Brickell Key Condo Index – June 2008
July 4, 2008
by: Lucas Lechuga
The following data was collected on June 27, 2008. It’s been quite some time since my last Brickell Key Condo Index. In fact, the last was published in January 2008, or 5 months ago. What’s interesting is that it has been one year since I started the Brickell Key Condo Index, so in this update we’ll be able to see how prices have fared over the past 12 months.
As many of you might have guessed, the average price per square foot of Brickell Key condos listed in the MLS has continued to go down since the January 2008 update. In fact, average list prices have gone down across the board throughout the 10 Brickell Key condo buildings represented in this index. I’ll show you the percentage decreases in each building towards the bottom of this post. In January 2008, the average price per square foot of condos listed in Brickell Key was $486.07. The average now stands at $450.49. That’s about a 7.3% drop in list prices in 5 months. More interesting is the drop since June 2007. At that time, the average price of condos listed in Brickell Key was at $519.97. That means list prices in Brickell Key have come down a little over a 13% in 12 months.
Average price per square foot of Brickell Key condos currently listed on the MLS:
The average price per square foot of condos that have sold within the past five months has gone down as well. This average dropped to $367.19 per square foot from the $416.92 that we saw in January 2008. This average stood at $445.59 in June 2007. That’s a 11.9% drop within 5 months and a 17.6% drop within 12 months. The average price per square foot for closed units at St. Louis was not included in this month’s index, however, because there haven’t been any closed sales within the past 6 months. That’s why you’ll see the absence of a bar for St. Louis in the graph below. The percentage drop may have been smaller had there been closings at St. Louis but nobody knows for sure since we don’t know where the market clearing value for these condos lies.
The average price per square foot of condos sold within the past six months:
- Brickell Key One – 520 Brickell Key Drive | 33131 | $321.16
- Brickell Key Two – 540 Brickell Key Drive | 33131 | $299.76
- Carbonell – 901 Brickell Key Drive | 33131 | $408.33
- Courts Brickell Key – 801 Brickell Key Drive | 33131 | $360.31
- Courvoisier Courts – 701 Brickell Key Drive | 33131 | $336.01
- Isola – 770 Claughton Island Drive | 33131 | $265.79
- One Tequesta Point – 888 Brickell Key Drive | 33131 | $392.33
- St. Louis – 800 Claughton Island Drive | 33131 | N/A
- Three Tequesta Point – 848 Brickell Key Drive | 33131 | $465.02
- Two Tequesta Point – 808 Brickell Key Drive | 33131 | $455.98
The chart below reveals additional statistics pertaining to the 10 aforementioned condo buildings in Brickell Key:
The first column to the right of each condo development is the difference in the average sales price and list price for this month, expressed as a percentage. As you can see, there is, in some cases, very large discrepancies in the average list price versus the average sales price for condos that have closed within the past six months. Notice the 36.75% difference in these two averages for Isola and about 29% differences for Brickell Key II and Carbonell. Wow! I guess list prices in these buildings still have a ways to go to catch up to price level where there’s actual demand to buy.
The second column is the number of active listings in each development currently in the MLS. The third column shows the percentage that these listings represent over the total number of condo units in each development. If you compare this month’s chart to the one published in January 2008, you’ll notice that the majority of the Brickell Key condo buildings have had a slight increase in the number of available listings. The cells highlighted in green reveal those developments that have active listings that represent less than 10 percent of the the overall units in the building. As I’ve stated before, I find this to be a very healthy number. The ones highlighted in red reveal those developments that have active listings that represent over 20 percent of the overall units in the building. Proceed with caution if you’re buying in a condo building where the available listings represents over 20 percent of the total number of units. Condo developments with active listings representing less than 10 percent of the overall condos are considered very safe, in my opinion, and anything in the 10-15 percent range is considered normal, even in a healthy market.
The fourth column shows the number of pending sales while the fifth column displays the number of closed sales within the past six months in the MLS. All of the buildings have had at least 3 closed sales within the past six months except St. Louis, which laid a fat goose egg. Two Tequesta Point experienced the most closings in that time frame with 9.
The sixth column shows the difference in the average list prices from January 2008 and this month, expressed a percentage. Those highlighted in red reveal those condo developments which have had a drop in their average list price. As you can see, each of the 10 buildings in Brickell Key, represented in this index, have experienced a drop in their average list prices within the past five months.
The seventh column reveals the difference in average sales prices from January 2008 and this month, expressed as a percentage. Only Two Tequesta Point and Three Tequesta Point have had increases in their average price per square foot for units sold within the past six months. With 9 and 6 closed sales, respectively, within the past six months, perhaps these two buildings have established a floor? I guess time will tell.
It’ll be interesting to see where prices for Brickell Key condos will reside in another 12 months. My take is that about 4 or 5 of these condo buildings are close to reaching their bottoms while the other half still needs at least another 4-6 months to reach that point.
Sorry to repeat this question. Before someone could answer to this in a previous thread, a new topic got posted. Can some wise person throw some light on this?
Which lien is inferior and which lien is superior?
Is it something in this order?
1. Prop Taxes
2. HOA
3. Mortgage (or)
1. Mortgage
2. HOA
3. Taxes (or)
1. HOA
2. Prop Taxes
3. Mortgage
Second Question:
Can any aggrieved party initiate the foreclosure proceedings, regardless of the inferiority of its lien?
Thanks
AJ,
TAXES (liens) are always superior (LOL)!
Any lien should be able to be foreclosed upon. The government is always has priority. Don’t they teach that to Realtors®?
Yes, and unlike the others you can go to jail for failure to pay taxes. My buddy Wesley
Snipes will fill you in.
moretroops,
Wesley Snipes didn’t pay his income taxes. That’s completely different. I don’t think they’ll throw you in jail for failure to pay your property taxes. They just take away your property and sell it to recover the money.
Not paying your income taxes isn’t the problem with Mr. Snipes, it is filing false returns or failing to file. You won’t go to jail for not paying property taxes…although you might need a cell for a place to sleep if you lose your house!
throwing people in jail for not paying property taxes might not be a bad idea. takes away the incentive for mortgage fraud since the higher sale price will correspond to higher assessment, and more jail time!
Lucas, thanks for the update on Brickell Key. Of particular use for us prospective RE buyers is the difference between list and sale price. This issue is creating a big drag on sideline buyers. List prices that are too high wont even get me to look twice at a property, even to negotiate lower. The more info we have to show the list prices should be lowered, the sooner we can get the RE market moving again.
You show an 18% year over year drop for Brickell Key, which my guess will hold its value better than Brickell Ave. What is your expected year over year drop for Brickell Ave then? What discount should we apply to current list prices in Brickell area?
AJ – I believe you got it right the first time: taxes, HOA, then mortgage.
Any one of them can foreclose on a property. However, if the bank wants to foreclose, there will still be oustanding liens for HOA and taxes. If the primary mortgage holder forecloses, then any secondary mortgages are, of course, wiped out.
If the HOA wants to foreclose, they don’t have to pay off the mortgage to do so.
When someone doesn’t pay their taxes in a given year, the amount of taxes owed, plus penalties, is rolled into a “tax certificate” that is auctioned off to investors every June in a tax certificate auction in each county. An investor buys the certificate at a certain interest rate determined by the auction process. In Florida, the interest rate can be as high as 18%. So, most certificate buyers are simply looking to earn interest on their money (like a CD of sorts).
So, the county and other taxing authorities get their tax money every year no matter what. The investor holds the certificate until it is paid off either by the the property owner himself or the bank holding the mortgage.
If it doesn’t get paid within 2 years from the date the certificate was purchased, the investor can instruct the county to bring the property to sale at a tax deed auction. If the tax certificate doesn’t get paid off before the auction, the property owner will lose to property to whoever had the highest bid at the tax deed auction. If there are no bids, the property goes to the tax certificate holder (though this rarely happens unless the property has something seriously wrong with it).
Lucas,
I have been proven right this whole time. When will you start listening to me? 🙂
Miami condo prices will still fall another 70% or so until prices are about 150 a sq foot/
Chris,
I don’t think anyone ever doubted that prices would continue to fall. In fact, a little less than a year ago I wrote a post entitled “Advice to Miami Condo Sellers” (http://www.miamicondoinvestments.com/2007/07/26/advice-to-miami-condo-sellers/) in which I encouraged condo sellers to be priced very aggressively if they wanted to sell their condos before prices fell further.
I have to disagree with you though on your prediction for another 70% drop. Investors will step up to the plate long before that because the break-even cash flow scenario will be in play. That’s what everyone is waiting for and I don’t think we’re going to even get to that point on average for the market. There will be some break-even opportunities but I think they’ll be pretty rare, in the broad scope of things, and will be scooped up immediately. I think we’re about 3-6 months from moving sideways for a while, depending on the condo development.
I have gained a tremendous amount of good information on this site. Thanks to all the contributors. Here’s an article from CNN that I found interesting:
http://money.cnn.com/2008/06/30/real_estate/vulture_investors_take_flight/
Perhaps even more interesting… I’ve found a way to live in relative harmony at home with my parents and saving some $$ while I continue to study at UM Jackson. I’ve been looking out for some rental bargains and am planning to move Sept 1. Some of the popular rental properties previously mentioned on this site include the Plaza and Quantum. Any other places I ought to take a look at.
thanks again to all.
I have been watching a boutique condo building built about 2 decades ago. Several owners were trying to sell at X, then 75% of X, 55% of X, and now one unit is 27% of X listed right now (granted it is the lowest floor with the least desirable view in the building, but not a bad view, and was foreclosed upon being approved at that price by Countrywide….they or whoever is the actual mortgage holder are taking a hit..hoping to get 60 cents on the dollar). The seller for X was obviously wishful, but it was listed on the MLS in 2006 for that…and more than one owner was trying to get around X at that time. Needless to say, it will get interesting later this year as the acceptance phase comes full into play and prices get closer to where they should be.
I was of the opinion that prices would slide significantly this year, especially the second half which we have now entered and further declines in 2009. However, I have come to a further realization that the declines could be more significant than I had thought even a month ago. While Chris @ housingfear might be a bit extreme (just a bit?!?!) a return to 2001 pricing is not out of the range of realistic possibilities….back to 1999 pricing in REAL dollar terms is also possible for south Florida. Glad I am renting! 🙂
Another thing I had seen…Trump Tower Tampa developer filed for bankruptcy. Makes one wonder about the Trump Towers in Sunny Isles Beach where Trump lent his name to too….
Thanks to all who chipped in to clarify. Especially to BFG for an indepth perspective.
A freind of mine from Quantum asked me this question:
“Can I stop paying the maintenance dues because the developer is charging the dues and the HOA has not yet formed? What can the developer do?”
I advised him against any such thing. I presume, even if the HOA is not formed, the maintenance dues charged by the developer has the same sanctity as a HOA dues (?)
I love this chart:
http://mysite.verizon.net/vodkajim/housingbubble/miami.html
Just puts in perspective how ridiculous this market was and is. Pretty tough to tell where the bottom of the falling knife is going to be from looking at the chart.
My 2c is that there is another leg down, but not in the low or middle ends of the housing market. The next phase will be in the higher end of the housing market. ie. 500K+.
You see it in the toys. Boat prices drop then small yachts then middle sized yachts. Normal cars start faltering first and just recently the Ferrari F430’s.
I really do think there is a trickle up poverty effect. In a “recession”, the people at the lower end tend to have a smaller cushion and basic necessities tend to be a larger part of their income. When income drops, they are in trouble right away. If you make your own sandwiches and rarely eat out, how much can you cut your food expenses?
In the upper end, if you pare down expenses, you can ride things out longer especially if you have a cushion. However, unless the economy turns around, you will wind up in the same predicament as the lower end.
Anyway, that’s my 2c. The houses that are now being “given away” at 50-200K are pretty much at their bottoms. The higher end of the market is in some doo-doo unless the economy starts turning around. Has anybody else noticed there are 4 shuttered stores on the corner block of Lincoln Road where the movie theater is located… WOW.
The smart monies gunna party like it’s 1999
Renter Tom said: “Makes one wonder about the Trump Towers in Sunny Isles Beach where Trump lent his name to too….”
Several weeks ago, there was Miami Herald article mentiong some litigation against Related and the Dezer Brothers (the other “partners”). Sorry, I don’t recall the specifics but it mentioned the promised use of the “Trump brand”.
I guess if Trump takes a fade on the deal, it can officially rervert back to what the project really always was, to quote their ads, “Another Related Development”. Whoopee, Gourge, another town, another condo glut!
perhaps their slogan can become, “Yet Another Related Development.”
Or they should say “A Related Development, but unrelated to Trump”. I guess the Donald doesn’t hesitate to divorce. I think Trump has indicated he may not renew the name license after construction is completed and turned over to the HOA, whatever that contract says… Will be interesting.
BTW JL, that graph would indicate we are 60% through the price declines in real dollar terms…back to 2004 real dollar pricing…will we get back to 2001? Or will it fall even further? Investment rule: things always return to the mean….
While Chris @ housingfear might be a bit extreme (just a bit?!?!) a return to 2001 pricing is not out of the range of realistic possibilities….back to 1999 pricing in REAL dollar terms is also possible for south Florida. Glad I am renting!
__________________________________
Prices were 150 a sq foot in 1999/2001 so I don’t know how I am being extreme. We are both predicting the same thing.
I guess people forget what real estate cost in Miami in 1999/2001.
a 70% drop from 400 a sq foot brings the price down 120 a sqaure foot.
I know that sounds scary but that is the reality as I see it.
I thought you had said an ADDITIONAL 70% drop from today’s pricing???
Ace and Chris (And MO if you are still around!),
I can only presume 2 things about you guys for constantly wishing $125 (now you changed the tune to $150)/SF
1. Either you are anarchists, you hate the governments, the world and established order and wish chaos and anarchy to rule the roost for no apparent reason other than you are jaded or confused
or
2. You want such a dramatic roll back of prices, so that you can finally afford to buy a condo that you guys never cared to buy 5-10 years ago by the way of saving and planning like how responsible people do.
If it is the first, you shopuld get help as quickly as possible. Anarchists have never succeeded in the past thousands of years and only ended up destroying themselves.
If it is the second, Be very careful what you wish for. It just might come true! There are 2 scenarios in which I can see a price crash to 98-99 levels:
a) The economy gets so decimated, that the price crash becomes imminent. OR
b) The price crash resulted in the economy getting decimated.
Any which way you look at it, When your wish comes true (God forbid) you most likely may not have a job to pay for it!
Hi JL, as per the chart, 2001 inflation adjusted prices are the same as 1989 prices. Is the inflation – the only parameter in measuring the housing price curve? Are there no other variables? It is convenient and easy just to compare the inflation, but there are so many other forces at play. Some points to ponder:
1. In 1989 the American population was : 232 Million
In 1998 it is 255 Million
in 2008 it is between 305 to 310 Million (Extrapolated from the 2005 figure of 300 Million).
Prices rolling back to 99 or 89 levels( Which by the way are higher than 99 levels) but 70 Million more souls are added to the population!
2. Pre 89 is the stone age (relatively speaking) and post 89 is the internet age (the enlightened era). I am not comfortable in comparing what happened prior to that era as it seems like another world. Even all the housing statistics only available after the start of the industrial revolution in the late 1800 and early 1900. If you have statistics to show to the period before, it will tell you another story. My point is that the post 1989 internet era is the new industrial revolution of our times (100 years after the first industrial revolution took place). So we are in uncharted territory and cannot compare to the stone age statistics.
3. And finally a simpler analysis. Have you seen the wretched buildings that were put up prior to 1989? They are absolutely no way in par with the new tech advanced buildings of today. Yes, for the most part, houses built in 1910 were alsmost similar to the houses built in 1989. But the houses and condos of today are light years apart from the cave dwellings of the past.
Hence I wiould like to conclude that inflation is not the only measure to compare the prices. There are umpteen other variables, and I only discussed 3 of them above. So these housing statistics from pre 1989 only tell a tiny part of the story.
Correction:
1. US population in 1989 is 246 Million
2. US pop in 1998 is 270 Million
I guess no one is factoring in the melt down of the stock market and evaporation of wealth. Wealth that has evaporated in blue chip stocks which has not happened since the great depression. The next great debacle will be the credit card crisis and the banks not being able to collect of credit card debt, throw in upside down car loans on trucks and Suv’s that no one will buy at any price. What you have is the perfect storm. You would have to a bit daff to buy right now, or have very deep pockets to hold on to real estate that will not come back in 3 to 5 years.
Regarding the chart:
http://mysite.verizon.net/vodkajim/housingbubble/miami.html
I wouldn’t try to argue the merits of any specific pricepoint for a bottom from looking at the chart. What I would say is it would be pretty odd for that slope to go flat in just another year.
I’m pegging another 2-3 years before you get something looking like a bottom and the brunt of the losses over the next 2-3 years will be skewed to the higher end stuff.
AJ
Wishing for 2001 prices is a good thing for the economy not a bad thing.
Yes, Greedy speculators like yourself will take a bath because you bought in at the top of the market hoping to sell your unit to a greater fool for more money. However, the result of this epic price crash back to 2001 levels will mean that end users will actually be able to buy the units again for a price that is in line with the median income in the area and that will be a good thing for the economy.
Paying 50% – 70% of ones monthly income on a house/condo is bad for the economy and bad for the health, family, saving for retirement, just about everything.
Paying 30% of ones monthly income on a house or condo is good.
And you can deny it all you want but this is what will happen. Speculators and investors like yourself realize that no one is going to ever pay 250-300-400-500 a square foot ever again for these units because they realize the game is over and only real people who want to live in them will buy them.
The ponzi scheme came to an end and you were the last one holding the bag. That sucks for you, but you can let the unit go into foreclosure, stay current on your other debt, and in 3 years you will be able to buy the same unit at 1/2 the price you paid.
Or you can stay in your debt trap for the next 30 years just to break even.
The one thing is for sure. overpriced housing is not good for the economy. Affordable housing is.
And that is where we are headed.
Yes …I too believe that we will see $150-$175 a sq. foot very soon.Who would have believed $5.00 a gallon gas???It’s CUMMIN along with down to earth Miamo condo price’s.Anyone agree with that???
Chris,
I never denied the fact that affordable housing is good for the economy. In fact it is essential. Yes, teachers and fire fighters can still pay 30-50% of their incomes and live in Miami. No one is expecting them to be living in Marina Blue or 50 Biscayne. These buildings were never built for middle class people in the first place. There is plenty of affordable housing from Kendall to Doral and in between. So if you are expecting an electrician or plumber to get into a 1/1 or 2/2 in Icon Brickell, it is not going to happen. These buildings were made in the first place for wealthy retirees or as 2nd homes for well to do people from around the World. OK, the market got carried away and built 10 years worth of supply in 4 years. There is no further construction as of/since 2005-2006. By 2013, each and every one of these existing luxury condos will be absorbed by end users.
By the way, I am an investor, not a speculator. I hope you know the difference. You also called me Greedy? Hmm, let us see. Why are you even on this site talking down the market? Why do you have a housing bubble blog? What is your ulterior motive? Do you and all other wishful thinkers want to buy a unit in Marina Blue for $125 or $150 and all this effort of yours is a means towards that end? What does that make you all? Greedy? Opportunist? Bottom Feeders? Vultures?
So before you cast a stone, think about yourself for a second.
And a word of caution to all those who might be watching the unfortunate turn of economic events in this country and around the world with glee, salivating at the prospect of buying a unit in these new buildings for peanuts. If that ever happens, life in America will not look like the way you remember. JL said above, “Has anybody else noticed there are 4 shuttered stores on the corner block of Lincoln Road where the movie theater is located… WOW.”
You can multiply that by a 10,000 fold. All of you seriously start praying that it is not going to happen.
Amen to that!
I just finished the latest condo closing rate update. I should have it up either tomorrow night or the next day.
AJ
It might be of interest for you.
In Quantum they installed allover mirrors in the garage !
AJ,
Not only did they start installing mirrors, but we took your advice and formed our own “association” by distributing flyers under the doors as management wasn’t very cooperative to say the least. You can’t imagine how many people turned up. Suffice it to say, we are taking matters into our own hands and as we speak there are a lot of Quantum owners working very hard to make Quantum a great place to live. We met on the 1st of july and we will be meeting on the 15th again. We had over 50 homeowners show up; we created four committees that are working on individual items and finally we are speaking with a unified voice. I, for one, thank you for your advice and for the push that you gave us… It turned out that everyone was fired up and they were just waiting for a spark to take action. I’ll keep you posted on how Terra responds to us.
AJ,
I am wishing for dirt cheap condo prices because i am greedy for a good price on a long term deal. last time i checked, nobody who was contributing to the unchecked increase in prices was worried about long term stability-it was all about how much can i make flipping this unit to the next sucker. these people have cost me because rents suddenly increased to match the mortgage, taxes etc that were driven up by speculators. i had to pay for those through rent, and could not even take a tax deduction on them.
i have deliberately saved through the years and not bought into the excess because i felt it could not be sustained. i fully expected a correction to occur, and will make my move at that time. let the tough corrections occur-those without debt will be able to ride it out even if the waters are rough. i have no sympathy for the irresponsible people who led us to this position-its a tough world, now learn to deal with it. responsible people have saved money for down payments and retirement funds. how many of these speculators had a dime of either when they overpaid for the RE they now want nothing to do with? at the same time, i do believe in the ingenuity of the American entrepreneur, who will overcome another Great Depression scenario.
Hi DLJ,
I am so happy that you guys have formed a group to make your building a great place. Congratulations and good luck.
I have left 1800 and came back to NYC but I hear that the laundry list we gave to the developer is being worked on seriously and quite a few jobs have been tackled from that list.
I think what is good for 18 is good for Q and Vice Versa as they are more or less, twin buildings joined at the hip with a lot of influence on each other. Looking forward to working with your group in future so that we can make the Pace Park/OMNI area the envy of Miami.
Gables,
I completely understand.
What I don’t agree is the likes of Chris who say that the greed of speculators who buy low to sell high is some how unacceptable but the greed of his ilk who will buy low from a desperate person is somehow kosher.
When a speculator is selling high, the willing person who is buying is not a victim.
When Chris is waiting to buy low from someone who is down and out or taking advantage of the situation and squeezing evermore concessions from a person who is moving out of state, job loss or any such compulsions, it does not make that kind of greed any more superior.
Remember, it is not just the speculators that are selling the houses. It could be that person who bought a unit in 2003 to live in it and now has to sell for a vereity of reasons and speculation is not one of them. He or she might be more than glad to sell their house for no profit. But expecting to buy the unit for 2001 or 1998 prices is nothing but greed too.
I am not an economist, but for the sake of both buyers and sellers, I fervently wish that the bottom is reached at 2003 prices. That is just right for the health of this country. Any further losses would decimate the economy of this nation. When the housing prices started to rise in 2001, until the end of 2003 it was an acceptable rise. The prices at 2003 levels were not crazy at all. The ass holes started coming into the market starting Summer 2004 and screwed up everything until the end of 06. That is the reason why I have been strongly advocating that the prices should fall back to 03-04 levels, even though I could have been the beneficiary of such a runaway speculation.
I have said this before and let me say it again one more time.
All those who are wishing for a bloodbath in the real estate so that they can buy a unit for a song, think again. Think very carefully. The repercussions of such a scenario is mindblowing. Think about some of the years of the 70’s and 80’s when no one but losers will live in Manhattan because it has become so wretched due to a distressed economy. You could buy a flat in Manhattan for a few thousand dollars. No one even cared. Because living in Chelsea or lower east side or anywhere else is just so undesirable. The fact that a million dollars now may barely get you a 2 BR looking into a brick wall in these places is another story.
So please do not hope for a blood bath in the real estate. Even if your wish comes true, you may not want to buy or live where blight is going to be universal.
I for one will not think it is going to happen, no matter how many wishful thinkers sitdown and meditate and pray. I am betting on the 2003-2004 prices to be the bottom. Not 2001 or 1999. We will all know by Christmas for sure.
Lucas, what do you mean by “break-even cash flow scenario”?
AJ,
I certainly appreciate your thoughts and actually tend to agree with you for the most part. You are absolutely correct about being careful what you wish for as the outcome could be terrible. I just dont think that will occur. Most of the rest of the country could revert to 2001 prices without significant losses to those holding the property. Most of these properties did not experience a significant bubble and thus the loss, while real, would not be life altering.
The price appreciation in places like Miami,Vegas and LA were mind boggling and extremely unhealthy. These are the markets that must get crushed in order to return to health in the future. Unlike a Boston or New York, Miami does not have a local economy which can afford the expensive condos. You are correct that they target the wealthy foreigners, 2nd home buyers, etc. But there is still an oversupply. A nice new 2B condo should not cost over $300k-that would be a realistic upper value. Prices need to correct to reflect that point. And a significant portion of current owners will take a bloodbath in order for that to be achieved. Its either them or me, and I am not the one holding the declining asset. How fiscally responsible is a $100k per year earner in buying a $500k+ condo? The American dream is earned over time and not overnight.
I have found great information on Miami homes for sale using this website that has a google maps/mls mash-up and also lets you search specific areas. I actually was able to find more information on this listing, which you provided some great stats for. Thanks for doing all that work! It helps a lot to see some hard numbers.
Hi Gables, I agree with you on all except the line “thus the loss, while real, would not be life altering”.
Most home owners in this country refied or cashed out some of the gains. I am not too sympathetic towards those who cashed out the ugly gains of 04-06 (I call it the blood money), but a vast majority have taken out equity and the gains built up until 2003 for college, home improvement, a wedding or even everyday living. Now millions of those home owners will have an upside down home (worth less than the mortgage) if prices fall to below 03 levels. These are just ordinary folk. They don’t even know the word ‘speculation’ to begin with.
If the price fall is arrested at 2003 levels, we can come out of this bruising economy with just some minor scars. Anything beyond, we all will bleed with a thousand cuts, both the home owners and the potential home buyers. No one is immune and no one will be spared.
Expecting to buy units at 2001 prices isn’t exactly “greed”. It’s just good sense. A lot of people were priced out of affordable housing for the past few years, and yes, we’re quite happy to see people suffering; because the people who are suffering are (for the most part) carpetbaggers and opportunists who don’t live here and have denied us a realistic chance at home ownership the past 4 years.
Yes, Brickell units aren’t exactly built for people living on teachers’ salaries, but Midtown shouldn’t exactly be out of a teacher’s reach, either. I make $70K/year (which, from my understanding is about twice the average Miami-Dade household income) with no kids and very little debt. I’m not exactly in the Brickell condo target market, but I figure I would be a target for the downtown/upper east side condo mongers. And I couldn’t see myself paying $275,000 for a condo with $500-600/month maintenance fees on top of that. To me, that’s insane. After taxes, that thing would eat up 1 entire paycheck and creep over into another – not even counting what I would have to set aside for property taxes.
If anyone’s response to what I’ve just said is that all the downtown/Brickell/beach condo construction is strictly for wealthy retirees, Europeans, and South Americans, then you’re out of your minds. I’ve heard those statements a bunch of times, and they’re patently ridiculous. All of South America and Europe cannot move here. That’s just not going to happen, ever. Even if there was a chance of it happening 9/11 pretty much took care of that. Plus, I don’t see rich old NYC Jewish retirees wanting to move to Miami to stay in Quantum or Neo Vertika. Plus the job market here is not (and never has been) strong enough to entice a well-to-do (but still working) northeast resident to move here for a break on the real estate. So, forgive me if I seem like a vulture or a jerk for wallowing in the misery of others, but I guess all you condo sellers are stuck with us poor lil’ ol’ Miami residents and our crappy salaries looking to pay a more realistic $150-$175/sq. ft for a place.
AJ,
You set up a false choice: boarded up businesses and anarchy (!) one one hand, and luxury living at $300/sq. ft. on the other.
I reject those choices. There is a middle ground: affordable housing for the middle class, with condo investors (a wholly new species anyway) and conspicuous-overconsumers as casualties.
In other words, if affordable housing means that ” life in America will not look like the way [I] remember,” then so be it. I don’t remember life in America being particularly great the past few years anyway. Materialism, debt spending, and criminal incuriosity sucks.
But that’s just my opinion; I realize it’s not yours.
Bender,
There are quite a few misconceptions and wrong finger pointing in your diatribe.
1. Carpet baggers and opportunists who do not live here: In fact for every one investor/speculator that I know of from say Chicago, New York or Toronto, I know of two who actually are either Miamians or Long Term residents of Miami!
2.$500-$600 maintenace fees: Give me your $275 K, I will pocket $50K and with the rest I will buy you a beautiful single family home in a very good neighborhood. You dont have to pay a penny in maintenance 🙂 . If condo living is your style, I will find you a beautiful condo, some with even lake views for $150K from Cutler Ridge to Miramar. The maintenance will be $100/month in these places.
In any case the high maintenance on these luxury condos has got to do with the Insurance. Blame the hurricanes, Florida Geography or your “own” local born and bred spineless, corrupt and good for nothing politicians for not doing a jack about it.
3.Property taxes: Repeat again, Blame your “own” local born and bred spineless, corrupt and good for nothing politicians ( poor lil’ ol’ Miami residents ) for not doing a jack about it.
And finally, Miami will not be Miami as you know and as everyone loves if not for all these carpetbaggers. You will just be another Birmingham, Alabama by the sea. And if not for the carpetbaggers, your services might not even be needed in Miami and you will be without a job and probably looking for work in New York right now. So stop whining for god’s sake.
Moretroops,
Yes, I am all for a middle ground. You said it, not me. If the prices started rising slowly in 2000 and rapidly in 2004 and peaked in 2006, I am very right in calling for a middle ground of 2003. 2001 or 1999 is not middle.
Yes, I 100% agree with the ugly American attitudes of Debt spending and materialism. But what has happened has happened. I think the ugly American is learning a bit. Americans who constitute 20% of the World population using 80% of its resources are now getting the taste of their own medicine. When the rest of the World lives like them, everyone has to pay with hell. So attitudes are changing slowly, Hummers are being sent to the scrapyard, just give some time. My point is why do you want to kick the ugly American when he/she is already down?
Bender,
You actually got me thinking. A few years ago, when I was making 40K/year, I bought my first co-op in New York. 2 years later, when I changed my job and my salary went up to 60K/year, I bought a vacation home in Miami. I do not have a inheritance from a rich dad either. How is it that I can do things with my limited income when you guys cannot buy a simple condo all these years with a pretty decent income?
OK. Let us see. If you let me, I will get you into a 1 BR condo in either 1800 or Quantum. You dont even have to go to the Midtown and wait another 5-10 years for its gentrification. The 1 BR in Quantum actually has a little water view too! The one in 1800 is west facing though.
850 SF apt for 200K
down payment 40K (20%)
financed 160K
A 30 year mortgage at 6.5% is approximately $1000/month
Monthly maintenance $350
Taxes $333/month
total monthly payments $1683
Assuming that you are making 70K per year, your take home pay per month should be $4200/month. So affording a 1/1 should be cake.
Let us consider a 2/2 also. If you want to buy a 2/2 in Q or 18 with some partial water views, There are some available for sub 400K range. I calculated that your monthly expenditure can be as little as $2500. With your comfortable salary, you can do a 2/2 also. So why all the griping and bitterness? Don’t you know how to manage your money well?
AJ, notice I said carpetbaggers AND opportunists. I am aware that there were South Floridians that also got burned, and what I said goes double for them. It didn’t take too much common sense for someone down here to say to themselves, “Hey, if people down here can’t afford to live here at these prices, then who’s going to buy this condo off of me?”
Sure, I could pay $200K and get a very nice house in Homestead…if I want to waste 3 hours/day out of my life in traffic. For that matter, I could probably get a good deal over in Naples, too. If I worked in South Dade or West Broward, I would be looking at Cutler Ridge or Miramar. But since I work in Miami, that’s not exactly a realistic option with $4+/gallon gas and a drive time would make for a very poor quality of life. You love the false choices, don’t you?
The maintenance is the maintenance and the property taxes are the property taxes. I have no complaints about them per se because you can’t really do all that much about them, but a condo owner can’t exactly not be mindful of those things when trying to sell some schmuck on a $300/sq. foot selling price.
Oh, and since I don’t work in the tourism industry, I don’t exactly depend on carpetbaggers to pay for my bills, thankyouverymuch. Also, if I recall correctly, Miami didn’t exactly spring up from being Birmingham-by-the-sea in the past 5 years when speculators (both local and abroad) were gleefully trying to make a killing off the average Miami joe. If you want to stop the whining, how about you quit whining because you’re not going to make the killing you had expected to make 2 or 3 years ago?
AJ, do you even believe what you’re writing? Why on Earth would I, or anyone, lay out $1700/month for a 1-bed place? Rental rates aren’t even close to that. I’m living comfortably in a 1 BR right now for $950/month. So, I’m spending an extra $800/month for what, exactly? No, thanks, I’ll continue to pocket it.
I’m looking to move up to a 2 br/2 ba place, so I can have an extra room for family and friends to stay when they come visit me. I figure an outlay of $1500-$1700/month total, while a significant jump over what I pay now, would be about right especially if I’m moving to a better area. Spending $2500+/month on a 2Br place is crazy. Rental rates aren’t going to come anywhere near that in the next 10 years.
I don’t know where the “all the griping and bitterness” comment comes from, considering this is post # 3 on this blog. I figured I would have to post on here a while at least to get a rep, but I’ve been reading your comments for a while and I figured you had to be a developer or an agent because you’re always advocating that people make bad moves into real estate down here – and what you’re advocating makes bad financial sense.
Bender,
Renters are gladly paying $2200/month for a 2/2 in the 1800. Don’t ask me why, go to the pace park in the evening and ask some of those renters why they are paying so much. They will tell you.
And a lot of secretaries drive BMW 3-series cars down here and have zero savings while living with roommates or mommy and daddy. It’s being “Miami Fabulous”. People like that deserve the financial woes that they’re bringing upon themselves, but at the same time, responsible people shouldn’t be made to pay for their extravagance, either. It looks like people are finally waking up, and I say good for them.
Bender – You should go to the 826 North Miami Beach Wal-Mart and see what people are buying on foodstamps…then getting into expensive cars to drive off. It is absurd. I don’t know the criteria for qualifying for public assistance but it sure seems like a lot of fraud to me. All the food stamps seem to do for many is free up cash for gold teeth, pedicures, and SUV’s. One way or the other, it always seems the responsible taxpayers end up getting stuck supporting these freeloaders. I don’t want anyone in the U.S. to starve, but for goodness sakes you should spend your own d*mn money on food before you buy gold teeth (i.e. grills, not actual teeth per se I guess).
All of you are fighting religous wars !
But history tells us that they will never be won.
Bender, AJ. Why don’t you guys open a blog where you can both go at it in a place where we all of us don’t have to read?
I mean, this is meant to be a discussion blog for the posts that Lucas creates, not for you to discuss whatever you can think of.
“Renters are gladly paying $2200/month for a 2/2 in the 1800.”
I see quite a few 2BR Rental listings in the asking 2K -2.5K range for 1800/Q. The problem with rentals in a renter’s (buyer’s) market is the listing is going to sit for a couple months at least. You’d be lucky to get a tenant in 60 days unless you price very aggressively compared to the others.
A typical scenario is you list at $2,500 and in 2-3 months take $2,100. I believe there is a 1 month commission on a 1 year rental if you use a realtor.
You may be getting $2,100/month from the tenant over the next 1 year period, but in effect, you are getting closer to $1,700 in real terms when you count in the missing 2 months and realtor fee.
That’s assuming you get a tenant in 2 months. There are some choice rentals that sit for 6+ months because the owner is obstinate about price.
On a related note, have there been any recent resales in 1800? From the asking prices, it would make you think 1800 is being priced comparably to the Waverly? Is that right? I’m no fan of the Waverly, but it’s got the location and that usually matters in the end.
I think one of the biggest problems with our society as a whole is the over-reliance on debt to finance our living expenses.
Taking out home equity loans to buy things is just another form of debt – even though it is backed up by “equity” (phony money). It still is money that has to be paid back at some point.
If there is anything good that will come from this recession, I hope it is a return to more conservative financial attitudes. I also hope it instills the idea that housing is a place to live – not a get-rich-quick scheme.
People have been living for too long on free credit, and the bill is finally coming due.
what’s the difference between the people wearing gold teeth using $1oo worth of food stamp at walmart and the people pulling $1ook from real estate to buy fancy cars they can’t afford?
Hint! there is no $300 Billion bailout for foodstamps.
Hi JL,
Even I am surprised at the speed with which these units at 18 are renting out. Unless an obstinate owner listed a 2/2 for 2500 to 2800, most of the reasonably priced units are renting as soon as they come on the market. Some within a week and some within two weeks.
Mark,
I do not know what Lucas’s version of break even cash flow scenario. But here is one example generating a positive cash flow in my opinion:
One landlord of 1800 that I know owns a 2/2 and his carrying costs are $2900/month. He is renting out his unit for $2300. There is a $600 shortfall which he pays out of his pocket. At first glance, it may look like a loss but he told me that after taking into account 1. the equity buid up and 2. Tax deductions, he is actually making more than the $600 short fall. And that is good news finally after having a negetive cash flow for more than 10 years in Miami properties.
Rentals at 2100 to 2400 are you crazy. Those peopel paying that are being overcharged. Rents in Q adn 1800 are startign to pop in at 1850 – 1900. They will continue to decline as well when the other folks at $2000 asking realize they already wasetd 60 days and have not rented. i think a fair price would be $1400 – $1600 for a 2/2 at those units. Sure the owner is losing money each month but even with a rent of $2400 he still would be losing $$. Bottom line is the prices that the owner bought was to high to start at.
The ownership to make sense must atleast break even on rental cash flow or lose about $100 – $200 a month max. Cause then you can write off the interest and also you are lowering your principal balance thus earning equity. But obvious in thsi market they are losign equity. But when the time/price is right that wil be the case.
Also at the lower prices they will rent them out much faster. And…at the end of the day a $2400 rental unrented fro 6 months would become a 15-1600 rental. So rather than lose cash flow upfront might as well take something than lose it all.
If anyone wants to rent me a 2/2 at either of those bldgs at the $1400 – $1600 price then I’d want to hear. Rather make something than nothing.
don – no, we just spend hundreds of billions to buy abled bodied people food so they can spend their money on something else. When working class people clip coupons and buy generic products only to see foodstamp recipients buy name brand food stuffs recklessly then get into a Lexus SUV, it makes you upset. I have a friend who sees this everyday. Regarding the people that pull out funny money home equity and spend it, at least most are going to pay that back one way or the other. The freeloaders on welfare are shameless. Only in America do you have people on public assistance driving $40K+ gas guzzlers, with the latest electronic gadgets, etc. and many are obese. It is actually sad and sickening that we borrow from future Americans to pay for these consumption freeloading pigs. They spend more money on their monthly cell phone bills than the cost of health insurance yet they don’t bother to get health insurance either. Geez.
By the way, there is no end in sight right now to mortgage resets and foreclosures in the big bubble real estate markets. Fortunately the whole country was not in the big bubble…
Hi Renter Tom,
Yes only in America. What is so surprising about that? Do you know that we probably are the only country in the World who pull out equity out of a house by the way of refinancing. This bullshit does not happen with such impunity in other countries. For example, when prices started falling or stagnating in Japan, it did not cause as much disaster as they depend on their savings for their day to day expenses and other big ticket items.
That is the reason why, I say that if the prices fall below 03 levels, it will cause a nightmare scenario in America where as such a situation will not be disastrous for the other bubble affected countries such as Spain, UK or Australia.
A law should be enacted so that no one should be able to tap into the home equity in America so easily. It should be as sacred as your 401K which can only be touched with strict conditions. That is the only way Americans will learn to live within their means.
AJ said: “most of the reasonably priced units are renting as soon as they come on the market. Some within a week and some within two weeks.”
No way that is true. Can a realtor here burst AJ’s bubble? Or is there really a waiting list to rent at 1800. Is there a 3 bottle minimum too?
Once Again,
Say what have you. Rentals are on fire in both Q and 18. They obviously see something there. Rentals for one BR are in the range of 1450. Most owners who bought preconstruction for a good price, are only paying a monthly carrying costs of $1700 on these 1 BR’s. That means the rents are covering 85% of the carrying costs. That is a long way from the 60% they used to cover before (and still are on some expensive and SOBE condos). The remaining 15% could be covered by the way of tax write offs and equity build up. Looks like we are turning a coner at least on some locations and some buildings.
JL,
I am sorry but Waverly, other than being located in SOBE does not hold a candle to to 18 or Q. Rents may be the same but the carrying costs in Waverly are killers compared to the 18. So there is no comparison.
Hi JL,
No need for a realtor to chip in here. There is infact a shortage of east facing 2/2 with bayviews on a higher floor. I was asked by a couple of realtors if those units are available. There are only 3 units of line 05 and line 7 on the market and all of them are asking for over $2500. If they drop their rent to 2200, they will get rented tomorrow.
AJ,
We may not always agree on the final result, but i appreciate that you use number to reach a logical conclusion. i agree with you that if prices fall to 2003 numbers, it hurts but we will survive. if we fall to 1999 numbers, that will sting recent purchases, but those outside of bubbles will still survive. Even if they refied out some spending money, the advantage is many of those homes still had low values, so the magnitude of debt incurred with a refi will still not be anywhere near what people in bubble areas face on the primary mortgage. i’m greedy but not sadistic, so i’ll just take a 2002 price point and save a few extra homes 🙂
your numbers regarding the cost of a 1b were pretty good. i have ballparked the cost of a 1b at $225k to cost around $1700 total per month. what i dont understand in this market is why, consistently, you will find that a 2B runs near $400k, and is not double the size, but say 50% larger. that should put it near the $325k range, a number i have targeted as upper limit for most buyers in this market. any ideas why the 2b units are not discounting the same as 1b? that is where the higher income singles and dual income couples will positively impact the market.
“… Regarding the people that pull out funny money home equity and spend it, at least most are going to pay that back one way or the other”
guess who pays for the $300 billion bailout? We should consider ourselves lucky if thats all it end up costing us and our kids. Just ask your neighbours in Miami or all the people being laid off on wall street and the rest of the mtg industry/
don – What bailout? Did I miss some sort of Federal legislation that has been passed?
Lookin gofrward to the $150 sq ft deals. That’s Miami pricing.
Also consider the Related lofts projects semi affortable and yet alot of those are still listed and are not selling like hot cakes. Granted not the best bldg to compare situations to since they are lofts and offfer virutally whaked parking but you get the sense of prices that even with lower prices they still arent selling. Gotta drop a bit more my friends.
Do you get the sense that soon newer buildings will be completey upside down on their mortgages for all those that closed. I think I’m starting to see a few w/ prices continuing to drop below what pre-construction was.
Never mind, You are right! those fu*king fat as hell, gold tooth wearing, suv dirving welfare reciepient should all be strung up and beaten like a pinata. Those f*ckers caused my property value to drop by at 60K not to mention all the damn money I’ve lost in the stock market this year alone.
don – My point is the Federal government can’t just keep borrowing money too… esp. just to fuel goofy consumption spending by freeloaders who don’t pay or their own food, health insurance, etc. yet are able bodied enough to get gold teeth and fancy clothes and cars. It is nonsense and the Federal government isn’t immune to the debt burden. If spending by the Federal government isn’t curtailed by serious amounts we’re gonna go bye bye like Rome. The Federal government can’t afford to live off borrowing anymore than the consumer. I’ll throw in my 2¢ that a huge debacle will be uncovered in “education” loans within the next five years. Do you have any idea the kinds of debt that is being pushed onto post high school students so they can “live the lifestyle” while in college as if they are already a salaried professional? Plus, a lot of these schools fail to impart any significant education for careers anyway. The relevance is the pushing of debt onto people with really no assets in the hope that the future will change so that those debts can be paid. Didn’t work in home mortgages, HELOC’s, soon credit cards and education debt. These debt pushers — really pushing current reckless spenders — will be the end of this country. When the Federal government has limitless credit, there is no cap to spending and transferring of wealth to existing deadbeats at the cost of future citizens. Debt is usually not a good thing and must always be used with restraint and for good purposes…that’s Finance 101.
AJ, there’s quite a few 2BR East facing units for rent at 1800 and Q asking between 2K and 2.5K (meaning they will take 1.8-2.2K but can’t get it at this time). Neither building is any worse or better off than other Miami condo’s in terms of rental demand. It’s tough out there for both sales and rentals.
There are some pretty extensive graphs for California real estate that show the lower priced homes declining first (in % terms), then mid priced, then high priced following that. If that behavior carries over to Florida real estate, the high end will follow the downward path too albeit on a shifted schedule. I do think California is pretty similar to Florida whereas NYC has some different factors at work that will lessen the price declines. I have become more bearish on the length of continued price declines in nominal dollar terms that it will continue into 2010. The reason, neg-amort Alt-A loans….watch out!
I think Quantum is renting so well because of the liberal (no weight limit) pet policy and the fact that there is no application or screening for possible tenants. The developer sets the rules and for now it’s a very open door to fill the building.
Unless there are some standards in place and rules are enforced the building could turn into a sh*t hole rather quickly.
Tom,
While we are on the subject of welfare recipients and deadbeats. How about Wall Street investment banks and the entire U.S. commercial banking system which has received (and continues to receive) nice fat handouts from the Fed and while waiting for $300 billion in “spare change” from Congress. Our illustrious bankers, builders and other corporate welfare recipients may not have gold grills but their food stamps don’t come any cheaper.
If you must attack welfare, attack it all and stop using code words for minority scapegoats.
Mr Waverly,
I think the developer is now requiring an application process. I sent a rental referral to an agent in my office a few weeks ago and she found a place for the person at Quantum and later told me that there is now an application process. I didn’t verify this though.
Mark,
Break-even cash flow scenario means that a person can buy a condo, rent it out and cover their property taxes, monthly maintenance fee and mortgage payment with 20% down.
If prices were to drop 70% across the board then there would actually be opportunities for an investor to earn positive cash flow. In the better condo buildings I don’t see this happening. I think we may see instances of positive cash flow in buildings such as Vue at Brickell or The Club at Brickell Bay but not for the average Miami condo building.
I have heard that some owners are requiring applications and approval but the developer and management only wants to see a lease and requires a deposit. I am an owner at Quantum so I want the most stringent approval of all Tenants.
Mr Waverly,
I assure you as another owner of quantum that as of 2 weeks ago, quantum has an application process for new renters. I share your same concerns and have in fact formed a de-facto association. It is our goal to tackle any and all problems associated with the building and the area as a whole. We would really appreciate your energy at our next meeting which will take place on the 15th at 8 pm. As I stated in a previous posting, we have formed multiple committees which will address a myriad of concerns. There is unity in numbers and Terra is in for a nice surprise.
Gables, I do not know why the 2/2’s are not proportional to 1/1’s. The most possible explanation is that the 2/2’s are usually the ones with the water views and so command a premium. For eg. in the 1800 all one BR’s face West except line 11 and do not have water views. All 2/2’s except line 10 have water views in that building. I hope that explains. So you may be able to snag line 10 with out the water views for the upper price range of $325K but I am not sure about the other lines.
JL,
Yes you are right if you count the lines 3 and 9, that there are a few East facing 2/2’s in the 18 for rent. But believe it or not, There are actually people waiting for a line 5 or 7 (the 2/2’s which are 100 sf larger than the lines 3 & 9) in a higher floor, ready to pay $2200/mo. The general RE agents may not know about this but ask the exclusive agents in these two buildings (I can give you their names if you want) and they will vouch for that.
Mr. Waverly,
I heard you guys formed a committee in Quantum. Why dont you talk to DLJ and add this to your list of demands to the developer?
Mr Waverly said “I want the most stringent approval of all Tenants.”
—-
I’ve had a few realtors tell me that a condo board can’t deny a renter’s application as long as the renter is not on death row. True?
What would be grounds to reject a renter’s application?
JL,
I’m pretty sure that every board or management company has their own criteria to reject or approve a potential tenant. For example, at Marina Blue the application states the following criteria on the front page:
1. No applicant or other occupants may have a criminal history
2. Occupants’ monthly salaries must be equivalent to 3x the monthly rent. Salaries may be combined in order to meet criteria.
Some buildings are stricter than others but, that being said, I’ve never experienced or heard of a tenant being rejected. I’m sure there are Realtors out there though that have had this happen to them. Actually, the agent who I sent a referral to in my office told me that her client needed a co-signer to live at Quantum because he was a college student and didn’t have any income. His parents were paying the rent and needed to be on the lease or write a letter of guarantee. So, in a way he was rejected but later approved once his parents went on the lease.
JL,
I did a google search on what would be grounds to reject a renter’s application and this is what I found.
http://www.ehow.com/how_2171224_legally-reject-rental-application.html
DLJ,
Craigslist got in trouble a few years ago because people were posting ads that were in violation of those guidelines. People were posting things like “nice white neighborhood” or “quiet Christian community”. Now, Craigslist has a big disclaimer at the top of their postings to warn people from creating such ads.
I didn’t see “age” as being a reason to reject someone. I thought you couldn’t reject someone for age as well, but maybe I’m wrong. I would think that some landlords might want to reject someone just because they’re a college student who might want to throw wild parties. I guess they could always use the “lack of income” criteria to reject them though.
That requirment at MB about 3X rental income is ridicolous. If you can afford the monthly payment then you shuld be allowed to rent.
Matter of fact, if they do deny you for a silly reason you can prob sue as its ground fro discrimenation with the Equal Opportunity Housing act. May be a pain but you may land up w/ 6 mths free rent once the developer or association decide to settle cause it’s bad PR if they lose and they prob would lose. You basically cant deny anyone housing so long as they can afford it and have no felony criminal record. Misdeamenor should be fine.
Once again,
I don’t think 3x rental price is ridiculous. There are other expenses that people need to pay for in life such as car payment, car insurance, food, utilities, living expenses, gold grills, school loans, medical bills, etc. I think a person or couple who rents a place for $2,000 per month should be making around $6,000 per month.
The 3x limit does seem a little high, but it is a direct response to the uneducated financing of the past few years. It is clear that many buyers became involved in purchases which were not sustainable over the near or long term. Why would you allow the same mistake again with renters, where you create a problem on site with evictions, etc. A tenant may say they can afford the unit, but if this unit takes up over 50% of their take home pay-they cannot afford it. The building association and landlord have a financial duty to secure the stability of the building, and that should include restrictions on income. If you can pay by some other means, demonstrate and you will be admitted, otherwise find another home. Its been like this in NYC for years, and legal. It may seem like profiling, but the protection of a $400k asset requires this approach. would you loan your car out to just anyone?
Lucas,
Back to a more blog centered question. In light of your stats on the brickell and brickell key units, do you get a feeling for the appropriate discount a buyer should give to the list price in order to make a deal happen? 5%, 10%, 20%? There is obviously a disagreement between what is listed and what is selling. Any advice for somebody who wants a good deal but still wants the sale to go through?
Mr. Waverly / DLJ,
Let’s see.
The landlord / “investor” / homedebtor rents a condo from the bank at 55% debt-to-income ratio or no income documentation with a funny money adjustable-rate mortgage, and no money down.
then insists that
tenants rent the same unit from him/her at 33% debt-to-income ratio, fixed monthly payment lease with first / last month’s rent plus deposit (cash down payment), and full income documentation, and proof that tenant is not a criminal / housing fraudster.
This in a crashing rental market that has landlords (aka Carleton Sheets graduates) begging renters for a bailout while possibly facing criminal indictment for mortgage fraud.
Sure that makes sense. Can anyone spell hypocrisy? Hubris?
I think 3 times the rent for income is a little bit high but not outrageous, what should be the standard and probably will be the Standard from now on will be that no more than 33% of your monthly income should account for your Principal, Interesterest, taxes, Insurance and HOA. This would actually restrict people from borrowing something they couldnt afford, speculating, defaulting and the banks can start offsetting their losses by giving out good full doc loans.
I am never going to forget learning about this when I was taking my mortgage brokers class at Gold Coast and the teacher said “these are the guidelines but no one actually follows them, come on if you actually enforce these none of us mortgage brokers would actaully close any deals”
If 3X income to rent rule is enforced more stringently, then at some point rent prices will have to come down to attract qualified people. There simply aren’t enough people in Miami making that kind of money.
A 1BR @ 1400 would require a $50K a year job before taxes and we all know that is above the median income for Miami. As a couple it might work out but a single, young, professional would struggle.
J.P. Morgan Chase’s president, Jamie Dimon, spoke today. I think it is clear that we are back to the 80% loan to value for home purchase mortgages. Moreover, it seems that NATIONALLY we are getting near the bottom for new home construction numbers and unit sales numbers. Home prices have a good 8% decline to come NATIONALLY over the next 12 months. Any recent sales upticks are primarily due to heavily discounted foreclosure sales.
With that said, the Miami area has a long way to go since construction is still being completed with new construction inventories increasing. Home prices for the Miami area have far longer to go down than nationally.
Glad I am waiting to buy…. 🙂
AJ
You are right about foreign customs in financing real estate. I live in a continental European country where we are used to very conservative financial habits. Normally we put down 25 – 33% and lenders do not grant refinancing and taking home equity away (only in few cases after many many years of ownership and steep appreciations). But price increases are very moderat (only 3-6% p.a. in the past years). The lenders also apply very tough requirements concerning the financial state of the borrower. If you don’t own large liquid assets, the mortgage payment must not exceed 1/3 of the net earnings.
Also you cannot walk away from mortgage debt because the mortgage is tied to other personal cashable assets as collateral, that means, when you default on your mortgage, the lender can seize these assets.
The benefit are, that we have very low interest rates, a stable real estate market (nearly no forclosures) and no oversupply of homes which results in a very good lease market for landlords (comparable to New York City).
On the other side, we are not able to spend so freely as you do in the USA because we have to save more on our income as you have to do.
In our country we do not have to rent out real estate with negative cashflows.
BTW, I also own a condo in Miami (your loved Quantum) and I have a very positive cashflow in renting it, because I could do all the financing at home with most favorable terms and I also could take advantage of the current favorable exchange rate.
Finally a word to the fuel crisis:
We can live well with gas prices of $8 a Gallon !
How that:
In our country we invested heavily in the past 20 years in public mass transit, so we can commute well with public transport and mostly do not need the car for going to work.
A good transit infrastructure is also of great importance for real estate. In my home town real estate prices are measured how much time does it take you to get to the downtown center by mass transit.
As I personally noticed, this is more or less also valid for cities like New York or Chicago as exceptions
I think, a good mass transit infrastructure will be of immense importance in the future for the american metropolitan areas.
SB,, I agree with you. Landlords and Associations need to set their own standards. What works for one Landlord may not work for another who in debt up to his eyeballs and cannot afford to wait to qualify a tenant. Lenders failed to regulate and allowed fraud, now they are back peddling, witting of TRILLIONS and wreaking havoc for the responsible homeowners and landlords.
Standards for Tenant approval does need to be in place otherwise we will never get back to a healthy balance. I believe we are headed for lower rental rates over the next year so why not add a standard for Tenant applicants. Those unit owners who committed fraud to obtain their units or cannot afford need to be shaken out. Hanging on by a wing and a pray is not good for anyone or values.
I just spoke to the property manager of the condo building. She says there are a lot of foreclosures and she has been working to stem the tide of owners that were renting against the rules etc. She says she is trying to “save” the building…which is pretty much true since these properties can go down hill fast. I would hate to see what is happening in buildings with lax management or no money ……. from what she said there is a lot of desperate owners out there. And to think I am in one of the good buildings with good maintenance and are making a lot of improvements. No wonder banks have blacklisted condos.
The mirrors at Quantum parking are so small!!! they don’t help at all… go to some public parking lots and you’ll see some big mirrors in each corner. These look like small bath mirrors.
They should also put some speed bumps. In the dangerous corners of every floor people is coming down too fast, the danger is for anybody driving up in that parking.
NO more news from now
For the “heated” pools problem , they told me it is a power line problem underground and that they are waiting on a city’s permit… E.T. 2 more weeks to work.
Question, everyone talks about these prices for teh condo market. What about other type of properties in Miami like townhouses or SFR?
same drops?
a townhouse bought for 300K will go down also that extreme 70%? to 90 K?
🙁
SB said “The landlord / “investor” / homedebtor rents a condo from the bank at 55% debt-to-income ratio or no income documentation with a funny money adjustable-rate mortgage, and no money down.”
We at quantum and most new developments actually closed this year. So that means that the scenario that you describe no longer exists and hasn’t for a while now… we all paid 20 % down and had to justify that we were able to afford what we were getting into. The days of the sort of “creative” financing are over and they should be over. We as owners went through a stringent process to get approved (as it should be) and hence I see no hypocrisy in having renters go through a similar process to insure our investment. I do think that 3 times as much as their rent is somewhat elevated.
Visionary,
I would be interested in knowing what particular country you are talking about. The major European countries have all started to see a looming debacle in their housing markets. True, not as deep as the american debacle (Yet!). I certainly hope that this is not the case as a European meltdown in home prices would be detrimental to the whole world (just like the American crisis has been); but the reality is that real estate prices in Ireland, Spain, Italy, France, the Benelux countries etc. have seen incredible augmentation in the last 5 years, much greater than Miami and now they are falling hard, just as we have. The only major European country that isn’t seeing this crisis (to my knowledge) is Germany and the reason being that they did not experience the appreciation in real estate that the others did. Of course public transportation is key and God knows I have been praying for it in Miami for years. I certainly hope that we organize and push for a functional system that would benefit most households in this city. I would love to go to work in Public transportation, but I don’t see it happening any time soon.
Oh, and I forgot to mention England…
Auto lobbyists and Highway lobbyists always “kill” attempts to build mass transit in post-automobile developed major cities.
Peter Calthorpe is doing TOD’s in California (transit oriented design) and having some success in San Diego…
I think Atlanta’s mayor is finding some success???
Miami is lagging. It doesn’t help that auto dealer owner Brahman keeps suing when the City attempts any big projects, like he’s suing to kill the Stadium and that plan had some components of light rail tied in to it, I don’t honestly remember the details. This talks a little bit about it…
http://www.skyscrapercity.com/showthread.php?t=631154
He also sued when we had the “penny tax” proposed that would have gone towards public transportation years back.
What a guy for having Miami’s citizens best interests at heart…with no hidden motive of his own…right.
Good point about Brahman. I hadn’t thought about that.
Visionary,
Actually, the bane of Miami which is lack of public transport may turn out to be a boon for all these new Downtown condos. Remember when I suggested to Bender that there are thousands of very affordable houses and condos all over Miami from Cutler to Miramar? He simply suggested that he is not interested in them due to the traffic and gas prices. May be that point alone will be the reason, these condos will not go under as everyone wants to move closer to work due to the traffic and the gas prices and the lack of public transport from the suburbs.
Did anyone notice the 2/2 foreclosure in Brickell at the Four Ambassadors for $99,900? It comes out to $109 per square foot. The prices in that development have come down hard because of the high maintenance fees. Now, prices are starting to make sense there.
http://www.miamicondoinvestments.com/property-search/?mlsnumber=N260515&type=2&mnprice=0&mxprice=999999999&bath=-1&mnliving=0&mxliving=15000&zipcode=&Search=Search
Good point la la, it never occurred to me that he might have an ulterior motive… I have bought two cars from Braman, I don’t think that I’ll be buying a third…
The 4 embarrasments might be cheap but damm what a piece of crap. I guess for the price it’s ok but the maint fee is out of whack and frankly I think the maint fee/special assesments is what will doom most of these new condos.
What good is it to have a $700 – $1000 maint a month on these newer condos.
An example of ths would be the maint fee at the 4 embarrasments even at $650 would be higher than the mortgage!
Unfortunatley, untill this state can get the insurance mess cleared up and the maint fees lowered we’ll see prob. For example..One Miami it’s ridicoulous the maint fee there.
My gym membership for the entire year in a real gym at Golds Gym is $349 a yr or $35 or so a month not some put together condo gym so those that say ohh but the condo has has a gym, a pool and valet doesnt justify the costs even if it is convinient.
As far as Brahman, I wouldnt by a car from his dealearship. Obvious his best intrest is in selling more cars not finding ways to improve mass transist which would reduce cars sales. Sorry Brhaman you’re overpriced anyways! I’ll by my new 09 BMW 7 series and my biz elsewhere.
Once Again,
You have made me laugh out loud… thanks for the comic relief… You are right, maintenance fees are ridiculously high mainly because of insurance premiums. Our governor ran on a platform that he would do something about insurance and astronomical taxes… Needless to say, he has done neither… My tax bills are higher this year than last year(as evident from my 1st quarter payments due last month) and so are my maintenance payments. I just don’t get it. BTW, insurance in single family homes is also going up astronomically… its not just the condos that are feeling the pain.
Yeah not to get into politics on here cause that wil open a can of worms but that bullshit about “Property takes will fall like a rock” is full of shit!
Politicians will say anything to get elected. Yes they tried but what good is trying if in the end no solutions will come about. Only thing we got was like a $200 decrease cause of the ammendmant that just pass. That $200 don’t mean anything if my insurance went up $200.
and to think thsi guy may land up as a potential VP runningmate. Give me a frickin break.
If it’s gonna drop like a rock then make it drop like a rock. BTW: hope we all go and vote this Nov to cut property taxes some more. Looks like the vote on taxes will need 60% again but I think it will drop around 25 or 30% of current taxes because it will eliminate the School Millage. That will help somewhat… isn’t what I call dropping like a rock but more like a small pepple if it does pass.
Every little bit helps. But the other ammedndmant that just passed wasnt any help at all unless you bought back in the 80’s and were homesteaded way back when.
once again,
That was hilarious. Yes they are 4 embarassments indeed. Who would want to buy in those no balcony ugly buildings anyway even for 99,000?
Ahh, Charlie Crist. He proposed to some girl to scotch some persistent rumours for the past few years. But who is he going to fool? Everyone laughed when Tom Cruise married too. Never mind his personal life. Don’t care who he does or what he does but Crist is turning out just another pol. He could not deliver what he promised viz. Insurance reform and prop. tax cuts. So he wants to run away to the comfortable life at Admiralty House.
Anybody have a rule of thumb measure to factor HOA on a sales price. For example, let’s say you have a condo that you know you can get for $500K that has an HOA of $1K/month.
Just to use round numbers, let’s say you found another condo that you like equally to the first but that has a $2K HOA. What should be the price that you are willing to offer? Once again, knowing that you can get the first condo for $500K and you like the 2 condos equally. How much of a price difference should the $1K HOA vs. $2K HOA translate to on condos in the $500K range? In general, is it like a $30K or $60K factor?
Government is all about given tokens (example stimulus checks) to the peeps while they rape you raw on the back side (maybe to graphic). Property taxes should have been addressed before they doubled. Why would local and state government expect doubling of tax revenue within a four year period? Because they stood back and allowed it to happen. Fraud and greed contributed while local government agents gave permits to buildings that should have never been built, only to increase the tax revenue, bottom line. City planning boards, where the hell where these people? A ten year supply of condos were to be delivered within 2.5 years. Did these government planners have their heads up the asses of the politicians who were in bed with the developers?
AJ, that would be awful if McCain was elected and Christ was the first closeted gay Vice President.
Not that there is anything wrong with the gays (being one myself). It’s just those two Republicans.
Lord help us
Back to the HOA question. Good point…what is a fair assesment on HOA fees. I mean I literally had a fire sale PH 2200 2 story @ Midtown for $250k but turned it down because the HOA fees were $1700 p/mnth. So it didnt make sense even thought the unit was nice and basically being given away at $250k. Thats 1700 in HOA plus the taxes which would have assesed higher not on the purchase price of say $1000 a month in taxes so thats $2700 a month just on HOA fees and taxes for life even if you paid off the mortgage. Doesnt make any fiscal sense.
so liek I said these HOA fees ultimatley will doom the market cause even if the unit is priced right or affortable th eHOA fees will kill it.
i think they need to revert the fees back to when these developers were selling them pre-consruction when they were telling eveyone ohh yeah HOA will be about .32 cents a sq ft. That has now doubled in most cases on every pre-construction quote from 03-04.
I can live w/ .32 as fair but not .60+ or even .50
JL,
You must have been reading my mind. I was just thinking a few hours ago that it would be a great asset to this site if I could create a way for people to compare two different condos in scenarios like you presented. I’ve thought about it all night and the only thing I could come up with is adding the sum of seven year’s worth of monthly maintenance payments and adding the present value of that to the list price of the condo then dividing that by the square footage of the condo. Seven years became my number because that is the typical life of a loan (ownership). I’m open to different options though. Does this make sense to everyone or should I revise my figure? I’m open to creating a new column so people can compare apples to apples. I do agree that people need to take monthly maintenance payments into account.
Actually, after thinking about the equation a bit more, I think it would be wise to include at least a 2.5% increase in maintenance fees per year. That would mean that we should add the present value of the sum of the annual increase of 2.5% over 7 years to the list price. Make sense?
Although it may have not been entirely accurate, how come Asia wasn’t included in the index?
The HOA fees are certainly an important issue. Can anybody give me a ballpark figure on what percentage of the HOA fee covers insurance? I would like to compare condos with single family homes when searching for housing, and this would help compare the costs since homes pay insurance costs directly. This would help me to put in context better whether a condo or home is cheaper over a certain time period. Also, does anybody have a ballpark number for home insurance cost, for a home comparable to what a condo shopper might buy?
Mr. Waverly,
Yes Taxes should be brought down. As someone suggested we should all vote this November towards that end.
Once again, That is the most ridiculous HOA (1700) I have ever heard of. That too in MIdtown!? Incredulous. That is why I would never buy in a Floridian due to the high HOA’s.
A 2/2 in 1800 HOA is about $500/month. It is the lowest HOA charged among all the new buildings. Some one sniggered saying that the developer took a bare minimum flood insurance and so it is cheaper. So what? I want the option to remain in home owners hands. If he/she wants a higher flood coverage or if the bank insists, higher flood coverage can be bought. If the home owner wants to assume the risk, and opts for a lower HOA, he should be allowed to.
Lucas,
The table looks nice and clean the way it is. By giving more variables and addding more parameters, it will get too scrambled. I think people have wisened up and are automatically adding the HOA costs before they arrive at a conclusion as to whether the deal is actually a deal or not. But eventually it is your call.
To respond to a point by AJ (since my name was mentioned) about commuter weariness keeping condos from bottoming out – while commuter weariness definitely keeps me from moving to West Miramar and Cutler Ridge it also doesn’t mean that I (or others like me) will necessarily capitulate to the current ridiculous state of condo prices and move downtown, either. There are plenty of other options closer to the city’s core that are a lot more affordable.
Just because people would like to cut down their drive time, doesn’t mean they necessarily can move into the downtown condo market, either. While it might be fine for vacation homes for the wealthy and for childless professionals – it’s not an option that I see being considered by most families with childen. I agree with AJ’s sentiment, that the drive time and gas prices could be a bane to developments out in the extreme west (which, IMO, shouldn’t really have been built in the first place) and south portions of the county, I don’t agree that it’s necessarily a boon to the downtown condo market, either – at least, not to the degree that people are going to find $350/sq. ft. to be acceptable. If anything, I see it being more of a boon to West Miami, Miami Shores, South Miami, and city of Miami areas like Shennandoah and Silver Bluff.
While I would like to move into a downtown/Brickell/beach condo, if I don’t get the deal I’m looking for in any of those places, I’m fine staying in an older area that’s more cost-effective. A 25-30 minute drive time to downtown in morning rush hour traffic really isn’t a killer. So, a need to stay closer to downtown is not necessarily a saving grace to the downtown condo seller. I don’t think that I’m at all alone or unique in my thought process on this, either.
While property taxes are a problem, I think a lot of South Floridians have themselves to blame for this beast. A lot of areas have insisted on incorporating themselves, which means they have their own mayors, their own councils, their own police forces, etc. You can’t expect to add a layer of government and see your taxes get lower. Somebody has to pay for all the new government jobs that are created.
DLJ
We got some overheated RE markets in Western Europe to0. But most countries have, compared to the housing situation in USA quite moderate circumstances. There have been RE bubbles in Spain, Ireland and UK with a much lesser extend in the Netherlands which are beeing corrected now (with some pain).
In the other Western European countries we dont find irrationlly high levels of RE prices. The lowest growth rates of prices are to be found in the german speaking countries and Italy (because of its distressed economical) situation ( I own property there).
My post referred to the situation in Germany and Switzerland.
But in general, with the exeption of Ireland and the UK, RE is not so highly leveraged as in the USA and therefore less vulnerable to economical downturns.
Also an important stabilizing factor is the much lower Percentage of outstanding credit card debts. (especially in the conservative german speaking countries which are still prone to cash buying).
Visionary,
Yes, I thought that you might be speaking about Germany…but their is one part of the equation that you left out. Germany is the only western european country that has actually had a shrinking real estate market that has lasted since the 90’s. Across the board, anyone owning a home in Germany lost about 3% of their initial investment since the year 2000. That is pretty catastrophic when you think about the taxes that are attached to the western european democracies (much higher than in America). In essence, real estate in Germany didn’t even keep up with inflation and in real and actual euro terms actually loss significantly making Germany a pretty bad place to invest in real estate. Hence, if you have a slight depreciation of housing in the last 10 years in an otherwise healthy economy, its no surprise that prices are not plummeting (but nevertheless decreasing). What I will give you is that the price to rent ratio and the price to income ratio is best in Germany (Much higher than in America in almost all of the other European Countries) and hence housing is definitely more affordable in Germany. But why would you want to buy in a depreciating market that has been in decline for over 10 years… You see, we all have our problems… no country has it 100% together despite culture, conservatism etc…
Source:http://financialsight.blogspot.com/2008/04/housing-crisis-spreads-to-europe.html
focus on the charts that depict country by country.
Also, you mention “In the other Western European countries we dont find irrationlly high levels of RE prices” OMG, you just wait… the fall in Spain will be catastrophic, Ireland will follow suit, the UK is already screaming… France has just started to skim the surface. I sincerely hope that I am wrong, but I don’t think so and neither does the research.
Trying to put a $ value on 1 HOA versus another, how’s this sound as a rough guideline.
I believe on average you can get a no-money down lease on a $50,000 car for $1K a month.
So if you have 2 condos that you consider to be equals, (A) $500K and $1K HOA vs (B) $?K and $2K HOA… you can argue that the price difference should be $50K since you can have “ownership” of a 50K car for “free” with the lower HOA for Condo (a) for as long as you own the condo.
Does this make sense broadly speaking if you like both units equally? 500K + 1K HOA = 450K + 2K HOA ?
DLJ
When I spoke of the other European countries, I excluded Ireland, UK and Spain (see post) which are really in a bad shape and prices are declining steeply.
You know RE business is local !
I own property in Switzerland and partially as partner in Germany in diverse metropolitan areas, which had good price developments and net yields you would dream of in Miami. E.g. taxes on assets are quite low when you own RE, because the official appraisel is much lower than market value, in most cases you even get a negative fortune after deducting the mortgage debt. In Switzerland with better price growth than Germany, you can also deduct large portions of the rental income as repairs, maintenance, energy costs, managing costs etc. In Switzerland there is no property tax, only a general fortune tax. You have to implement a tax strategy when you own property. In this country we have still a seller’s market !
Referring to France, the situation is not so bad as you might think. The RE situation in the southern tourist regions is much different from the situation up north in the larger cities.
You know desk research is someways problematic. the best information you only get at place, when you are travelling around.
Lucas,
Thanks for clarifying what you meant by breakeven cash flow. Your clarification, however, explains why I think prices in Miami are going to drop, and drop much further. In the ‘breakeven’ scenario you described the landlord would make 0% return on equity. Why would anyone do that, especially considering the price risk in the underlying asset as well as the income risk with rents potentially going down given the supply and economic recession? You would be better off putting it in a bank.
You also said that with a 70% price drop that landlords would ‘actually have positive carry’ on their investment. In every other commercial and resi real estate market in the world, no one would even consider an investment that didn’t offer them positive carry! I think it just goes to show how out of whack the Miami market got, and how much further it has to go until market participants get back to sanity. In this interest rate and liquidity environment, I think the minimum going-in ROE an investor would be looking for would be 10% if he was relatively bullish on rents.
I always value your posts and other well informed posts on this blog, so I hope you don’t take this as an attack.
Mark,
You got your ideas all confused. There is a fundamental flaw in your assumptions. Buying properties in Miami as an investment (an utterly stupid idea) started happeneing post 9/11. Until then one bought a unit in Miami, especially if he/she is an outsider, to use it as a second/vacation home, some times rent it to offset some of the carrying costs and mostly to use the unit for eventual retirement in the future.
So I don’t know whrere you or many people got this crazy idea that RE investment is for a positive cashflow. Yes it can be, if you bought the unit outright with cash and there is no mortgage on it. But other than that do not live in a dream world that this is going to happen. If you want return on investments, go to other options.
AJ
Mark should take a look at the RE market in the most desired tourist locations in Europe e.g. the French Mediterranean coast, Tuscany, St. Moritz in the Swiss Alps etc., then he will see that there are many people which can afford expensive, luxury condos with high negative cahsflows, because these condos are mainly used as second or third homes for pleasure.
There are different RE markets, one market for affordable housing for common working people and one for affluent people which like to have second homes for pleasure, in this market ordinary economics doesn’t count at all.
In Switzerland and Southern France e.g. we notice a heavy flow of newly rich Eastern European property buyers which look only for the most expensive RE ! And in the recent past, the Indiens and Chines started to stay in line.
Exactly what I have been trying to say. If you want to buy affordable property, and make positive cash flow, go to Buffalo NY or Cincinnati OH. Don’t come to Miami. Miami, just like St. Moritz and Cannes is for a certain discerning crowd who do not nickel and dime and want a place for a vacation, if it increases in value, so be it, if it does not so be it also. Miami is not for the likes of Mark.
Hi Visionary,
Congratulations in your Quantum condo, I do think that it is a great building as I also own a unit there in the 02 line and am quite happy with my investment.
My point was not to argue with you or to bash the German markets. I merely just wanted to show that a country with a negative growth in real estate on the whole is not the panacea to world real estate markets… that’s all. Of course, real estate is local and differs from neighborhood to neighborhood and I am quite glad that you did well… but believe me a lot of people did just as well if not better in this side of the atlantic and in this city in particular.
I would even go as far as saying that your presently strong euro is responsible for a lot of investment in America and in our local market right now as it wont stay that way for long and just think of how much more money you’ll make when you do liquefy your american real estate assets in a couple of years when the dollar returns to its historical average (already on the move) and then you reconvert that into a weaker euro… win win situation for you and for any european investor who is investing in America at the present time.
This is a very strong argument for europeans to invest in America at the present time. At the advice of my financial planner I bought some euros about a year ago and boy am I glad I listened. However, just last week I reconverted it to dollars as I (and my planner) feel that the momentum in now on our side.
By the way, the tax advantages (from repairs, loss of income, etc) that you talked about in owning german real estate also apply here…
they aren’t peculiar to europe.
Oh, and as far as public transportation is concerned, just wait until gas climbs above 5 dollars a gallon. This situation will correct itself in no time as the lifeline of the city will depend on it. Remember Europe has been paying very high gas prices for a very long time and hence it was an economic reality for your native lands… as it will one day be here and very quickly it will be done.
I’ve been following this blog for a while but was compelled to post for the first time after reading some recent comments about valuation and relative values versus global ‘comparables’ with which I strongly disagree. Quick background: I am a senior professional at one of the top real estate investment firms in the world and am based in London. I also own multiple homes both here and abroad, mainly for my own personal use, but rent out the ones in hot tourist destinations for short periods of time. While I am not looking to get rich off of my personal real estate holdings, I do not want to buy at the wrong price either. I have been looking at the market in Miami over the last 6 months, and some of what others are posting in this blog exemplifies the significant issues that in my opinion this market still needs to work through.
There was a discussion above regarding ‘breakeven cash flow’ and some of the posters cited the South of France and St Moritz as comps. First of all, I own a home in the South of France and another in the Alps (not St Moritz but in the same league) and the rental cash flow is definitely positive. I did, however, purchase both properties about 4 years ago, so on a mark to market basis and the implied cost of a mortgage today, the cash flow may be closer to breakeven. However, as Visionary mentioned, the yield compression has largely been driven by Russian and other foreign buyers driving prices up. Although some of this money may be interested in South Beach, due to the distance and travel time, the demand from this segment is nowhere near what it is in Europe. The same goes for the burgeoning demand from Asia…Miami is at about twice the flight time from most Asian countries versus Europe.
So basically what I am saying is that from a valuation standpoint, Miami is trading at a premium to many of the top holiday destinations in Europe, and I personally think it should and will trade at a discount. However, even if I am wrong and does does indeed bottom out at a breakeven cash flow level, the price required to reach breakeven is MUCH lower than today’s prices. I recently looked at a condo unit in South Beach for a relative of mine who was thinking about buying a second home and renting it out occasionally. The breakeven price would be 65% below the asking price! The breakeven for a similar unit on a lower floor (assuming the lower unit could demand the same rent) was 55% below asking. Even a recent short sale in the same building with a much worse view would imply a 45% price decline to reach breakeven. You can guess what I told her to do.
John,
You are right, South Beach is overpriced.
You have to look elsewhere in the Miami area, where there is still some upwards potential.
But to make money on renting out a property/condo it’s better investing in Europe in a good place. I own property to let in a noted wine region in Italy and I am quite happy with it.
In general I experienced you get the highest yields close to downtown in larger Cities with well established finance centres.
John,
Most people understand by now that if you are committed to buying a property in Miami, you need to want to live in it. As you stated, from a pure investment standpoint, Miami is nowhere near the top of the heap after the Bubble burst.
Also, the idea that you can rent the unit out occassionally is suspect and shouldnt’ be used in calculations. The rental market is pretty sick right now.
IndyMac, Frddie and Fannie all kaput, B of A is next and shortly thereafter the complete collapse of all financial institutions.
Stand fast, keep a cool head and your powder dry. $125.00 per sq ft is not that far off now.
REMEMBER CASH IS KING!
The smart money.