Miami condo

Just to clarify, I'm saying that it appears that price-to-rent ratios below 10x seem available, and the 7-8% cap rate is after accounting for the HOA fees.

Who are you going to rent it to? If the price-rent ratio seems too good to be true, it probably means that rental prices are going to go down in the future.

On the other hand, it's probably a great time to retire to Florida if you have enough money saved up. Why work your butt off to live in a lousy NYC apartment when you can live in a much nicer condo in Florida and not have to go to work?

There's always a price someone will rent a place at, no? In terms of figuring out a correct rental price in a building, I scanned the asking vs. actual rental prices on several dozen places and took the lowest one on a ppsf basis. Then, throw in a 10-20% discount just to be sure you have the best clearing price. The cap rates I'm talking about were based on prices that were 30% lower than the going rate, which probably mean foreclosure and/or all-cash purchases.

So yes, rental prices may go down in the future. However, for the right cap rate, it's a risk I might be willing to take.

Also, these ratios ar hardly "too good to be true". They were the norm in the 1990's across the entire country, including NYC. We just happen to be in a situation where we see those ratios in certain markets but not others.

In 1999 with stock P/E using normalized long-term earnings topped out at 40x. Last year, we found for ourselves for months at 11-14x. Did that seem too good to be true? Perhaps. Was it / is it possible that corporate profits were going to indefinitely spiral down? Sure. Is it a risk this poster is willing to take at the right multiple? Absolutely.

nada, I would do this too if I didn't already have an investment condo in NYC, but be aware that Jack McCabe, who is a Florida market expert who I trust, thinks there may be inventory overhang for a decade.

Also, remember it's tough to have an investment property far away. You'll constantly have to go visit it to make sure it's in good shape.

But maybe that's the point.

Here's a Moneywatch piece of mine you might like: http://moneywatch.bnet.com/saving-money/blog/ask-agent/life-in-a-zombie-condo-200-apartments-but-no-neighbors/1611/

ali r.

I think Inonada is on to something, but you have to do your homework. Many of the newest buildings are in financial trouble. Just as elsewherere, "almost new" is better than new.

inonada, i just came from a 4 day stay in miami. i also lived there prior to the past building boom. there are tons of nearly empty condo buildings everywhere. your issue would be finding a quality tenant to rent your place, as there is more inventory than there are people. i would be the vacancy rate is over 15%

It may be a chicken and egg kind of analysis. The cap rates are high because of high risk of vacancy, but once vacancy rates come down, the prices will be higher.

Thanks for the link, Ali. One must obviously do one's homework, and dealing with an investment property from afar in a market you don't know that well is certainly difficult. I also question the piecemeal nature of the endeavor. If $200K condos are the sweet spot of the market, even if I expect a fat 25% annualized return on a $40K down payment, sadly the prospect of $10K a year for the work of handling a place doesn't sound so great to me.

Hones, no questions on the empty condos issue, no question of the decade of overhang. However, don't you think a 10-20% underpricing to the market would find that quality tenant?

Catching a falling knife and all, but at the end of the day if you've got the lowest cost structure...

ionada-----bravo for your enterprenorial instincts;but i'm most sceptical of your cap rate figures-but really great if true.i calculate like this:if all cash purchase,the sum of all expenses :monthly maint+re tax+repair+insurance+loss of rent contingency 10% ,deducted from your realistic rent income;and devide that net profit by your purchase price+closing closing costs+carrying costs until a tenant is placed.if yor cap is 7 or 8 %-----and you believe there's upward price potential-----you have a great great deal

jrw, I ain't got jack. I'm just pontificating and asking if anyone has actually done anything there, to see how it actually breaks down. For example, looking at this recent sales and rentals in this random building:

http://www.miamicondoinvestments.com/sales-data/?building=1800-Club
http://www.miamicondoinvestments.com/sales-data/?building=1800-Club&type=rental

It seems like some things transact at $170 ppsf. The HOA seems to be $0.42 ppsf monthly on something like unit 1811, or $5 annually. The property tax rate seems 2%-ish, so that's $3.4 annually: I hadn't realized how high they were down there until your post nudged me to look it up. Put insurance at 0.5%-ish, so that's $0.85 annually. Put repairs & upkeep at 0.5%-ish, so another $0.85. The costs work out to about $10 ppsf annually. Sound about right?

Renting seems in the neighborhood of $1.50 ppsf a month, or $18 a year seems plausible, but let's knock it down to $16 for lost months and optimism. That works out to a spread of $6, so cap rate is $6 / $170 = 3.5%.

Do you actually know the market -- does that seem about as good as it gets down there?

what about the oil spill? how long until dead pelicans are washing up on miami beach rather than hot brazilians? in all seriousness this one factor puts me off from considering investment properties in miami. i think it's way too soon to tell how this will really affect US coastal areas. I have read that we are at risk of having the chemistry of the sea permanently altered if they don't get it plugged soon. and if they don't get it plugged at all, it will gush for an entire decade! that's what the scientists are saying. it's an enormous disaster..

inonado, assuming you live in nyc, are you going to hire a management company to take care of the property?

Inonado, Miami is VERY building specific--just like NYC, so be careful about what you choose in that over-supplied mkt. Think it will take 3 yrs before downtown Miami supply is abosrbed--which is fine--just make sure your model accounts for that.

I'd stay away from cookie-cutter apts, which comprises most of the supply: go for views, amenities, and location. Best site to look at for this is www.miamicondoinvestments.com. The website is whatever, but the blog commentary can give you a general impression of what people think about various buildings. Another good data-intensive site is: www.condoreports.com

inonado, if you're serious about this you might do much better looking for small apartment complexes in marginal areas. They're much easier to manage, the property manager can almost always enter the apartment on a monthly basis to be sure all is well on the premise that he's changing the AC filter for free, and they have much better cap rates.

I'd also worry about the big fancy new condos in that enough of your neighbors could be squeaking by for so long (or not) that the condo can't pay it's bills, modest though they are (water, landscaping, cleaning, etc.) ... miserable to own in, more miserable to rent out to paying guests.

By the way, that's three in a row -- you name has now been changed to the masculine form "inonado". I hope you're not offended.

your name, that is

is that .5% insurance rate accurate? I don't know, but especially for properties near the beach I think it could easily be 2-3 times that for comprehensive coverage (hurricane, wind), plus it is usually more for investor owned rather than owner occupied.

Inonada........Would you consider swapping your New York apartment for my Florida 2 bed, 2 bath 1100 sq ft furnished condo for 6months or more?
This is a very nice solid five story concrete well maintained building. Condo has beautiful view and all amenities, warm pool etc.

Jenn, I was asking on this thread for investment purposes: I don't plan on being on Florida for 6 months.

glamma,

Evidently no one wants to hear about the potential risks from the historic oil spill in the Gulf.

I agree with you that the spill could have devastating consequences on Florida and the entire Gulf area. But as I have learned, most real estate investors aren't concerned about or don't understand real risk b/c the RE boom has created an industry full of amateur-hour clowns that ultimately expect the government to bail them out if something goes wrong (as evidenced with our present interest policy and gov't spending).

I would be putting any sort of RE investment anywhere near the Gulf on hold until the consequences of the spill play out.