this site doesn’t have a message board, the same arguments get rehashed in every new post rather than in a single thread. But regardless, I think most people are just burned out re: r.e. The boom is over and the bust mostly continues, at least in the sense that people can no longer buy today, with $0 out of pocket, and then flip next month for a 30% profit.

    Moreover, as much as I enjoy the r.e. porn that Lucas has been posting lately, all these articles about $10 and $20 million penthouses are useless for 99.99999% of the buyers out there.

  11. “In Miami, 21 such sales of $2 million or more were recorded in the first quarter, up from 15 last year and close to the 23 that sold in that time five years earlier.”

    In miami there are over 1000 properties with asking price of over $2 million. Most of them are asking over $2 million so no one makes any offers and the owners continue to occupy the property for years without paying mortgage, taxes and HOA. BEAT THAT!

    ANYONE want to talk about these deadbeats living lavish life style and driving their Hummers?


  12. The Miami Real Estate Review FaceBook Fan Page has a discussion tab. There you can create topics for discussion just as you would on a message board. My guess though is that many won’t use it since they would lose their anonymity.

  13. Gixx:

    Easy now.

    For the past 7 or so years folks have been treating real estate like stocks; effectively day-trading them in high-speed flipping transactions. Is it so unreasonable for me to throw financial jargon at you now? Really?

    I am not trying to harass you. But when I see a person such as yourself expending the amount of time and energy trying to make a point – – and I note that no matter how much spinning you do, arguing that real estate prices have reached a bottom is not an easy argument to make – – I don’t think it is unreasonable to hold such a person over the flames of scrutiny and demand facts/evidence, supported by adequate rationale, justifying their conclusions. Reliance on median values, third-party prepared statistical summaries, and charts and graphs – – not good enough. This is not checkers my friend. It’s chess!

    As for the link you posted: THANK YOU. Raw data! Numbers to crunch!

    The number of REO’s and short sales is particularly interesting and should be useful in compiling a working analysis. It seems to me that the number of REO’s, property that a mortgage lender takes back into its “care” as a result of a foreclosure on a home that has not yielded a buyer during a foreclosure sale, is statistically significant and indicates that the market is still in a “correction” phase, not a “bottom,” because outstanding mortgage lender sale transactions will impact, adversely or otherwise, the value and timing the market’s “bottom.”

    After all, REO’s force lenders into a “must sell” position because when a bank owns real estate, it stays on its books as a “bad loan.” A bank can only have a certain percentage of bad loans – – after all, shareholders pay attention to debt to equity ratios – – so the Banks are motivated to get rid of the property as soon as they can.

    The presence of a large number of short sales could enhance the impact of REO’s in such an analysis, but maybe to a lesser extent. But that’s a discussion for later.

    The link you shared – – thanks again – – contains a lot of these. While the “discounts” – – however that term is defined – – varied, a pattern does exist.


  14. Spot on Lucas, These paper tigers will become exposed in face book page. So they would not go there but rant here instead.

  15. I have noticed more REO units cropping up in the buildings I follow. In the past, they tended to disappear quickly. Recently, however, they are staying much longer-some have been there over 2 months. But the sales lists are dominated by short sales-which i have not bothered with as of yet.

  16. gables:

    That is a great observation! And it is one clearly supported – – brace yourself Gixx because here comes a compliment- – by the data Gixx linked to in his earlier post. The tabulated data shows quite a few REO’s.

    Part of this could be that short sales are are more attractive to the lender because, in cases where the proceeds from the sale do not cover the outstanding debt obligation, the lender may be able to pursue collection of the outstanding deficiency from the new buyer. Where as in a REO, the bank/mortgage lender may remove some or all of the outstanding debt obligations in its effort to sell the property.

    Good call!


  17. I would also observe the REO list prices appear to be higher than they were a while ago, when they disappeared off the list quickly. Dont think its a coincidence. banks are asking for more, but buyers less inclined to see the price as a deal compared to a year ago-thus the longer time on market.

    Lucas, are you seeing more REO units? Are banks aggressive in moving these units?

  18. why bother — I don’t even belong to Facebook. If you think I’m going to join Facebook just to argue r.e., you’re even more nuts than I thought.

  19. “For at least the last two quarters, lenders have been making a sincere effort with borrowers – especially primary users – to modify mortgages or short-sale properties in hopes of avoiding foreclosure,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “Lenders have finally realized that the price that can be obtained for a bank-owned property is virtually the same as for a short sale where the borrower is able to sell at a price that fails to repay the mortgage. The difference is, a short sale is becoming relatively immediate while the foreclosure process in South Florida takes an average of 18 months and costs about $100,000 per property.

    Foreclosure filling statistics for Dade county:

    May numbers were down to 2,619. Monthly numbers only go back to the beginning of last year but I’d guess 2007 was the last time they were that low.

    Also here are actual foreclosures so far this year:–20

    Dade county is at about half of what it was last year. There is a clear shift from foreclosures. And the HAFA program that provides financial incentives for short sales began in April if I remember correctly.

  20. I could care less about ” Asking Price $11M”…what matters is the actual sales price itself and if to a real buyer…not some shell LLC.

    I too have noticed more distressed inventory on the market in the areas I have looked at. It seems that the bank controlled (REO’s and SS’s) shadow inventory is just starting to leak out more…

    This oil thing is getting ridiculous…

  21. Grixx, I think you are wasting your time with the likes of joe, RT and gables. As I have stated on this blog for almost 2 years now, these guys will never buy a condo. Trying to argue with them about the bottom of prices is pointless. I think it has been very clear to even the casual observer and anyone with even a little common sense that if they were serious about buying and were ready to buy then last year was the time to do so. They have given 101 reasons why it is not a good time to buy a condo. Every day we hear about people who have legitimate concerns about economy, housing, finances, etc. but still muster the courage to put their hard earned money to work buying condos anywhere from 20K – 20M. There have also been more than a few stories about people who bought during the past year and have already realized a handsome return on investment. The gloom and doom crowd have been proven wrong already, it is pointless to argue with them. Why should we listen to these clowns on this board? Why are there opinions any more valuable than a drunkard on the corner? They are like the middle aged heckler at the game wishing they could participate. Since when does having an ill informed opinion make them an expert? What I can’t understand is why do you feel the need to rationalize with Joe? Maybe it is your youth, you probably still think if you show people concrete, undeniable proof backed up with real numbers they will understand and finally see things your way, right? Well the world doesn’t work that way, the world is full of folks like Joe. Right now investors like myself are buying real estate without even taking into consideration future appreciation. The returns on these properties are so high any appreciation is just icing on the cake. I trying my hardest not to over invest in RE and keep a diversified investment portfolio but it is hard to stay disciplined when you are seeing these returns. Maybe I should be thanking the gloom and doom crowd because these values won’t be undiscovered for too long, eventually even the Joe’s of this world will get hip to the game.

  22. Makes Me Think — From the sound of your last post, you don’t actually think about much.

    How has the “doom and gloom crowd” been “proven wrong”? Until appreciation starts to kick in again, renting is still the smarter play for an owner-occupant, while most investors are saying that they’re mostly breaking even on renting out their units. Common sense says that if rental returns are so high, there wouldn’t be thousands of condos still for sale. They would have been bought and then rented out a year or two ago.

  23. Makes me think,
    You are right, those who would have bought have already done so. The rest will come up with a million excuses. The best is to leave them alone to enjoy life in their bubble.

  24. Makes me think, perhaps you should think before you write. i have already said there are units worthy of a buy. At this point there is a limit to downside risk, unless another major event comes along and shudders the economy. My basic argument is against people who say we are rebounding-we are not. We are basically floating along sideways. And i am a picky buyer. I will buy the right unit at the right price. Since it still costs me more to own than rent a 2 bedroom, i see no need to rush ahead. home ownership is great, but with the HOA and taxes in sofla, it is a burden to consider. you use the generalization that a large number of people are out trying to buy, using their “hard earned” money for a down payment to get their piece of the pie. just because everybody is doing it does not make it right. everybody was buying in 2005-2007 as well, and those were all correct decisions. what happens to today’s buyer when interest rates hit 7% in three years? underwater again i am afraid.

    last year had some amazing value in condos, but the shaky economics around the world kept most people on the sidelines. few working class stiffs were able to take on debt or expend capital in such an environment-maybe some investors with dollars to play with. and today, end users will buy if the value is right. and its beginning to touch that point-not greatly-but valuations are no longer absurd like a few years ago.

  25. Any information on this? What percentage of these large cash transactions from abroad are from Mexico?

  26. Not that I owe anyone here an explanation, but this allegation that I’ll “never buy a condo” is idiotic given that, as I’ve said countless times before, I’ve owned and lived in condos for the last 15 years.

    I haven’t bought a condo in Miami yet because (A) I won’t be back living in Miami until the late fall or winter, and (B) I’m not at all convinced that the high-end market has bottomed. If you look at the asking vs. selling prices in the luxury segment, there’s often a 30% or higher reduction from asking to selling (and this is just on the MLS; hundreds more units are still held by developers). That tells me the high-end market is a lot less booming or flourishing than people here are claiming.

  27. If it is not your time to buy yet then just go ahead and say that instead of coming up with all kinds of excuses. To compare the price of owning a home today to renting a condo is foolish. You are expected to pay a premium for ownership initially, the same way it cost more to buy a Honda than it is to lease one for 2 years. I don’t hear too many people making a case for leasing a car every 2 years because it is much cheaper than buying the car. Why would you make the same argument when it comes to housing? At least when you finish paying for that home you never have to go out and buy another home unless you want to, unlike a car where you will eventually have to replace it. Houses are generally appreciating assets whereas cars are generally depreciating. If you would never make that argument with a car why is it a valid argumen with a home? When you rent you build no equity and you will always pay rent indefinitely. When you buy a home you pay off a mortgage and eventually the home becomes yours free and clear and you get to pass it on to your kids and they in turn can pass it down to your grand kids. How do you account for owning a home free and clear for 20-30 years into retirement in your rent vs own calculations? Have you ever heard about a thing called inflation? well let me tell you, it is a bitch. Do you think your $1200/ month rent will stay at that rate for the rest of your life? If you listen to the gloom crowd by the time you are ready to retire that $1200 will buy you a loaf of bread and a gallon of milk Will you be able to find someone willing to rent you a condo for a loaf of bread and a gallon of milk? You don’t buy a house because you think it will appreciate, you buy a house to live in and to a certain extent hedge against future inflation. It is the same reason many business buy their own buildings and other assets if they can afford to do so. Renting always cost more in the long run, that can’t be denied.

  28. Makes Me Think — As much as I should simply heed BillP’s advice not to respond to you anymore, your last comment is a new low for you. Are you seriously saying that the fact I’m not living *IN* Miami right now is a bad excuse for not buying a condo in Miami right now? Really?

    Buying now and then letting the unit sit, unoccupied, for 6 months *might* make sense if there was evidence of appreciation in the luxury market, but there’s no such evidence. As I said above, the splits between asking and selling in the $1M-plus market are averaging 20-30% per sale. (Even Gixxer 1000, after crunching all of his numbers, said this week that he doubts high-end units are appreciating at more than 1% right now.) The old “Buy Now! Units Selling Fast!” nonsense from a few years ago is inapplicable.

  29. Makes me think, you are living in an old world. mobility is the key to the future, and housing is in need of adapting. people change careers every 3-5 years, and will continue to do so. this demands people not be locked down to a property which takes 7-10 years before they are no longer underwater. i can take my car with me on my next move. my housing needs to be (a) somewhat liquid and (b) not an anchor tied to my neck. it needs to be purchased as value for the next few years. the idea of living in the same property for 30 years is foolhearty in today’s reality. currently i save $700+ a month renting vs buying, resulting in $8k a year buildup of reserve. if housing continues to fall or even hold steady (it has fallen significantly, as you are aware, over the past few years) why change? mobility allows for job changes, resulting in significant pay increases vs inflation if you play your cards right. i am not against homewnership. but your argument is not compelling at all, and is nothing more than a rehash of RE jargon from the past decade. that advice was pretty poor for all the homeowners today who are heading into default on overpriced properties purchased years ago they could not afford. but as you said, housing is an appreciating asset. tell that to the foreclosed property owner in the us over the past 5 years, or the japanese property owner over the past 2 decades.

  30. while low end housing in sofla is bottoming out, the tsunami of crash will trigger at the high and medium-high end..2011-2012 will see a major drop in this segment..stay tuned..

    .Some are calling it a `miniboom’ in high-end condos

    Cristina Miranda never wanted to live in a condominium but after she walked into one at the Gables Club with sweeping views of the sparkling Biscayne Bay, Fisher Island and the Miami skyline, she changed her mind.

    With no regrets, Miranda sold her Coral Gables house of 30 years that she had shared with her now late husband, and bought the nearby condominium for $2.5 million in March.

    “I always said I was going to die in my house,” Miranda said, taking in her new view from the 5,200-square-foot condo. “But when I saw this, I fell in love with it.”

    Miranda’s purchase is part of what some real estate experts are calling a “miniboom” in high-end condo sales in Miami-Dade County this year.

    Countywide, 135 condos priced at $1 million or more sold during March, April and May this year, almost doubling the number of units in that price range that sold during the same period in 2009, according to Esslinger-Wooten-Maxwell, one of the largest real estate brokerages in Miami-Dade and Broward. In Broward, 17 $1 million-plus units sold during that time period this year compared to 12 last year.

    The superluxury condo market is taking off too: in the past month there were four sales breaking the $7.5 million mark. Units sold for $8.7 million at One Bal Harbour; $9 million at the Fountainebleau; $11 million at the Santa Maria Brickell; and $15 million at the Setai.

    Those four sales alone have the real estate industry abuzz, considering that there was only an average of 2.5 sales of condos in that stratospheric price bracket for the past eight years, according to EWM.

    “We are selling more units right now because people are sensing we are at the bottom of the market,” said Ron Shuffield, president of EWM. “And there aren’t that many to choose from, especially in the penthouse range.”

    The unit that sold at Santa Maria Brickell for $11 million in foreclosure was priced at $14 million three years ago, Shuffield said. “I think people are realizing you cannot reproduce any of these buildings for what we’re selling them for.”

    This month, a penthouse at the Marquis Residences sold for $4.2 million, said Lori Ordover, managing director for sales and leasings at Africa Israel USA, the developer of the building.

    The four-story, 7,800-square-foot penthouse topping the 67-story building at 1100 Biscayne Blvd. claims the highest terrace and hot tub in Florida, and is one of seven units that sold for more than $1 million since March.

    Ordover said the sales team had not yet priced the unfinished condo, which was sold in raw condition without the finishings (floors, window treatments, etc), and was not yet on the market when a buyer showed up with a “good price.”

    Ordover said most luxury condo buyers are paying in cash and they are buying units to live in, rather than as a pure investment.

    “It’s like the tide is starting to turn,” Ordover said. “I see the energy. I see more people coming to look in the sales office, double the number from last summer.”

    For sure a major draw of the luxury condo communities, which began coming on the market in the mid-1990s, is the array of amenities that they offer. Some developments offer glamorous living experiences, with zen gardens, luxury spas, oceanside pools, private butler services, and exclusive club memberships.

    At the Marquis Residences, owners can have a chef from its boutique hotel cook them a gourmet meal in their condo. The Setai in Miami Beach, 2001 Collins Ave., offers private plane and yacht charters. At Apogee, 800 South Pointe Dr. in Miami Beach, each unit has a privately-enclosed two-car garage on the parking levels.

    Real estate experts say the luxury condo market should only get stronger because condominium living is an increasingly popular lifestyle choice for the wealthy.

    In fact, according to Shuffield at EWM, this past quarter is now the third quarter of the last eight quarters where there have been condo sales exceeding single-family home sales for properties priced greater than $1 million.

    Though the numbers for that price range are still close — an average of 39 single family homes per month sold during the first quarter of 2010 vs. an average of 45 condos during the same time period — Shuffield thinks the trend is here to stay.

    “When I was growing up we didn’t have these choices,” said Shuffield, who is 59. “There were only apartments. Today every one of these buildings is like a little country club. “If you don’t need a yard and space, it’s a great lifestyle.”

    At the Gables Club where residents in the two towers on Edgewater Drive, have access to a heated swimming pool, sauna and club, Cristina Miranda has already decorated her new condo with the eclectic paintings and furniture she collected while traveling the world with her husband of 36 years, Guillermo, who ran an athletic footwear company, Gator Industries.

    “I like the area, and the amenities are all here,” Miranda said. “They wash your car for you downstairs, they will send up a chef to cook a meal. You name it, they do it.”

    Read more:

  32. I’ll be the first to admit there’s been an uptick in higher-end condo sales, but I don’t get this talk of a “boom.” The last time I looked at the MLS, there was still a 4-year inventory of condos priced at $1M or more (or maybe it was $1.5M or more; can’t recall the exact cut-off). There seems to be a big disconnect between the cheerleading in the media and the actual sales numbers.

  33. joe and gables. reading is fundamental!

    I said “If it is not your time to buy yet then just go ahead and say that instead of coming up with all kinds of excuses.” I don’t care if you buy a home or not just stop with the silly stuff. Gables, it is a given that if you don’t plan on living in a home for more than 7 years it makes no sense to by. Come on man you are not a moron, that is stating the obvious. Again, you buy a home to live in and you buy for the long term not for quick appreciation. If you want appreciation then I would suggest you buy an investment property and even then you need to know what you are doing and have deep pockets to handle the unexpected.

  34. per geroge’s post -“Miranda sold her Coral Gables house of 30 years that she had shared with her now late husband, and bought the nearby condominium for $2.5 million in March.”

    Geeez. I wonder if Miranda regrets not renting for the past 30 years? I’m sure she could have rented for much less that buying even 30 years ago.

  35. Makes me think, my view is there will be no appreciation in condos over the next 5 years-right or wrong that is my thesis. if i (and others) can continue to rent well under the cost of ownership (i assume this will not change in the next 5 years-could be wrong), where is the value and urgency in buying, which puts me 6% underwater from the getgo due to transaction costs. if i save even $500 a month renting, that is $30k in my pocket over 5 years. by owning, the first 5 years builds no recovery in principal since i am paying off only interest on the mortgage. For a $250k condo (not luxury) i need to recover $15k in sales just to break even from transaction costs, plus the $30k savings from renting instead. In five years, the condo needs to appreciate to $295 for me to break even-a nearly $50k cost to own over rent. Even if i hold the unit for 7 years as you require, still not going to happen. its a losing proposition compared to renting right now.

    If I can buy that unit for $200k, it is undervalued and the purchase is good. Buying only makes sense right now if you can get the proper value-that is why some of the REO sales are worthwhile. before you go off the deep end, this time frame is for the typical resident and not investor. As an investor you can spread your 6% transaction cost over more years and the numbers are much better. but as i said before, there is a significant change occurring in peoples view of holding time for RE as an owner. geographic mobility has been a huge benefit to our economy in the past-we lose that with overpriced and illiquid RE assets.

  36. Makes Me Think — “Reading is fundamental” indeed. I have stated here, on practically a weekly basis, that I’m not living in Miami right now. For someone who follows my comments so closely, your inability to retain basic info. is alarming.

  37. “I have stated here, on practically a weekly basis, that I’m not living in Miami right now”

    Wow, but you are the f***ing expert on everything related to Miami. Every time someone post data or comments on something related to Miami you are the first to dispute the validity of the information. Wow man, you are priceless.

    -“As I have stated on this blog for almost 2 years now, these guys will never buy a condo.”

    I don’t know why that statement get you all worked up. So far I have been proven right. I make that statement without being controversial, to me it is rather obvious. If you have someone subsidising your rent by $800/month then you won’t buy as long as that subsidy is there. Joe doesn’t even live in the state so as long as he lives somewhere else he won’t buy a million dollar condo in SB. I just don’t get why you have to argue every piece of positive information posted here about RE market. The market is trying to recover so there will be some good news and some bad news.

    Please don’t take me too seriously though, I’m just having some fun. I’ve finished my project so I have time to bs you guys while I get updated on Miami Condo Market.

    Happy Father’s Day!

  38. A comment about Gixxers’ post #6 above:

    The “asking price” listed in that table he linked is the most recent asking price, not the original asking price. For example, a condo may be listed for $400k, then dropped to $370k after 2 months, then dropped again to $340k after 3 more months, and finally sells for $330k. The table from buybeach would list the asking price as $340k, and the discount as $10k or 3%, while a more true discount would be $70k or 17%. This happens quite often, so you have to keep that in mind when using that table to compute average discounts.

    Here’s that link again for convenience:

  39. Makes Me Think — I don’t pretend to be an expert on all things Miami. But unless 20 Fortune 500 companies have moved to Miami in the time I’ve been gone, I’m quite certain my overall opinion of the city, its government, and its job market remains accurate.

  40. “Geeez. I wonder if Miranda regrets not renting for the past 30 years? I’m sure she could have rented for much less that buying even 30 years ago.” – – Makes Me Think

    An interesting comment. She probably could have rented, but the questions remains: just because she “could” does not mean that she “should.” I note, that this is one of the themes I see underlying the housing boom/bubble/whatever. My guess is that she has no regrets.

    Assuming that she and her former husband purchased their home 30 years ago, the house was probably purchased with $X.00 down and the rest financed with a mortgage. Throughout the life of mortgage, these individuals benefited in that they not only received the tax deductions and credits produced by the home, but also the mortgage interest and other deductions.

    The mortgage was paid off and she and her husband owned it free and clear. Because these people were married, the house was probably deeded something like: “Cristina Miranda and Husband as tenants by the entirety.” The importance of this is that on his death, the house passed to Cristina by virtue of the deed and her status as the surviving tenant by the entirety.

    After his death, Cristina is sitting on a piece of real estate with – – presumably – – no debt. Sale of the property, assuming normal appreciation and no loss of value caused by deterioration of the neighborhood or some pin-head developer throwing up a structure around the property, produces long-term capital gain. Thus, converting the equity in the home to cash produces revenue taxed at favorable capital gains rates, rather than less-then-favorable short-term capital gain which is tax as ordinary income at the seller’s maximum rate.

    Now, if she had been renting for the past 30 years, she would have lost the financial gain, not to mention the tax-benefits, of owning. Granted the risk of loss associated with renting is lower, it is not an absolute zero if on factors in opportunity cost. And 30 years of rent exceeds the fair market value of many of the condos presently on the market.

    Just a thought.


  41. Scriv,
    I think you meant to say from the SELLER???

    Part of this could be that short sales are are more attractive to the lender because, in cases where the proceeds from the sale do not cover the outstanding debt obligation, the lender may be able to pursue collection of the outstanding deficiency from the new buyer.

  42. computer consultant:

    Nope. Negative. Bizzzzzzzzzzzz.

    No “gotcha” points for you.

    I used the word “buyer” to included cases where – – and it is possible – – the debt obligation is appurtenant to the land: meaning it is an encumbrance that “runs with the land” and is not merely the sellers’ personalty. But that is just me.

    Moreover, there are situations where the buyer takes property subject to the debt obligation.

    After all, a contract is merely an agreement between a willing seller and a willing buyer. Other than that, the substance of the agreement is pretty much up to them.

    Thus my use of “buyer.”


  43. Scriv,
    I did not mean my post as “gotcha”.

    I was wondering if as a buyer there is something i should be aware of.
    My understanding is if a bank does not release lien during short sale then a buyer cannot get a clean title to the property and no title insurance.

  44. No offense intended my friend. Just trying to keep my postings light.

    As a general matter, if the bank does not release the lien during a short sale, the buyer cannot get clean title to the property. The issue is…and the one you should keep in mind is….”what happens then?” If the sale goes through, and the buyer closes, is the buyer liable for any deficiency from the short sale? What about other liens?

    Maybe yes, maybe no. It depends.

    As I recall, there was an article in the Miami Herald that illustrated this point. The article concerned the website that the city of Miami was using to auction off properties. If I recall correctly, many buyers flocked to the site seeking a bargain only to find that they had purchased a property that had a an outstanding mortgage lien as well as other liens attached.

    Remember that a short sale represents an agreement between the existing owner and the mortgage lender. The outstanding mortgage needs to be satisfied. If the short sale does not generate sufficient funds to cover the mortgage – – or the portion of the mortgage that the debt holder is not willing to part with – – then typically the debtor must satisfy the remaining part.

    But that assumes that the mortgage is ONLY personalty – – meaning that it attaches to the owner himself/herself and not the property. You see, certain encumbrances are not affected by sale. If the mortgage “runs with the property,” meaning that successive owners are on notice that the debt and liability thereto attaches to the property and passes to them on purchase – – meaning they are not discharged by sale – – then a lender may also look to the new buyer to make up the deficit left behind by the seller. In such a case, if the short sale proceeds do not cover the amount of the debt – – or the amount of the outstanding debt that the debt holder has not agreed to “take a pass” on – – and the original buyer, the punk who took out the mortgage, cannot make up the deficiency or is judgment proof, the lender may look to the buyer.

    What should you be aware of? All mortgages are recorded. Before you buy, make sure you have researched the terms of the outstanding mortgage so you don’t get left holding the bag. Do a title search. Search for any outstanding encumbrances on the deed and insist that they be discharged by the seller as a condition of the sale.

    An easy way to guarantee good title is by insisting on the seller conveying title via “warranty deed,” the Superman of all deeds because it warrants against any and all defects.

    Best regards.


  45. Quote from this morning’s Gartman report:

    “in miami, where prices are back to the levels of the late winter of ’05, but where nearly 45% of those with mortgages are underwater and it will take a stunning 38% further decline in prices to return to affordability. Oh, and prices are already down 27% from their peak”.

  46. Computer consultant and DJ:

    Make that a “general warranty deed.” Though they are more difficult to get, administratively-speaking, general warranty deeds are the way to go in this market. Most sellers and agents prefer the “special warranty deed” because they are easier to prepare. But in this market, I would insist on a general warranty deed.

    A special warranty deed only protects the buyer from a limited number of defects – – typically those arising during the current seller’s ownership or, depending on the jurisdiction, possibly only those reasonably known to exist by the current seller. I recommend insisting on a general warranty deed, thus forcing the seller to do a thorough title research.

    Also important here is the distinction between “marketable title” and “clear title.” But I will save discussion of that issue for another time.


  47. Wow that is – with a few exceptions – some tacky furniture. Way to ruin a great space with garish, cheap looking design.

    That said I would live there in second.

  48. Miami, Fort Lauderdale airports taking off

    Miami and Fort Lauderdale airports are getting new flights this summer as airlines bet on an improving economy.

    Aeromexico will start a daily Monterrey-Miami flight on Monday.


    Seeing promise in South Florida as a tourist lure and business destination, airlines are adding flights at local airports despite the soft economy.

    As a result, residents have new options if they want to go to Milan, Paris, Frankfurt or … Tulsa, Okla.

    “All of those are very significant because they drive access from the business perspective and for tourism,” said Frank Nero, president of the Beacon Council. “Miami is what it is because of air traffic.”

    In June alone, new flights are being added from Miami International Airport to Tenerife in Spain’s Canary Islands, Paris, Milan, Tulsa, and Monterrey in Mexico.

    Officials with Aeromexico, which starts the daily Monterrey-Miami flight on June 28, see the new flight as an way to send more tourists to Miami while drawing business to the industrial city in northeastern Mexico.

    Read more:

  49. Thanks Scriv and DJ.

    As a buyer i would get title insurance. Wouldn’t the title company do all the necessary searches etc.?

  50. Computer consultant,

    Yes, get title insurance, a general warranty deed, and use a reputable closing agency/law firm, and you will be fine.

  51. Dear Scrivner,
    Thanks for the post – it’s so timely. I am coming to Miami soon.
    Dear Why Bother,
    Your post #60 ( Daily Aeromexico flight )
    Do you worry about the Mexican Drug Cartel spilling over to Miami and Fort Lauderdale, if they are not there already? Just asking. Thank You

  52. You would have to be legally blind to not know they are already here. They have historically always washed there money through ownership of high end hotels, mansions in Mexico. Now they are no turning their attention to the US, high end luxury properties, such as penthouses. This way they can keep their family safe from the family business. Mexico right now is the silent, and one of the most dangerous threats. Violence is everywhere in the country. Formerly safe cities have been hit hard. The mayor of Cancun was arrested on drug charges, the chief of police was killed, it is not longer safe for tourists. San Miguel de Allende a formerly very picturesque colonial town recently had a high profile resident kidnapped for ransom, with his fingers cut off until the family begged and borrowed money to pay. When the Columbian drug dealers felt the heat they started investing heavily in Venezuela, now the Mexican’s drug cartel are doing the same investing heavily outside of the country. Buyer Beware

  53. why bother – Just wait until mortgage interest rates rise from 5% to 6.5%. Affordability will go down, down, down…so prices will have to go down to match the affordability especially with stagnant incomes. There is no reprieve in home price declines and stagnation coming people. The housing depression continues…

    I know, let’s raise taxes, raise the cost of energy, raise health care costs, increase the cost of government….oh, wait, that’s the wrong approach for the problems now. Thanks Barry.

  54. why bother, yeah disappointing and definitely bad news but new home sales are only a small fraction of the housing market. Existing homes were down 2%. Seems the economic data for the past month has been below expectations on many levels. May be developers will finally stop building new homes when there are so many almost new homes for sale at rock bottom prices. In the past few months I noticed builders starting to build on lots that were empty for years.

    Posting bad news does show that you are not blindly one sided in your views.

  55. “Just wait until mortgage interest rates rise from 5% to 6.5%. Affordability will go down, down, down…so prices will have to go down to match the affordability especially with stagnant incomes.”

    if that argument is true then the converse of that argument would also be true, no?
    prices should be higher now than the were when rates were 6%, no? Duing the boom affordability was at an all time low but prices went up, up, up.

    I don’t know if I buy that argument. I think there are other factors that are more dicectly correlated to prices like jobs, ease of lending and how people feel about their financial future(wealth effect).

  56. Makes Me Think said: “if that argument is true then the converse of that argument would also be true, no? prices should be higher now than the were when rates were 6%, no? Duing the boom affordability was at an all time low but prices went up, up, up.”

    — Yes, prices went “up, up, up” in the boom because anyone with a pulse — and even some people *without* a pulse — could get a 0% down liar loan. Those days are now over, which means the traditional factors will drive the market (as RT explained above).

  57. Makes Me Think – The current low interest rates (very artificially low) were designed to prevent an utter collapse in home prices. Had interest rates stayed higher, say at 6.5%, then home prices would be a lot lower right now with a possible grave over correction. The low interest rates bide time…usually…unfortunately it isn’t as effective in a non-inflationary environment (even less so in a deflationary environment). Extend and pretend. Well, that can only go on for so long.

    The halt in new construction is a help though to absorb the current oversupply. You may ask, why did new home sales collapse while existing home sales faired far better? Answer, there are so many existing homes in a state of distress that you can buy an existing home for less than the cost of new construction (even without a profit margin for the builder)…so why buy new which in many urban areas results in a longer commute too?

    As I had posted some TWO YEARS ago, the best the fed govt can do is simply offer low interest rates (and maybe 40 year mortgages instead). Beyond that, if you can’t make the payment you need to move out, period.

    Without significant new residential construction, unemployment will remain elevated. Construction can’t be completely substituted abroad by cheap labor (even if they make the construction materials such as Chinese drywall).

    This thing is gonna drag on longer than desired…

  58. “This thing is gonna drag on longer than desired…”

    I agree, but I believe this economy has been in the dumps since before the dot com bust. The jobs created during the dot com were fake jobs created by fake companies
    funded by people who got caught up in the stock market scam. Bankers who took those companies public convinced many people to invest in those fake companies, remember and the host of others? Once that scam was up the Bankers found a way to create a boom in housing by giving away mtgs to anyone who asked for one. Many people from the dot com days simply moved into housing as realtors or investors. that in turn stimulated the economy till the recent bust. I think housing and the economy will drag for a while until the bankers create another bubble to artificially inflate their stock options/bonus again( I’m willing to bet on that). In the mean time the feds will keep interest rates artificially low for as long as it takes. I just don’t know how they are going to raise rates while the economy is so anemic. Let’s face it the US hasn’t been creating decent paying jobs since the late 90s before everything started moving overseas. The only jobs that has been created and are still around are the low paying retail/restaurant jobs. Just drive down any 2 lane road in America today and tell me what you see. Boom and Bust cycles are the new normal, i guess.

  59. just as a side note, i have looked at a couple of other cities (smaller than miami) with limited, although new, condo inventory. They seem to be selling at $200-$250 sq ft. My thought has been anything below $200 sq ft is reasonable for MIA. Thus on a sq ft basis, MIA is becoming cheaper to buy than some other cities. Big problem is the taxes and HOA. I was seeing 1500 sq ft units with $300 HOA a month and $2500 yearly tax bills for the other cities-this is where MIA condos get hurt. Any chance this part of the equation will equalize in the next decade?

    MMT, new housing is a small part of the market, but they create the new “supply” to the market in general terms of growth. If this supply outlet decreases and prices were to continue to hold steady, or worse drop, one has to be concerned that very little demand exists to prop up prices in the near term. hence the legitimate concern of a double dip.

  60. “Just wait until mortgage interest rates rise from 5% to 6.5%. Affordability will go down, down, down…so prices will have to go down to match the affordability especially with stagnant incomes.’

    That’s funny, here is a chart that shows historical federal funds reserve rate overlayed with the home price index:

    The only time when you see a serious correlation between high interest rates and a decent decline in home values was in the 80’s when the federal funds rate was up to 15% and therefore mortgage interest rates were up to 18%.

    Arguing that an interest rate hike from 5% to 6.5% is going to put serious downward pressure on home values is ridiculous. Especially considering that current 30 year mortgage rates have dropped to 4.75%. If interest rates rise to 6.5% the most likely scenario is that it happens slowly over a couple years as the market slowly stabilizes. You admit they’ve kept rates low this long so why would they turn around and raise rates extremely fast at this point????

    Also affordability is not the issue, it’s financing and fear. This is why cash buyers are reigning supreme. Prices have hit a point that makes sense. But the average Joe either can’t get financed or is two scared because of all the doom and gloom projections. Someone with enough capital can simply buy at a price that they know is a good deal and wait. Again you have said it yourself that you can now buy at prices that are cheaper than new construction. But the average Joe is too afraid to take that chance. If you gave someone a guarantee that their house wouldn’t lose more value and still only approved them for what they could actually afford and there would be a lot more sales. At this point its perception not price.

  61. gixxer, even with the rise and fall, you see increase in home prices with a decrease in rates-see the last decade. so after this behavior occurs, is it logical to see a continued increase in home prices with an increase in rates? are these numbers in the chart corrected for inflation? an 18% rate with 15% inflation (we had absurd numbers in the early 80s) is a different animal than a 6% rate with 1% (or negative) inflation.

    just as a side note on cash buyers. do they really see a great deal? or are they tired of getting under 1% yield and have begun stretching for yield with increased risk? or diversifying from stocks? they may very well have completely different reasons for buying RE compared to those who must buy with leverage-much riskier.

  62. “The halt in new construction is a help though to absorb the current oversupply. You may ask, why did new home sales collapse while existing home sales faired far better? Answer, there are so many existing homes in a state of distress that you can buy an existing home for less than the cost of new construction (even without a profit margin for the builder)…so why buy new which in many urban areas results in a longer commute too?”

    I agree with this. In April the average price of a new home was $290k (up 5.5%) and the average price of a resale home was $180k (down 2.7%). Many new home builders ramped up production to sell as many houses as they could before the expiration of the tax credit. This got anyone who was thinking about buying a new houses to do so. But now that the tax credit is gone the focus will be all on resale homes which are WAY up. Resale single family homes are up 22% and resale condos are up 70%.

    This means there isn’t going to be a demand for new homes for a while. And that’s problematic because so much of our economy depends on building new homes. Its one of the few things left that we actually make. But we are selling a lot less houses than usual. Household formation is down as people are broke and moving back in with parents, renting cheaper places, etc. This can’t go on forever. The population is still growing and the economy is slowly getting better. Rents are slowly going higher. So we’ll continue to slowly work through the oversupply of resale houses with little new home production. Then all of a sudden we’ll wake up and see that we’ve worked through most of the supply and we don’t have much new supply in the pipeline. We’ll ramp up productions which will send millions of people back to work, which will then create even more need for housing which sends even more people back to work and the vicious cycle will repeat itself until we find another way bust the cycle again.

    Here is a graph of historical housing starts from no one other but you friends at calculated risk:

    As you can see housing starts plummet before every recession and then skyrocket afterward. You could easily make the argument that the decrease in home building is what actually sends up into most recessions and the increase in home building is what helps grow the economy afterward.

    The average number of housing starts is around 1.5m starts a year. If we were smart we would simply only issue permits that total up to this amount so that developers could only build an amount proportionate to the number of local people. But local governments get more money by issuing more permits as well as increased property taxes so they do whats in the best interest for them in the short term and don’t really care about what happens 10 years from now.

  63. gables,

    High inflation had dropped by 1983 down to below 3% then hovered around 2% – 4% until 1986 when it dropped below 2%.

    During the same time period the mortgage interest rates were between 14% and 18% and home values stopped going down.

    So in 1986 you had inflation at under 2%, mortgage rates around 13% and housing prices were going up.

    Today we have inflation at about 2%, mortgage rates under 5% and you’re telling me that an increase to only 6.5% is going to send values spiraling down??? And most likely that increase will happen over a period of at least a year. Again current interests rates have gone DOWN below 5%.

    Again it’s a matter of perception. People think a 5% interest rate is somehow average when its actually an historical low. 20 years from now the next generation will be reading about how we were able to buy these houses at these prices and these rates with envy.

    When do people think interest rates will hit 6.5%. From what I can tell interest rate rises seem to precede housing value increases as they try to only raise rates when the economy is on the upswing. Raise rates when times are good and lower them when times are bad in an effort to check the economy. Except for the last housing boom when we got greedy. Had they simply raised rates during the last economic upswing we would have probably averted from much of the disaster.

  64. Gixxer 1000 said: “Also affordability is not the issue, it’s financing and fear. This is why cash buyers are reigning supreme. Prices have hit a point that makes sense. But the average Joe either can’t get financed or is two scared because of all the doom and gloom projections. …”

    — I haven’t seen any data to support this allegation. Most of the recent economic reports have shown the price-to-income ratio in the Miami r.e. market to be indicative of a continuing bubble condition — i.e., Miami r.e. prices are still way out of whack vis-a-vis incomes in the region.

    As for financing, the “average Joe” is still having trouble getting financed in Miami because the banks suspect prices are still too high. E.g., if a buyer puts 10% down on a new mortgage but then prices fall another 10%, the buyer is back to 0% equity, just like during the boom. (Hell, even without price declines, the normal 7-8% transaction costs leave a 10%-down buyer at almost 0% equity on Day 1.) Why would banks be lending like crazy in Miami when Miami still has among the highest foreclosure and delinquency rates in the country? It doesn’t make sense.

    I don’t think anyone here is predicting that prices will fall another 30-50%, but with normal/sane underwriting standards back in place, even a 5% decline could have big consequences for banks.

  65. Gixxer 1000 said: “Also affordability is not the issue, it’s financing and fear.”

    – I totally disagree. Affordability is the issue…the past financing games are dead, back to traditional lending standards…unless of course you are saying you want subprime and NINJa loans to make a huge come back. As for “fear”, I think it is more of a concern of being stuck with a money pit you can’t get rid of.

    jcrimes – Thanks for the update on the BK’s….so much for the housing market had already bottomed crowd.

  66. Oh … and “Lennar Corp.’s home sales are down 20 percent to 25 percent this month compared with a year earlier…Chief Executive Officer Stuart Miller said. “

  67. jcrimes,

    Just pulled up the voluntary petition regarding the lexi. Any idea on what this might mean for owners going forward? I have no idea how these things go.

  68. RT, I have to disagree with you on the affordability issue.

    RT, Right now you can go out and buy a home for 250K in a very good neighborhood around Miami. Assuming the buyer can put down 10% with current mtg rates at 4.7%
    the Mtg pmt will be less that 1,175, Taxes around $350/month. That’s about $1500/month for a very good nabes in Miami. A few years ago that cost was almost twice as much and people couldn’t get enough. I’ve seen rents going for much more that that in less than prime neighborhoods. I think there are other factors at work like almost everyone who could buy a house has already done so and are underwater and others may have serious credit problems and some just aren’t interested in owning real estate at this time in their life. How can you just dismiss those factors to claim affordability is the sole issue? Affordability is a factor but I doubt it is the major factor.
    If you drop prices by another 30% there are still a shitload of people who still can’t buy houses because they still own homes deep underwater or have just been foreclosed upon.

  69. gixxer, i never said prices would spiral down as interest rates rise from 5% up. But prices will not increase, and most likely continue to decline, if mortgage rates do increase. as you often say, quit considering the extremes. but any leveraged asset that deflates, even slightly, puts the owner in a bad situation unless they hold to maturity.

  70. RE # Gables 75

    Yes smaller cities might have lower operating costs but I bet that DC Chicago NYC HOA fees in comparable higher end buildings are not that different from what you pay in Miami-when you factor out COSTLY storm insurance we pay here.

    We are stuck in So Fl with storm insurance and that applies to single family homes not just condos: have read many comments here re cheaper living in SFH but wonder how many accounted for storm insurance costs.

    Just HOW costly is storm ins?
    a large-read 800 unit- bayfront condo had structure/hull insurance on the residents’ portion of app $350 th BEFORE the storms of 2004+5

    And AFTER when the big ins companies finished raising their rates the cost climbed to app $1.7 mln -a 5 x fold increase in about a 2 year span.

    Thus the owner of the “average” unit went from paying app $38 a month to paying app $190 a month.
    I understand that newer structures that incorporate impact resisitant glass get a break-do not know what % is the reduction.
    So Podunk might be cheaper but look at the big city fun you miss.

  71. Makes Me Think — It’s silly to compare today’s Miami prices to the prices at the peak of the r.e. boom and then say today’s prices are affordable. Go check the price-to-income ratio of Miami r.e. Per price-to-income, Miami is still in somewhat of a housing bubble.

    Compared to Miami’s housing inventory of just 5 years ago, there are tens of thousands of additional high-quality housing units now available. If people in Miami could afford them, they’d be buying them.

  72. Joe please try reading before you respond.
    -“Affordability is a factor but I doubt it is the major factor.”

    I wasn’t comparing them to 5 years ago silly. I compared them to the rental rates I saw in some communities. I made a passing reference to what they were during the peak.

    There are a lot of people who could afford homes at today’s prices and interests rates but are not able to find financing. more than a few posters on this blog admit they could afford to buy a condo but choose not to do so because they think prices will continue to drop+ renting for them is cheaper than buying. If affordability was such a factor why was it that so many people went out to buy those same unaffordable home when the govt. offered a mere 8K tax credit, did that 8K make the payments more affordable? The major problem is that there are too many homes on the market, normal inventories run about 2 months now they are in a 1 year +.

    I will concede your point though. I guess if housing prices drop by another 60% affordability will increase and more people will be able to buy the home with cash outright.

  73. MMT #85:
    “Right now you can go out and buy a home for 250K in a very good neighborhood around Miami.”

    How do you define “very good” or what neighborhoods do you consider “very good?” I haven’t seen a home for $250k in any neighborhood I consider “very good” (in the sense that I would raise a family there for several years).

    Sure, there are alot of great REO deals out there, but they’re almost always in the least desirable areas. Fine for an investor, but not so much for a primary buyer. If you want to live on a desirable, safe and well-established street/block/neighborhood, you won’t find shi*t for $250k.

  74. george, the insurance cost is absolutely a condo AND sfh issue. one major difference is that in a sfh, you can control better what you pay through different companies, different levels of coverage, etc. those decisions are not directly controlled by you in a condo-the condo board and management have influence there. the insurance industry is having a bad influence on the state of florida by keeping the cost of living high. this keeps industry from moving into the state or area-a negative for the economy.

    curious about condo costs and fees in tampa-st pete area. there is a florida city in a vulnerable hurricane zone. wonder how a newer 1200 sq ft condo in that area compares with a similar miami condo in terms of HOA?

  75. Wow, a lot of talk about affordability with any actual facts.

    Housing affordability index:

    The index is currently at 58.5 meaning that 58.5% of houses are affordable to families making the median income. This is the highest it’s been since early 2000. Going back to 1998 the highest it’s ever been was 65. And during the housing bust it was as low as 10.

    Also here is information of price to income ratio’s. I know most wont understand but I try and explain. Most lenders agree that your mortgage should be no more than 28% of your gross income (FHA is 29% I believe). So for every $1000 one makes, $23.33 is available for an affordable mortgage ($1000/12)*28% = $23.33. Now we have to figure the cost per $1000 of a mortgage which changes as interest rates changes. Let’s assume 5%. At 5% every $1000 of a mortgage will cost $5.37. So $23.33/$5.37 = 4.35. Therefore 4.35 is the maximum affordable price to income ratio for someone with a 5% interest rate and 0% down.

    But if we put down money the ratio increases because you are reducing the amount you have to borrow. To get the ratios for a given down payment all we have to do is multiply the ratio for zero dollars down by the money (as a percentage of the home price) put down. For instance, the 4.35 ratio for a 5% mortgage rate with zero dollars down becomes 1.1*4.35=4.79 when the buyer is able to put down 10% of the price of the home.

    So here are the maximum affordable ratios for common interest rates and a 10% down payment:

    5% = 4.79
    6% = 4.28
    7% = 3.86
    8% = 3.50

    Obviously you can put 20% down and increase these rations or put 0% down and decrease them but we’ll use the ratios with 10% down to compare:

    Median Home price: $110k
    Median Income: 39k
    Interest rates: 7%
    Unemployment: 7.5%
    Price/Income: 2.82
    Maximum Affordable Ratio: 3.86
    Difference: 1.04

    Median Home price: $115k
    Median Income: 42k
    Interest rates: 7%
    Unemployment: 6.5%
    Price/Income Ratio: 2.73
    Maximum Affordable Ratio: 3.86
    Difference: 1.13

    Median Home price: $115k
    Median Income: 43k
    Interest rates: 8%
    Unemployment: 5.5%
    Price/Income Ratio: 2.67
    Maximum Affordable Ratio: 3.50
    Difference: .83

    Median Home price: $130k
    Median Income: 45k
    Interest rates: 7%
    Unemployment: 5%
    Price/Income Ratio: 2.88
    Maximum Affordable Ratio: 3.86
    Difference: .98

    Median Home price: $140k
    Median Income: 48k
    Interest rates: 6%
    Unemployment: 8%
    Price/Income Ratio: 2.91
    Maximum Affordable Ratio: 4.28
    Difference: 1.37

    Median Home price: $160k
    Median Income: 47k
    Interest rates: 6%
    Unemployment: 6%
    Price/Income Ratio: 3.40
    Maximum Affordable Ratio: 4.28
    Difference: .88

    Median Home price: $200k
    Median Income: 47k
    Interest rates: 6%
    Unemployment: 5%
    Price/Income Ratio: 4.25
    Maximum Affordable Ratio: 4.28
    Difference: .03

    Median Home price: $240k
    Median Income: 46k
    Interest rates: 6%
    Unemployment: 5%
    Price/Income Ratio: 5.21
    Maximum Affordable Ratio: 4.28
    Difference: -0.93

    Median Home price: $275k
    Median Income: 48k
    Interest rates: 6%
    Unemployment: 4%
    Price/Income Ratio: 5.72
    Maximum Affordable Ratio: 4.28
    Difference: -1.44

    Median Home price: $290k
    Median Income: 45k
    Interest rates: 6%
    Unemployment: 4%
    Price/Income Ratio: 6.44
    Maximum Affordable Ratio: 4.28
    Difference: -2.16

    Median Home price: $295k
    Median Income: 49k
    Interest rates: 6%
    Unemployment: 6%
    Price/Income Ratio: 6.02
    Maximum Affordable Ratio: 4.28
    Difference: -1.74

    Median Home price: $185k
    Median Income: 50k
    Interest rates: 5%
    Unemployment: 10%
    Price/Income Ratio: 3.70
    Maximum Affordable Ratio: 4.79
    Difference: 1.09

    Median Home price: $170k
    Median Income: 51k
    Interest rates: 5%
    Unemployment: 11%
    Price/Income Ratio: 3.33
    Maximum Affordable Ratio: 4.79
    Difference: 1.46

    As you can see mortgages became very unaffordable to the average Joe between 2005 and 2008 hence all the subprime, ninja, interest only, etc. loans. But affordability has now gone higher than it was even before the housing boom.

    Again the issue is fear and financing. Ex. You have a guy looking at a house that’s $300k and just out of his price range. That house gets foreclosed or is listed as a short sale for $180k. So now that it is affordable he’s still scared to buy because the media is telling him the market still hasn’t bottomed so he thinks hey I’ll wait and buy it later for $150k. Or when he goes to get credit he has less than perfect credit so the lenders, who are now over correcting, wont lend him the money.

  76. gixxer, in florida property taxes and insurance increase over time and skew affordability the wrong way even when other numbers correct down. its a result of our homestead rules and hurricane insurance industry (or lack thereof). but i agree with you regarding fear and financing, although its effects become more benign as true prices reach affordable levels-as determined by the buyers and not an affordability calculator.

  77. Its kind of ridiculous to focus on median incomes versus housing costs in Miami. A huge percentage of condo owners are second home owners. I’m one. My earnings/income , like most of the other many second home owners, is not part of any earning picture ,as ,like most second home owners in Miami I reside primarily & file taxes out of state. Miami is a large metropolitan area no doubt but its also a large resort . Firstly for mortgage rates to spike 200 basis points the economy would first need to be very strong regardless of them being artificially low now. Second, current & future buyers in Miami are relativly wealthy based on national median incomes. So even if the market becomes less cash driven its relatively insulated versus many other large housing markets to interest rate spikes. Being a buyer or newer owner in Miami doesn’t translate into being bullish on the Fl real estate market, some people just want to own here for whatever reason.

  78. gables,

    “i never said prices would spiral down as interest rates rise from 5% up. But prices will not increase, and most likely continue to decline, if mortgage rates do increase. as you often say, quit considering the extremes.”

    I didn’t mean it literally but I shouldn’t have over exaggerated. Regardless, my point that many people seem to be missing here is that interest rates are based of the federal funds rate. The Fed chooses what he want’s this rate to be. Given the historical precedents and the Bernacke current views, they are not going to decide to increase interest rates UNLESS the economy is stabilizing and housing is a huge part of that.

    So you guys are saying that rising interest rates (the CAUSE) will lead housing prices to decline (the EFFECT). What I’m saying is that when interest rates increase (the EFFECT) it will be because of housing price increases (the CAUSE).

    Renter Tom talks about rates being artificially low which is complete nonsense. That’s the Fed’s job, to look at the economy, inflation, etc. and set a corresponding fed funds rate. This short term rate is then used to determine long-term rates.

    At the risk of over simplifying, when inflation goes up, bond prices falls, their yields go up and the fed increases the fed funds rate to compensate. When inflation goes down, bond prices go up, their yields go down and the fed decreases the fed funds rate to compensate.

    Right now inflation/10 year treasury are both flat/slightly down. So when you have Renter Tom saying:

    “Just wait until mortgage interest rates rise from 5% to 6.5%. Affordability will go down, down, down…so prices will have to go down to match the affordability especially with stagnant incomes.”

    It pretty much sounds like wishful thinking. Its like people like Renter Tom and Joe want prices to go lower so they look for any rational reason why they might while overlooking data that shows they might not.

    Instead of looking at the data and then following that to conclusion they have a conclusions and are predicting what data might get them there.

    So lets assume higher interest rates would lead to lower prices. Renter Tom isn’t looking at inflation or yields rising and then saying this leads to higher interest rates which leads to lower prices. Instead he wants prices to go lower so he says “hmmm, at some point rates have to go higher so when they do prices will go lower.” But then when you look for things that would lead to higher interest rates, they’re not there, so the entire point is moot.

  79. Angel,
    Check out Biscayne Park, Miami Shores etc. 2BR Homes that were selling for 400K + are now available for 250K. After Gables and Grove, these are superb locations. what more can you ask for. Now that you got your answer, go out and buy one as you said.

  80. I did not mean the Phil Collins song introducing Miami. The ghastly song introducing the Miami World Center.

  81. gables,

    Last time I checked property taxes and insurance increases everywhere. I do agree about property insurance but not so much on property taxes. When I was reviewing property taxes paid on most properties over the last few years what I found was that they decreased from 2006 to 2008. To compensate and cover budget gaps they raised millage rates which increased the effective tax rate slightly in 2009 but still below 2007 and 2006 rates.

    Besides the median value of homes being purchased is around $170k. Most of the people who are buying a primary resident are going to get a homestead exemption of $50k and not to mention there is no state income tax in Florida as well.

    But I agree that these factors do affect affordability somewhat. I’m sure we can tweak these ratios a bit but still useful as a rough gauge. However I do disagree about you’re “affordability calculator” remark. There is a difference between what you want to buy and what you can afford to buy. If you make $100k a year, interest rates are 5% and you have a 10% down payment then you can AFFORD to buy a property up to $479k ($100k * 4.79) as this is what most lenders will lend you. Now you might choose to only buy a property worth $250k and that is you’re choice but you can afford more. And that’s why I’m saying it’s fear. They can actually afford the house they just choose not to buy it. Renter Tom and Joe are clearly implying that most people simply cant afford it with their current income.

  82. Gixxer, a calculater can always tell you what it feels you can afford. but the calculator does not have to pay the bills, mortgage, feed the baby, etc. My experience has been these calculators are quite a bit off. The indebtedness and underwater nature of so many people in America today can attest to this. My view is the metrics in use to assess affordability are incorrect-a view i live by.

    as for increases in property taxes and insurance, the animal is different here. Insurance has risen along the gulf and atlantic coasts tremendously versus inflation and even housing prices. it significantly eats away at your ability to pay a mortgage. And while florida has no income tax, your house prices were increasing at rates way beyond the rate your income was increasing. Now homestead rules limit how much the tax can increase per year when you own long term. but if your assessed value ballooned up, you are still getting year over year increases (although small) even if the assessed value dropped in recent years because of this lag effect. so your property taxes will continue to increase year over year. and if you recently purchased a home you have no effective homestead protection and pay on the full assessed price of your property. this is why i say our taxes and insurance increases are more severe than other parts of the country.

  83. “a calculater can always tell you what it feels you can afford. but the calculator does not have to pay the bills, mortgage, feed the baby, etc. My experience has been these calculators are quite a bit off. The indebtedness and underwater nature of so many people in America today can attest to this. My view is the metrics in use to assess affordability are incorrect-a view i live by”

    I’m just posting metrics that would be used to determine if someone could walk into a lender and likely get approved for the loan. I don’t care about your life views. Lenders don’t approve people based on your life views. However I do agree that you’re other bills are a factor and most lends will only allow you’re total debt (including mortgage) to add up to 38% of you gross income (41% for FHA). Now obviously I don’t know how much debt everyone has. But suffice to say with the above guidelines someone making the median salary would be able to afford the median home of $170k with money left over for additional debt for other things. Now if a guy making $51k goes out and gets a $500 car payment then he’s probably screwed.

    About the property tax just about everything you said is wrong. Again look up public records and look at taxes paid over the last 4 years and you will see that in the majority of cases they went down from 2006 to 2008 and then up in 2009 but still below 2007 rates.

    “and if you recently purchased a home you have no effective homestead protection and pay on the full assessed price of your property. ”

    Again completely wrong. If you purchase a house TODAY and use it as you’re main residence you get the homestead exemption of $25k plus an additional exemption of another $25k for the value of a property between $50k and $75k. So if bought a house at the median value worth $170k I would only pay taxes on an assessed value of $120k. And in the second year the assessed value can only go up by 3% or inflation, which ever is lower.

  84. Why bother,

    As far as I know, according to the latest news,World center project has been dumped since investor went bankrupt.
    Would be great for the area, but it seems it will never come true, like most promised developments in Miami.

  85. gixxer, your knack for being a contrarian is looney. and you should care about how lenders assess your ability to pay the loan. as a taxpayer, my friend, you are now on the hook for all the fannie and freddie defaults which will be coming our way. just because some bureaucratic form says a person can pay the loan you are willing to say everything is fine?

    as for property taxes, if you bought at the peak in florida, your property taxes will be decreasing. Anybody who bought before the bubble will continue to see rising property taxes until the assessed value drops below the pre-bubble value. as for the first $50k exemption, that applies to everybody and thus is not “effective” since the benefit is equal across the board. the true benefit of homestead exemptions are on the remaining value of a home. This is how a long term homeowner gets a huge tax break while his new neighbor pays out the nose.

  86. Lucas

    Just saw your Facebook post on Miapolis.
    Regardless of how cool they try to render it, it feels more like one of those stupid buildings they build in Dubai.
    Who would like to pay millions to live in Watson island, in a supposed luxury development, where they will have everything and something more going on? Just picture Fisher island open to the general public with malls, movie theaters and amusement parks” Geeee!!!
    Can you foresee yourself getting in and out of the island?
    What a nightmare!
    And by the way, isn’t this the project that had it’s license to build declined by the city?

  87. Gixxer 1000 said: “I’m just posting metrics that would be used to determine if someone could walk into a lender and likely get approved for the loan. I don’t care about your life views. Lenders don’t approve people based on your life views. …”

    — Once again, you seem to be arguing both sides of the same issue. If those are the true metrics being used by lenders today, and if Miami r.e. truly is so affordable right now (per your above chart), then why are those very same lenders being so stingy with loans? You’ve been arguing, over and over, that it’s not affordability but “fear and financing.” What gives?

  88. Condo tax question. If a unit owner successfully appeals their assessment, does that mean all condo owners in that building receive an adjusted tax bill?

  89. major asset deflation is in cards in the next yr…i have been warning folks to avoid high priced RE (or other high priced assets )…the knock-out punch in late 08 was softened by Obama’s ill advised programs that delayed the inevitable and knocked the construction industry out….however, now it is ready to face real economy..the high end residential RE as well as CRE will bleed so horrendously by 2011 end, people will ask for mercy….
    Like Dylan sang: It is blowing in the wind….

  90. SFH and condos are two different animals folks. Moreover, the second home market versus primary residents by locals is different too. Regardless, the appetite for another residence by nearly everyone has dried up.

    andi #110 – You are probably right to some degree…I just don’t know by how much. The credit bubble burst and the fed govt has just been using more credit to keep it going. BUT the fed govt can’t reinflate the credit bubble since there are limits and ramifications to borrow and spend (and tax and spend too). Moreover, there are massive structural issues that have now been distorted by fed govt borrowing and spending. First, fed govt borrowing distorts the credit markets now and in the future. Second, fed govt spending is different in kind and quantity then private (business and consumer) so dollar for dollar it creates investment distortions causing past investments to go bad and to over invest in things that are temporary and will later go bad.

  91. Renter Tom, I own 2 condos free and clear. One generates a positive cash flow of $700 and the other $600 a month. That is why I never seem to understand the posts of you or joe or gables. If I had a mortgage on them, it would have been a different story. I am very happy with my investments. I would not have put my money anywhere else. Too risky.
    Having said that, buying a condo with a mortgage and renting it out would be foolish. Buying a condo as a primary residence or a second home (if one can afford it) is the way to go.

  92. why bother — What are you talking about? We’ve been talking about mortgages and the second-home market, and you replied re: non-mortgage investment properties. What does the latter have to do with the former?

  93. why bother, to an extent you just confirm what many of the bears on this site have been saying. if you are buying with leverage, there is a risk. if you buy and live as a primary residence, the risk is minimized. to buy and rent with leverage as an investment is quite a bit riskier.
    how long have you owned the condos free and clear? buying fully in cash today vs a mortgage-with interest rates so low- you are better off with the debt most likely. you can get 10 year treasury at almost 3.25% and 30 year at 4.25%. when writing off your 30 year mortgage debt from 5% you almost break even. just put your money in bonds and save it for better investment times in the future. my guess is your return on capital from that free cash flow is not outrageous, unless you have owned the condos for many years free and clear.

  94. why bother #112 – Serious question here, what is you rate of return on each of these two condos? That is, $700 (and also $600) x 12 / total cost of condo with closing and renovation costs? Are you getting a 3% return on your two investments?

    I think my point (and probably joe’s and gable’s too) is that the real “cost” of owning is more than renting. As you said “Having said that, buying a condo with a mortgage and renting it out would be foolish.”

    The fact is you own two hard assets free and clear, that’s a good thing. The bad thing is renters (not paying, skipping out, damages, repairs, vacancies, etc.), property taxes that can change (usually go up), and condo fees that can go up and possible special assessments.

    It appears you are probably on thin margins and truth be told if you had a mortgage (which can substitute for the true cost of capital) you are not getting a good return for the risks. Banks are demanding 5% for their capital for a condo mortgage, but you are probably getting less. Moreover, real estate is supposed to generate a return above a mortgage cost of capital so that you can leverage your investment return. It is clear from your post that that would not be the case with your two condos. I am not considering price appreciation (or depreciation) as the case may be nor the tax games that provide cash flow but not real returns.

    You could put money in the bank and get a guaranteed around 3% with zero risk, FDIC insured.

    I am not saying you made a bad investment for whatever your circumstances and tolerance for risk is, but just trying to point out the larger picture and why I post what I post.

    Best wishes.

  95. why bother,

    you siad -Buying a condo as a primary residence or a second home (if one can afford it) is the way to go.

    —-> I agree with you….that is what I did, I bought my place as a prime residence and others in my building has bought their condos as 2nd homes.

    —–> My total payment per month is very affordable. Its costs me much less monthly to own my condo then my previous house. (of course my condo is much smaller then my house was).

    —-> Also my condo costs me $720 less per month to own then what I was paying for rent for the same size condo on Miami Beach.

    —-> So for me buying my condo is very affortable, allowing me to live way under my means.

  96. 1. Many points of view
    2. One size does not fit all
    3. I guess if Lucas Changes the name from MCI(investments) to MCD(Deals), there would be no contention.

  97. why bother – I am curious what each property cost so a rate of return can be calculated. Don’t be shy, no one knows who you are and we all realize the condo rental market sucks so you’re at least getting some sort of return on investment which is better than most. Just curious since you brought it up. Thanks…

  98. R Tom, honestly I never bothered to work those details out. I don’t intend to either. I had cash and I think I put it to good use – give or take a few dollars here and there. Working fine for me so far. I never would have second guessed myself as to what if I had put that money in so and so other kind of investments instead.

  99. “Condo tax question. If a unit owner successfully appeals their assessment, does that mean all condo owners in that building receive an adjusted tax bill?” – – J.L.

    I doubt it.

    Tax assessments typically relate only to the individual property and only to a specific individual taxpayer. Thus, they do not effectuate an automatic increases or decreases in similarly situated property owners.

    I note that there are exceptions to this rule. For example if the agency issues a rule stating that it is taking “such-and-such” position concerning the taxation of a certain properties or transactions. At the federal level, you see these in the forms of technical advisory memorandums (TAM), revenue rulings (RR), etc. Under this set of facts, the agency has issued a “blanket” rule that applies “across the board.”

    But that is not the case under the facts you provided.

    Thus, if you own unit 2002 in building X and your neighbor in unit 2006 gets their assessment reduced, you should not/cannot expect your assessment to be automatically reduced.

    HOWEVER, what you CAN do is appeal the assessment of your units tax appraisal and use the fact that your neighbor’s assessment was adjusted as EVIDENCE supporting your appeal. (emphasis added for dramatic effect – – and my own amusement)

    Thus, if your neighbor’s unit is the same or similar size, showing that the his assessment was lowered would support your argument that the assessment on your property should be lowered as well because they are of similar size and located in the same building. Further, even if your neighbor’s unit is different, you can use his/her adjusted assessment to support your appeal because fairness requires that similarly situated properties be accorded similar treatment. After all, no agency wants their action to be viewed as arbitrary or, worse yet, capricious.


  100. JL:


    An adjusted assessment pertains only to the particular unit and the particular taxpayer.

    If you want your assessed value adjusted, you must appeal yourself. I note that if, for example, one of your neighbors successfully appealed the assessed value of their unit, their adjusted assessed value could be used as evidence supporting your appeal.


  101. why bother, the questions posed are quite valid. you boast of cash flow positive to the tune of $1300 a month-which is a nice profit from investments per month for most individuals. you use this argument to question bearish views on the market. yet no details are given to assess how good of an investment do you have given the risk-and the time frame over which the purchases have been made. glad you are making money-real estate done right should do exactly that. but when questioned you basically take a “trust me” approach which i tend to find skeptical when talking dollars and cents.

  102. dj
    not exactly sure. since the building is done and folks live there, i’m thinking it’s a battle between the fund that bought the paper and the developer.

  103. “Wouldn’t the title company do all the necessary searches etc.?” – – computer consultant

    The issue is not the “searches” but the protection you the buyer receives by insisting on a general warranty deed instead of some lower form of deed such as a special warranty deed or, God forbid, a quit claim deed.

    Human error occurs all the time. So does negligence. (Insert quote from Steven Segal’s “Under Siege 2”: “..assumption is the mother of all ______.”)

    Under a general warranty deed the seller is warranting that he or she is conveying marketable title – – and that the title to the property is free and clear of any and all defects and encumbrances. Period. End of story.

    It is not limited to the defects occurring while he or she owned it, but extends all the way back through the chain of title. Thus if the first flipper/investor somehow got the property encumbered or did not have title and somehow this encumbrance or defect was omitted from the second or third owner’s deed or title – – you have recourse against the present owner/seller if they did not clean up the title prior to conveying the property to you because a general warranty deed requires them to do so.

    It is a question of accountability and legal protection.


  104. why bother said: “R Tom, honestly I never bothered to work those details out. I don’t intend to either.”

    – Fair enough. Each person can invest where they want to. There is a website for Miami-Dade that you can look up your purchase prices without any calculations needed, or just refer to your HUD-1 for each closing. I think most responsible investors and people managing their wealth would want to have done the very basic calculation of rate of return. It makes it difficult for me to take any of your comments seriously given that you don’t want to know how well your investments have performed either in absolute terms or relative to other investments. It sounds like you have buried your head in the sand and are in denial. Your condos are probably not the best investment but you’re probably doing better than many other condo owners and probably should do a cold analysis to see if this is what you want in your investment portfolio for the next XX years. A lot of people probably have avoided opening up their 401K or IRA statements too out of fear and denial over what they can’t change now and the “what ifs”. Good wealth management would require at least an annual review of each investment and the assets and liabilities…would recommend that for you too. But hey, that’s just me. Best wishes.

  105. Joe, gables,
    I never said trust me I am right. All I said was, it is working fine for me. Yes I do know how much the condos cost. But just like you can skin a cat many ways, you can also interpret the carrying costs many ways. Of course Taxes and maintenance are no brainers. It is a straight expense. Taken against those two, I am doing extremely well with my investments.
    You guys seem to put forth the argument of what if 1) No renter for a few months 2) Repairs 3) assessments 4) dead beat renters…. and a few other unforeseen mishaps that may set you back.
    I only have one answer to that ‘What if you get hit by a bus while crossing the street’?
    Luckily for me, I never encountered any of those situations – either a deadbeat renter or a bus coming at me from nowhere, usually because I tend to be cautious. Even after all my best efforts, If I come face to face with such a situation, I will deal with it as required. That is life.

  106. R Tom, Thanks for the advice. You may also be partially right. Some people may not want to analyze their rate of return or open their portfolio to see that they are not doing good. But I just don’t find the need to do it. My condo investments are a small portion of my overall portfolio. I did not want to break my head over it. Apparently and outwardly, they seem to be doing fine and I am relatively happy too. I do not want to over analyze and be unhappy thinking that I could have got 4-5% return elsewhere instead of the 3% (just saying) i might be getting now.

  107. why bother, i dont typically consider your worst case scenarios mentioned above when assessing the adequacy of a rental investment. i tend to take only rational upsides and downsides into consideration. but again, when you throw out some numbers to support your stance, without really backing up your numbers with any support, i will question your statements. basically you have said i make $1300 a month free cash, i am pretty sure its a good deal, but i dont know for sure because i dont follow my investments that closely. i enjoy challenging gixxer because at least he backs up his thoughts with numbers, sometimes correctly and sometimes incorrectly :)

  108. When I calculate are return on investment for many properties I get a return higher than 5%. Although I will say that I’m assuming 3% increases in rent per year and 3.5% average appreciation with a minimum of 7 years. I get over an 8% return on most properties with that return going up each year you keep it after that. I used these figures as they are pretty conservative and even the most pessimistic projections like the Moody’s Econmy one that predicted we wouldn’t reach previous highs until 2030 still assumes an average annual appreciation of about 4%.

    Now obviously many disagree with me and feel that we have entered the apocalyptic real estate abyss where Miami real estate and rents will no longer increase and under those circumstances my positive 8% return would turn into an negative return.

    But it still baffles me that people here still seem to think you should simply be able to go out purchase a condo and start generating positive cash flow and a decent return immediately. The benefit of real estate is the ability to lock in you expenses at a certain rate as you income slowly rises. Therefore you ROI increases over time. If places were generating 5% returns in the first year for doing nothing more than purchasing the real estate then why not simply approve everyone to buy a unit because you’ll make money hand over fist. Again this is the mentality that lead to the real estate bubble.

    People who purchase now who have the capital to hold on for 5, 10, 15 years will reap more than adequate returns.

  109. Gixxer 1000 — Tax gimmicks aside, no one in their right mind deliberately buys condos and then rents them at a loss for “x” years. Your scenario above is a gamble, plain and simple. It’s one thing to “lock in” expenses when all indications are that prices, rents, and/or interest rates are heading upward; it’s quite another to “lock in” expenses when the r.e. market (and job market, and economy) remains in a state of flux.

  110. Agree with you gixxer, except for possibly the magnitudes you state for your returns. if RE was profitable from day one, in general, everybody would be doing it and making a fortune. doesn’t quite work that way. eventually you make a profit if you hold long enough. buying now and holding for the long term will probably be profitable if you can handle being a landlord for the next decade-or live in your abode for a decade. except if you get an exceptional deal on a unit, however, my guess is the returns will be very low single digits for a while-but in a 20 year time span you are absolutely correct. your future returns are directly linked to your initial investment cost.

  111. You have to wash that money some way. What’s up with these monstrous penthouse deals. what percentage are tax dodgers or dealers?

  112. RT, Gables and Joe i understand why you find it difficult to understand why bother logic. This topic spotlight the difference between and Investor and someone looking for safety. You guys are talking about guaranteed 3% return and return of capital. Investors are not going to lend all their money to a bank or govt for a measly 3%. Investors take risk with their capital and in return they expect more than 3%. If why bother said he bought several hundred shares of google instead of 2 condo there would be no questions about his investment decision, some might even praise the decision. Instead we have questions about rate of return and bad tenants. What is the rate of return on your stock market investments for the past decade? Successful investors often gives up the safe bet and goes against the crowd looking towards the long term investments. I am convinced what why bother is doing is working for him, it is the same reason why myself and other investors buy real estate and pay cash for them. If the renter moves out and it takes a few months for me to get to it, it is no big deal because i don’t have a mtg company i need to answer to, i am the mtg company. If an investor screens his tenant properly then those problems are mitigated, the most you have to do is check your bank statement around the 1st of every month to see the rent deposited. My stock market holding are up and down and all over the place, only a few of them offer anything of a guaranteed return and none of them are guaranteed to be worth anything tomorrow. I owned bp in my portfolio until recently, I’m thinking of taking that money along with some of my cash holdings to buy another house, I’m debating only because i don’t want to get too heavily concentrated in one asset class. I can control what happens with a rental property, I have no control over an oil rig in the middle of the gulf or the executives at a $200Bill corp. Remember the phantom crash about a month ago, i wonder how many people paniced and sold PG at the lows?
    Why bother will always have a tennant in his rentals because he can rent them for a lower price than the competition with a mtg to pay, so vacancy will not be a much of an issue for him.

  113. Angel -” agree wtih Drew. Where is this very good neighborhood with homes for 250k? I am ready to buy!”

    Why bother is right, those were the nabes i was referring to along with some parts of Hollywood and other cities just north of Miami. Some of those deals were some months ago but i guess you guys were to busy poo pooing the market to notice.

  114. it is hard to say why bother only makes 3% return on his investment. All things considered equal he will make 3.6% return on the depreciation alone to offset his income. I know some people will say that has to be paid back when he sells but there are ways to avoid having to pay it back.

  115. Makes Me Think — Nice try, but when “why bother” demurs on giving even the most basic info. re: his “investments,” that tells me he’s far from sophisticated when making decisions or assessing his holdings.

    The simple fact is this: If the rental market was so strong right now, there wouldn’t be thousands upon thousands of condos still for sale. They would have been bought up and rented out by now.

  116. I very much do NOT want to give the impression that I am beating up on “why bother”, but at this point I have to be a bit blunt. The bottom line is your two condos are not really good investments even if cash flow positive. Cash flow positive is hardly a barometer of a good real estate investment especially with the tax games, not the least of which is depreciation (don’t you know that you have to continuously invest in a structure which offsets a lot of the depreciation tax benefits). Frankly, I doubt the two properties are even returning 3%…I threw out that number as a comparison to a risk free “investment” such as an FDIC insured CD. The only saving grace in real estate with low returns is asset price appreciation and that ain’t happening any time soon for most properties AND “why bother” bought when prices were higher (if I remember correctly). Hence, when you factor in price declines I would guess the return on investment is currently a big negative. Offsetting any future price appreciation against future inflation and these two condos are probably dogs…saying my home price double since I bought it 25 years ago is a joke if you know anything about inflation and economics. With that said, there is some psychological reason people like tangible assets even if from an economic standpoint it makes no sense as an investment.

    When what your real role is as a “bank” loaning 100% but getting a return LESS THAN the current HISTORICALLY LOW mortgage rates for an 80% owner-occupied home mortgage YET taking on ALL the risks of a rental property…then I would suggest not going into the banking business either.

    The bottom line is, it makes little sense to be in such an investment position and if others don’t see it (hint: makes me think….think HARDER) then go right ahead and buy more rental condos…I dare ya! LOL

  117. sorry joe, buying cash gives him a huge advantage. He can afford to rent the place for $100 to $200 less than the competition and still make a good return. by undercutting the competition he will automatically get a larger pool of tenants to choose from. how many renters wouldn’t mind paying $150 less for the same apt?

    think about it, he gets 3.6% depreciation, 6% interests savings for investment property.
    We haven’t even talked about future appreciation.

    800 sf condo costing $250,000 Cash, renting for $1400/mo
    hoa $4,200 (.44/sf)
    tax $6,000 (2%)

    yearly expense -$11,400
    yearly income +$16,800 (assuming fair mkt rent $1550 -$150 discount)
    yearly deprec. + $9,000

    income = $25,800
    expense = $11,400
    net income = $14,400

    return = 5.76% while he waits for appreciation. AS we have seen some people who bought last year has already seen nice appreciation.

  118. Makes Me Think — Your logic is strange. Under your scenario, “why bother” has $250,000 in cash sitting in a non-appreciating condo. Further, if “why bother” is saving hundreds per month in mortgage costs by paying cash for his unit but then passes along the savings by “undercutting his competition” with lower rental prices, where is the net gain?

  119. RT, interesting that you would know all about investing in Real Estate when the last time i checked you didn’t even own a home of your own. I guess all the investors paying cash for the properties being sold are the morons. Gee, i guess it is better to be a moron with a shit load of cash to invest than the boy genius still renting. I wonder how these morons got the money to invest in RE in the first place?

    Investing in Real Estate is like everything else, 20% will be successful, 20-40% will fail and the rest will spend lots of time spinning their wheels. I would understand if you actually had rental properties, i would put more credibility in your views.

  120. Why Bother #37 & MMT #35— Those “nabes” are far from spectacular. I would not live in any of those neighborhoods. When i think great neighborhoods i think Pinecrest and Coral Gables, not North Miami and Biscayne Park.

  121. joe “Your logic is strange”

    The numbers speak for itself, unless you can’t speak the universal language of math.

    The only thing left out is maint on the property considering building is relatively new, security deposit should take care of that, most people are not interested in loosing their security deposit if they are responsible, mature folks.

  122. RT – “Hence, when you factor in price declines I would guess the return on investment is currently a big negative”

    Return on investment has nothing to do with the current market value since he hasn’t sold. Another reason why your logic is flawed. I’m convinced you don’t know what you are talking about. You read about it but have no concept how it is applied in real life.

    RT – “don’t you know that you have to continuously invest in a structure which offsets a lot of the depreciation tax benefits”

    WRONG again!!!
    capital improvements to structure you get to depreciate that too. If the place is built properly then basic maint is all that is required, for long time

  123. Angel – “Why Bother #37 & MMT #35— Those “nabes” are far from spectacular. I would not live in any of those neighborhoods. When i think great neighborhoods i think Pinecrest and Coral Gables, not North Miami and Biscayne Park.”

    Great another genius who wants a million dollar home for pennies!

    First of all who said anything about “great or spectacular neighborhoods”, who said anything about “North Miami”? If you want to be taken seriously you should at least try to keep your argument intellectually honest. You and gables asked where, we told you Miami shores, Hollywood and Biscayne Park specifically but instead you bring up North Miami. You may not consider miami shores or Hollywood to have very good neighborhood but i assure you many people do, thankfully your opinion doesn’t mean sh*t.

  124. Makes Me Think, Re #134, I could not have said it better. I could have been writing that reply myself but as my name suggests, sometimes I do not bother. If anyone do not want to take my posts seriously, so be it.

    Re #139, your examples are very close to my situation.

    Joe, the reason why not everyone is running to buy a condo is because they do not have 250K lying around.

    Angel, LMFAO. You are not serious are you? To buy in Pine Crest and good parts of Gables, you should be the CEO of a company or a profitable biz owner. Not a renter in 900 Biscayne. You are saying Miami Shores is not nice enough for you!!!
    And sometimes I wonder why I even bother commenting on this site with some seriously delusional people.

  125. Makes Me Think – Thanks for the personal attacks. Regardless, I can guarantee you that I have made more money in real estate at my young age then you will make in a lifetime. You are correct in that I sold my home from another state and have chosen (read: chosen) to rent. And guess what, choosing to rent has been the very wise choice (in the end we’re all “renters” anyway so owning is overrated, renters get exclusive use of a thing just like owning). Regarding depreciation, yes, it is usually more than most replacement items (repair costs get expensed…duh). But you still have to invest in a property…just like condos need to set aside reserves for replacement (roof, parking lot pavement, etc.) and large maintenance costs that are not annual (painting exterior, etc.) as an owner of a property you need to consider that too, unless you are a slumlord. Residential structures get depreciated over 27.5 years and commercial over 39 years for tax purposes (if I recall correctly). That is an advantage to most people who buy NEW construction in that it helps (for the time being) in reducing taxable income. But if you bought a 25 year old house for $250K and allocated in the sales contract $40K for the land costs you can depreciate the remaining $210K over 27.5 years, which the structure probably won’t last (or will require a lot of replacements) for the full 27.5 years being that it is already 25 years old. One also needs to remember that you can have a positive cash flow and still lose wealth…happens all the time, especially when home/condo prices decline. Moreover, the tax issues should only be used to enhance an already profitable investment, not be the driver of it. I focus on wealth protection and accumulation.

    To argue that getting a return of less than historically low mortgage rates is OK is silly. Real estate has been a leverage game for a long time. If you can’t make more than these low mortgage rates (which only risk 80%, not the full 100%…and they got first dibs on any sale), then you have too much risk for the reward.

  126. Why Bother #146 & MMT 145. If you follow my posts (on this site for years now) you would know that i sold my house right before the crash and walked away with a pretty good chunk of change. I am renting at 900 because i want to, not because i have to. I will buy when the time is right. Also, you do not have to be a CEO to live in Pinecrest or the Gables. Guess what I could buy there if I wanted to with the capital gains i earned from the sale of my first house. I just do not want to live in those neighborhoods right now for a few reasons .I am young and single and prefer downtown living. Keep catching your knives guys! Cheers!

  127. RT – “Thanks for the personal attacks. Regardless, I can guarantee you that I have made more money in real estate at my young age then you will make in a lifetime. ”

    Sorry for the personal attacks, they weren’t meant to be personal just a little spirited.
    I sometimes have to edit my replies before posting because it takes a personal tone, I will try to be more mindful of my tone.

    RT – “Regardless, I can guarantee you that I have made more money in real estate at my young age then you will make in a lifetime.”

    You are kidding right? I won’t even fall for that one. You are right, your d*ck is bigger than mine.

    The more you talk to more you expose how full of shit you are.
    houses only last 50 years? Tell that to the folks up in the north east where 50 year old homes are considered mordern. My first home was an 80 year old brick tutor with slate roof the only exterior maint i’ve ever done to it was replacing damaged gutters during a winter storm and even then the insurance company paid for most of it which i regret because they raised my premiums after that.

    If you were a professional investor you would know that you need good systems in place that dictates which investments are good for your portfolio. As I said before 20% are successful and the difference between success and failure is having good systems in place. Judging from your statements above I can tell you have no clue about that because if you did you wouldn’t make those blanket statements. If you knew anything about running a business you would also realize that having good systems in place is also critical to success.

    Go ahead keep telling me about you thoughts, you reveal a whole lot about yourself.

    By the way RT where do you have your money invested and what kind of return are you getting?

  128. catching knives?

    Angel, as i said over a year ago on this site, the lower the prices get the more I hope to buy. I’ve been true to my words, lower housing prices are beneficial to me because I get to make more money the lower the prices go. I’ve been waiting for over a decade for this market. Personally, i would love for nothing more than another 50% drop in housing so keep the knives coming and I’ll do my best to catching them.

    I do have to thank people like you, gables and RT because if it weren’t for people like you i wouldn’t be able to acquire these properties at such a deal.

    I have been on your side of the argument. During 2001 after 9/11 apartments in NYC were at huge discounts because people and companies were fearful and were moving out of NYC, 2 bed apts in upper westside were going for 200k. I refused to buy and was of the same mindset as you, today those same apts are going for over 1mil. Fortunately I already had a home and was able to participate in that appreciation but i sure wish i had bought 2 of those apts in nyc. never let fear of tomorrow dictate what you do today.

  129. Touchy touchy….why do condo OWNERS get SOOOOO upset when you point out that their investment is not a good one. I guess they are still in the anger and denial stages……although a bit late to the anger/denial party since that was sooooo 2008. Oh well.

    Makes Me Think said: “You are right, your d*ck is bigger than mine.”

    – Have you been peaking in the locker room again? LOL The reason I said what I said about making more money than you in real estate is because you stated I had no clue about real estate. Wrong! Patience grasshopper. I have also said I am around 75% in cash spread around banks and title in all kinds of accounts for FDIC insurance and high year CD’s for now. Looks like I will dollar cost average more into broad based cheap ETF index funds in the second half of the year. I went mostly cash at the very end of 2006 and early 2007. I don’t invest in what I don’t understand….I have found the bizarre Miami condo market fascinating and interesting in that you still have the outlier buyers — usually foreigners — who buy for reasons most American homeowners don’t. Don’t be fooled by the activity in the outlier buyer market.

  130. It’s funny watching “Makes Me Think” bash “Renter Tom” as some kind of ignorant fool while MMT’s buddy “why bother” claims to not even know how much he paid for his two condos (and to not care what their investment yields are).

    MMT is basically a troll at this point. If he was even half honest, he would have been all over “why bother” before even getting around to RT.

  131. …meant high YEILD CD’s (not high year)…. By high yield I mean 4%-6%, which, by today’s standards is a darn good return! LOL

  132. RT, i don’t believe you are making anywhere near 6% on the majority of your money.
    a long time ago you said you had them laddered and it has been a while since banks were giving 5% on CD’s and that was only on shorter term CD and those were the suspect Internet bank. f’m sure you wouldn’t put your money with them. So while you may have a small percentage earning close to 4% I don’t think you are making anywhere near that. you are making 2% like the rest of us. Quit with the bull shit.

    joe – why bother said it is a small part of his holdings. Do you really believe he doesn’t know what his returns are? The man bought 2 condo for investment with cash money, he is not brain dead. If he was that dumb he would not have the money to invest in those 2 condos. Are you that naive to think he doesn’t know how much he paid for the condos? Well he knows he clear $15,60o/yr, i’m sure he can divide the price of the condos by that number to get a general rate of return. he doesn’t want to divulge too much info because someone will check the tax records to see who bought in his building for x price and then harass him about it.

  133. Angel, Re #149, If I believed stories such as yours thrown at me all my life, I would have been the owner of several bridges by now.

    Joe, Re #154, not worth responding. Assume what ever you want to assume.

  134. MMT — I don’t recall “why bother” ever disclosing the condos in which he bought units. I guess you high rollers are paranoid.

  135. Scriv,
    Thank you for detail reply.

    What i meant about the title insurance search was that in the event of any issues title insurance will pay for the issues.

  136. Makes Me Think – Yes, 4%-6% is the range. PLUS, I can put as much NEW money into 4% and 5% into these at any time (rate depends on when) and of course existing funds also receive this. It was a deal open only to existing customers (which now is a very good deal indeed – rates locked in for about the next 30 months and liberal withdrawal rights including penalty free). I don’t care about “Internet banks” if they have are established and FDIC insured (verified of course).

    why bother – If you clear $1,300 per month (whatever clearing means…sorta like I sold my house for $350K yet don’t account for real estate commissions, closing costs, etc.) then at 3% return that would be $520,000 purchase price, $390,000 at 4%, $312,000 at 5%, $260,000 at 6%….etc. Hardly two assets one can retire on. But then again, you did mention if I remember correctly that this was just a part of your investment portfolio. By golly, that also illustrates the “affordability” of home prices based on interest rates. Big range folks and higher interest rates kill prices…which is why we have such artificially low rates right now to prevent an utter and total collapse in asset prices….that really would lead to another depression (outside of just real estate).

  137. Why bother #157– You win the prize for best investment advice “R Tom, honestly I never bothered to work those details out. I don’t intend to either.” So so shrewed, invest and don’t bother to check on your returns. We got a winner people! I unlike yourself can easily and readily provide full details of how much i bought my house for and hpw much i sold it for when i sold it. Then again that is just probably dumb of me for wanting to make sure I was actually making money on a transaction involving tens of thousands of dollars. Silly me!

  138. More info about mortgage rates:

    As I mentioned in post #96 mortgage rates are tied to the fed funds rate which is tied to the 10yr treasury and therefore tied to inflation.

    We see the decrease in yield on the 10 yr treasury note means rates will likely move down as the fed lowers the funds rate to compensate.

    And I see that while Renter Tom keeps somehow making the claim that rates were kept “artificially low” and a rise to 6.5% will mean prices will fall still can’t even say when rates are supposed to rise to 6.5%.

  139. gixxer, you are not quite correct on the mortgage issue. historically your correlation is correct, but mostly by accident. rates have been tied to the government through fannie and freddie types of subsidies and guarantees. if those did not exist, mortgage interest rates would be much higher. question is, will those entities continue as a going concern over the next 5, 10 years? if your answer is yes then i do not dispute your argument. but if we lose government guarantees on mortgages, the rates will rise quite a bit. the historical tie to the 10 year note assumes default rates remain at historical levels. if default rates increase( as they have in the past years), the spread will increase from the 10 year note on mortgages to account for the increase risk of default-which will become even greater without the government guarantees. or the spread will be covered by falling asset prices-which we saw over the past three years.

    your post #96 is not correct regarding how rates are generated. just ask greece, spain and ireland. government manipulation of rates can occur over a period of years, but it almost always results in a bubble of some type which needs to pop. for example, people who bought a home during the runup in housing prices are effectively paying very large interest rates today, even with a 4.5% mortgage, because the asset price has dropped in value. those folks only get the low interest rate if they hold the mortgage to maturity-30 years! those buying after the bubble obviously fare better-but current low treasury rates indicate deflation is still occuring-or else government policy is still distorting the market. at least that is what the numbers imply.

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