Top 5 Distressed Condo Sales Closed in December 2009
January 5, 2010 by Lucas Lechuga
- Uptown Lofts #1005 – 1 bedroom/2 bath (1,280 square feet) – This unit sold for $135,900, or $106 per square foot, on December 4, 2009. Foreclosure
- Cite on the Bay #3304 – 1 bedroom/1 bath (797 square feet) – This unit sold for $107,000, or $134 per square foot, on December 16, 2009. Short Sale
- Solaris at Brickell #1001 – 2 bedroom/2 bath (1,145 square feet) – This unit sold for $182,000, or $159 per square foot, on December 23, 2009. Short Sale
- Latitude on the River #2407 – 1 bedroom/1.5 bath (899 square feet) – This unit sold for $148,000, or $165 per square foot, on December 4, 2009. Short Sale
- 2 Midtown #M0707 - 2 bedroom/2 bath (986 square feet) – This unit sold for $165,000 or $167 per square foot, on December 7, 2009. Foreclosure
Are there any buildings in Miami with reasonable maintenance fees?
even as cash deals, after HOA and taxes you could only clear a couple hundred dollars a month if you were to rent them. Where are the good deals?
Jorge, my building (the Lexi) is about 32 cents/sq. foot. I pay $577/month in HOA for 1753 sq. feet (plus an additional 625 in balcony space). It’s one of the most reasonable I’ve found.
jorge — Why would you expect large numbers of people to be willing to rent a unit for hundreds of dollars *more* per month than he or she could buy the unit on the open market? Obviously, some people prefer renting to buying, and others don’t have a choice (short-term work assignment, bad credit, etc.), but otherwise it just doesn’t make sense in a down r.e. market like this one.
All these r.e. investors are like heroin addicts who want just one more good hit. It’s like they simply can’t believe the paradigm has shifted and that r.e. isn’t the cash cow it was a few years ago.
Joe,
There’s tons of deals where you have hundreds left over after paying HOA and taxes. Now if you have a mortgage that’s different. You won’t have money left over
juan — But as discussed in the last thread, paying cash for a $200,000 condo costs $12,000 per year in lost interest plus another $9,000 in HOA and another $6,000 in taxes. That comes out to over $2,250 per month. With a little profit added in, how many people in Miami can afford to pay $2,500 or more per month for a cookie-cutter condo (which is what most units in the $200k price range basically are)?
Unless a person simply needs to launder money and doesn’t care about maximizing returns, the r.e. rental business doesn’t seem like a great business model right now. Otherwise, I wish someone would explain it to me.
Joe
Here is 1% rule of real estate investing. Do not invest in real estate unless you can get 1% of unit price in rent. Which means that unless you can get $2000 /month rent for that $200k condo – do not buy it. If the going rent is $1000 then the condo is worth $100K.
What many have forgotten the real value of money. $250 K condo in Miami used to be a very respectable and upscale place to live. Now people think that is pittance. All because some borrowed millions while earning $30k/year in salary. Remember all the day traders of last century?
Joe, your assumptions are rather flaky, most likely because they are designed to confirm your preconceived point of view. Nobody will pay you 6% interest today, unless you accept the risk of losing your principal. 3% max is what you’d get if you look for safety. Taxes on 200k condo would be closer to 4000 than to 6000, and HOA would be closer to 6000 than 9000.
Thus the total annual cost of a 200k cookie-cutter box condo would approximate $16000, if you don’t itemize your deductions – and $15000 if you do. That’s around $1350 a month, almost one grand below your number.
No wonder you think Miami is pricey. Your math is all screwed up.
MLS#1 – For the record, you can make more than 6% on your money without really risking your principal. I do. I’ve owned Con Ed, KMP, DO, SO, MO and WIN for years and together they make me more than 6% per annum and don’t, I think, represent a risk of my principal. I never lost a dime. Whatever. The rest of your math makes sense.
MLS#1 — Are you seriously projecting a maximum 3% rate of return over the next 5-10 years? Get serious.
Further, Miami Dade is on the verge of bankruptcy, which means taxes will be spiking, and HOA fees only head in one direction, and that’s up.
My numbers might have been slightly pessimistic for 2010, but your budget is just ridiculously optimistic. You truly must be new to Miami if you think current condo prices are great deals and/or that the average carrying costs in the Miami condo market are reasonable (or likely to remain stable).
S. Fla. foreclosures up 29% in 2009
MLS#1 — Just to be clear, I’m not trying to give you a hard time here. But if you scroll thru the rental listings on this site, you’ll see hundreds and hundreds of rentals in the $2,500 and below price range, and some of them have been listed for hundreds of days. (And a lot of these units would be well over $200,000 if listed for sale, so the above example doesn’t even hold in terms of ROI.)
I understand r.e. investing can be profitable. I just don’t understand how it can be profitable in this current market, between the glut of available units and the high carrying costs.
Take a look at the Solaris deal Lucas listed above – 2/2 $182,000.
The most recent 2/2 rental in that building went for $1700/month or $20400 per year
Less: HOA and taxes
Condo fee is listed at $950/month or $11,400/year
Taxes should be around $3640 or $303/month. Anyone with more accurate tax estimate feel free to chime in
Based on the above, the net income would be $5360/year. Return on cash of $182,000 would be around 3%.
Again this is just ballpark, not bringing in deductions/allowance for vacancies etc but end result would be similar. Taking on a ton of risk for a meager potential return.
There is no appreciation in sight, rents are almost certain to fall given the continued glut of condos, and the HOAs only go in one direction (and its not down!)
Prices still have a ways to go for these deals to make sense. The carrying costs remain a killer in Miami.
The effort involved in renting a unit is not worth the effort. The county is going after people who claim homestead exemptions for properties they rent.
Samson #9 and Joe #10
Some people need to take some financial classes. The return rate that is being argued over (3% or 6%) is called the risk-free return.
The risk-free return is the rate that can be assumed to be obtained by investing with no risk of default. In America we use US Treasury bills because as of yet, Uncle Sam has never defaulted.
As of right now a seven year note yields 3.34%. In contrast a 3 year note yields 1.54%. If you have cash and you want to invest it with zero default risk, these are the rates that should be used. Using anything else and you’re not comparing apples to apples.
WIN was around $16 in 2005 and around $11 now. I don’t see how you can guarantee this investment will return 6% within 5 years.
So if you have $200,000 cash and you project a return of 5% in 7 years on a condo is that a good investment when simply holding that cash only guarantees you only 3.34%?? I don’t know. Each individuals cost of capital and risk aversion would play a role.
But a lot of the example being throw around here half @ssed assumptions at best.
Don’t forget maintenance, repair, replacement and redecorating costs of a rental too. One month vacancy out of a year kills your “profit”. I have said this for years….if you want to get into residential real estate, your best bet is a larger apartment complex with a dedicated staff (if you want to own directly, not through an investment vehicle). The hassles of being a floplord are simply not worth it…..at least not to me. What a hassle. The only thing worse would be owning and running a small restaurant. A change in taxes, HOA fees, or special assessments are out of your control and can easily put you into negative returns. Most people make the mistake of NOT including the cost of capital in their purchase profit equation so they add up taxes and HOA fees and think those are their only costs. Fools.
Gixxer 1000 — It’s easy to win arguments when you use apples and oranges comparisons. Why are you using the “risk-free return” as your basis for ROI when the other side of the equation here, owning a Miami condo, is anything but risk-free?
– If you buy a condo to rent and it sits empty, you lose.
– If you buy a condo to rent and it declines in value, you lose.
– If you buy a condo to rent and end up with a deadbeat tenant, you lose.
– If taxes go up, you lose.
– If HOA fees go up, you lose.
– If the HOA issues a special assessment, you lose.
– If the condo needs repairs, upgrades, etc., you lose.
Using the risk-free ROI as the baseline here is fairly silly.
RenterTom – what do you mean by cost of capital? How does this apply to cash buyers.
Joe -I think you understanding of finance is silly.
If you have $200k to invest the first thing you need to do is to see what are you options with no risk. So if you need your money in 7 years right now no risk would get you 3.34%.
Now you project you’re return for the various investments your considering.
Lets say your desired investment options are a stock or a condo. You project a 6% return on a stock and a 5% return on a condo. Which one is better? Well that answer will be different for each investor. One investment may be more volatile than the other. Obviously your projections wouldn’t be 100% accurate but usually you can measure volatility. To make everything simple lets say the stock has a projected return of 6% with one standard deviation being 5%. So your effective range would be 1% to 11%. And the condo’s 5% return has one standard deviation of 2%, so your effective range would be 3% to 7%. Well some people would rather take the lower risk which anticipates a return of somewhere between 3% and 7% considering you’re only guaranteed 3.34%, while other are more risk adverse and would rather take the 2% to 11% range.
Now of course these numbers are just pulled out of my @SS but you get the point.
3.34% is guaranteed. After you project your returns it’s up to you to determine if each amount over this return is worth the projected risk.
Your trying to compare the return on a condo with risk to other investments and assuming no risk. That’s not a fair assumption.
I’m trying to compare the condo investment return with risk to the risk-free return. Then compare a similar investment return with risk to the risk free return. Now that I have the risk premium for the two project I can compare them to one another.
Note: I’m NOT suggesting that the condo would be a better investment. That would vary from investment to investment and investor to investor.
Ozzy – “what do you mean by cost of capital? How does this apply to cash buyers.”
Renter Tom here is referring to the “opportunity cost” and risk-free return rate. Ofter times when people calculate their return if using cash they neglect this opportunity cost. For example the figure a $200k investment will yield 5% return and then stop there. But you also have to consider that if you just kept the cash and invested it without risk what would your return have been. So if you get 3% for doing nothing and 5% for investing you’re really on getting 2%.
Ozzy – Gixxer 1000 said it right. The analysis comes down to is that 2% marginal additional return worth the risk??? That IS the question when looking at investment alternatives. Similar mistakes are made all the time on “Deal Or No Deal” which is interesting to watch regarding “investor” behavior. They tend to risk large amounts of money when the additional money would not give them as much additional benefit as the certain money they have by pressing the button. Similar analysis on playing the lottery, one dollar gets you in the game but each additional dollar only increases your odds of winning by an infinitesimally small amount which isn’t worth the extra dollar to poor people but many do not understand that nor money which is one reason they remain poor and spend the $20 bucks instead of $1 on the lottery.
When calculating return on real estate dont forget that the tbill is taxable while you can have deductions on real estate investment returns (depreciation etc)
computer consultant – The depreciation is really a cash flow and tax timing issue. The depreciation gets recaptured when the asset is sold so that is a bit of a mirage. The real benefit is the like kind exchange (1031 Exchange)…of course I am not in favor of such treatment as it distorts capital allocation in the economy. Revisit the taxability of treasuries please… You also need to look at things all pre-tax or all after-tax (after-tax if some things are taxable on some aren’t).
computer consultant – Agreed.
This is part of what I’m trying to explain. When performing these returns, the more detail the more accurate the result. Instead many people are here saying mortgage, rent, HOA, taxes and voila! This is the same logic people used to justify flipping these condos in the first place. Rest assured there are some shrewd business people making deals that will benefit them and some other making deals that will ruin them. And then there will also be a few more that profit or lose on sheer dumb luck.
Gixxer 1000 — I have no idea what you’re even arguing now. My point from yesterday was that the ROI on buying and renting condos is unlikely to be positive vis-a-vis just about any other option right now. You jumped in and stridently disagreed with me, but now, after a couple thousand words of lecturing, you seem to be saying the same thing I said yesterday. Seriously, what the hell is your point?
Saying things like:
“Rest assured there are some shrewd business people making deals that will benefit them and some other making deals that will ruin them. And then there will also be a few more that profit or lose on sheer dumb luck.”
… is basically useless. That’s like saying tomorrow it might be sunny or it might be overcast or it might rain. Gee, no kidding.
Joe – You said:
“Saying things like:
“Rest assured there are some shrewd business people making deals that will benefit them and some other making deals that will ruin them. And then there will also be a few more that profit or lose on sheer dumb luck.”
… is basically useless. That’s like saying tomorrow it might be sunny or it might be overcast or it might rain. Gee, no kidding.”
Do you not see how illogical you through process is???
You can’t say what I’m saying is obvious if you disagree with me.
2+2=4, Gee, no kidding it equals 3??????
You’re saying as a business model NO ONE can make money off of condos in the next 10 years in this market. I’m saying that depending of the specifics of the deals some people will profit and some people will lose profits.
Gixxer 1000 — You seem to be a graduate of the AJ School of Debate, in which you shift the goalposts and claim people said things they didn’t really say.
At no time did I say anything remotely close to the following, as you allege:
“You’re saying as a business model NO ONE can make money off of condos in the next 10 years in this market.”
I did agree with this, but since the statement is so obvious, it didn’t really advance the discussion:
“I’m saying that depending of the specifics of the deals some people will profit and some people will lose profits.”
Seriously, if buying and renting condos is such a profitable business right now in Miami, why is there still a 3-year inventory of condos on the market? Why are hundreds and hundreds of condos in the $2,500-per-month and under range still languishing empty on the rental market?
Joe
I agree that I over stated your position. But the extreme was to highlight my point. Your comments have been from the perspective that Condos are not profitable.
Here are a few of your comments:
“Unless a person simply needs to launder money and doesn’t care about maximizing returns, the r.e. rental business doesn’t seem like a great business model right now. Otherwise, I wish someone would explain it to me.”
“I understand r.e. investing can be profitable. I just don’t understand how it can be profitable in this current market, between the glut of available units and the high carrying costs.”
This to me sounds like your saying that real estate investing is not profitable in this market, unless you’re laundering money 🙂
Is that a fair assumption??
Please show me one comment in this discussion where you have been objective and said there are profitable deals to be made.
MLS wrote:
“Nobody will pay you 6% interest today, UNLESS you accept the risk of losing your principal. 3% max is what you’d get if you look for safety.”
And you responded with:
“Are you seriously projecting a maximum 3% rate of return over the next 5-10 years? Get serious.”
And both these comments were in response to gables post:
“At a discounted price of $200k for a 2B, the cost of capital is around $12k a year for interest equivalent (loan or cash at 5%), plus $9k per year in HOA and $6k a year in taxes.”
Here you were clearly wrong and MLS is right. No one is going to pay you more than 3.34% with no risk. Gables quoted loan and cash at 5% which is incorrect. While you can borrow money at 5% (depending on credit) the cost of cash should be about 3% or the maximum amount that cash guarantees you with no risk. But you clearly don’t understand finance which is weird since you’re trying to figure the potential return of an investment.
You cannot paint real estate with a broad brush.
In my opinion, downtown miami is not worth the risk/reward even at $200 sq ft.
Beach is another story. The international interest is not what it is for downtown. There is and will be global demand for prime beachfront real estate.
Still many foreclosures all over the area, even the first quarter of this year things will look kind of hard..
If someone knows about good multifamily apartment comlex for sale let me know particularly if it’s a pocket deal.
BTW JCrimes, any news about Nobe condos. You mentioned them several months ago.
since all the arguing came about from my previous post regarding the $200k condo, i will chime in. The numbers are a very realistic assessment of buying a condo in today’s market. MLS#1 was off base criticizing the tax and HOA fees. You will pay around 2.5% on an assessed value which does not correspond to the actual sale price of a distressed property. property taxes are on your assessed value not sale price. and assessed values will not plummet the way sales did. homestead exemptions not included.
$6k a year on HOA works to $500 month (under $0.50 sf ft for most 2B in Miami)-this is not realistic on average in MIA luxury condos. Cheap units will have special assessments which offset the low cost. $9k a year is still more realistic.
The biggest argument comes from the capital cost. If you buy on mortgage, you get around 5 to 6 percent rate as lost money. If you buy with cash, you get zero appreciation or a loss right now on capital-big window of error on this however. Current safe rates are around 3% on 10 years (RE must be considered not a short term investment for most folks). I am in the camp where interest rates will move measurably higher throughout the duration of the home ownership (7 years). Willing to bet the average long term interest rate will push beyond 5% over the ownership period than it will stay down at 3%. Point is buying in this market is still not a great move, even if meant to live in the property. For investment purposes, put your cash in con ed (yield over 5%) or bank of america (yield and appreciation will be a monster over 7 year period) unless you really want to invest in something high risk like RE.
The simple fact is mortgage rates have only one way to go…UP. If we have some inflation later the rates could go up a lot. Most people use financing to buy a home….plain and simple. When interest rates go up current home prices become unaffordable and the only part of the equation that can change to keep it in balance is to lower the price.
Gixxer 1000 — I stand by all of my comments in this thread. I’m sure there are a small number of condo deals that might be revenue-positive for the investor right now in Miami, but those are likely few are far between. And please don’t move the goalposts again and say, “Gotcha!” because I just said this. Remember, your point above, which started this long argument, was that some people are making r.e. investments right now, on a large scale, that will make them fabulously wealthy over the next 10 years, but no one gets fabulously wealthy by renting 3 or 4 condos over a 10-year period. People get fabulously wealthy by renting out dozens if not hundreds of units, and I can’t see how anyone making bulk purchases in this market could be posting big rental gains right now. The fact there are hundreds if not thousands of empty rentals on this site tells me it’s a renter’s market right now, not an investor’s market.
As for the continued discussion about capital cost and ROI, I still don’t understand why you insist on using the 3% “risk-free” rate as your basis, when the other side of the equation — buying and renting condos — is anything but risk-free. With all of the money being printed by the U.S. government right now, one would be nuts to believe interest rates will remain at 3% over the next 10 years. Further, even if we accept that 3% is the best possible “risk-free” return right now, what do you believe is the current rate of return on owning and renting condos in Miami? Even the so-called “top deals” at this site usually don’t look like they’d be revenue-positive when looking at comparable rentals in the same buildings. Sure, if someone lives downtown and has some cash to throw around and is willing to deal with a lot of hassle in order to make an extra $200 or $300 per month, there’s probably a little money to be made. But the idea bulk buyers are getting fabulously wealthy in the Miami rental market right now seems absurd on its face. The rental listings tell us otherwise.
Joe, you can make money in RE as a landlord in Miami. but you have to be a grinder-somebody willing to work hard every day to make the program work. unfortunately most folks in miami don’t know how to work hard. everybody here wants to get rich quick without ever actually working. the lazy attitude was salvaged in recent decade by home price appreciation. even if you failed miserably as a landlord, if you waited long enough your sale price could bail you out. not anymore!
Joe –
“I can’t see how anyone making bulk purchases in this market could be posting big rental gains right now.”
Because not everyone is making these deal for immediate income. Some people actually invest for the future and not to make a quick buck which seems to be your perspective. If you have $20M in capital today why would you really be pressed about rental incomes today if your projections show a 10% gain 10, 15, 20 years (or whatever you investment time line is) in the future.
“The fact there are hundreds if not thousands of empty rentals on this site tells me it’s a renter’s market right now, not an investor’s market.”
And that’s exactly why you’re not a real investor. What’s your advice? Wait until rents are at their peak and property values are at all time high to buy units???? If you’ve got the money to buy and the money to hold now would be the great time to buy. Do you really think these investment companies are buying these properties just to become landlords??? Prices might fluctuate for a year or so but they will be higher 10, 15, 2o years from now.
Does this market favor the small investor? No. They don’t have the money to buy bulk at a discount and they don’t have the money to hold.
“I still don’t understand why you insist on using the 3% “risk-free” rate as your basis, when the other side of the equation — buying and renting condos — is anything but risk-free.”
What’s not to understand. Did you take any business classes in undergrad. IRR, NPV, Beta, etc. I’m not asking you to memorize this stuff but you should at least understand the basic concepts if your trying to invest.
If your going to invest you must first figure if the investment is worthwhile. Is the return on capital higher than the cost of capital. If you are borrowing money the cost of capital is the rate at which your borrowing. If you have cash then the cost of capital is the risk-free rate since this money would in theory be guaranteed.
So if you want to invest in condos and you need to borrow the money then your cost of capital will be 5% and if I’m investing cash my cost of capital would be 3%. Obviously if we invest in the exact same thing my return will be higher because I’m paying less for it. What’s not to understand???
“Remember, your point above, which started this long argument, was that some people are making r.e. investments right now, on a large scale, that will make them fabulously wealthy over the next 10 years, but no one gets fabulously wealthy by renting 3 or 4 condos over a 10-year period.”
You contradict yourself within the same sentence. Yes I think there are deals to be made on a large scale, so why in the world would you consider 3 or 4 condos “large scale”?????
Edgewater Lofts has recent sales (12/09) at an average of $150 sqft. So $99 sqft back in November could quite possiblly be a good deal. Is $99 the bottom or is it $80? I don’t know. But I think it’s fair to assume that regardless of the exact bottom it will be much higher >10years from now.
Historically inflation has been 3%, the Dow Jones has returned 10%, real estate has returned 11% and stocks have returned 12%. Most investment advisers suggest at least 10% of your portfolio being real estate. I’m sure there is a REIT out there than thinks they can get an 11% return on the Edgewater deal for their investors.
“But the idea bulk buyers are getting fabulously wealthy in the Miami rental market right now seems absurd on its face. The rental listings tell us otherwise.”
Again you seem to think the only return comes from rents today. This is Miami Condo Investments not Miami Condo Landlords. If your goal is immediate cash flow than I admit these are not the investments for you.
Condominiums are the lowest of the low in the real estate world. Every real estate book until the mid 1990s stated this. If you’re struggling to find an condominium investment on a blog you probably should try your luck in a Las Vegas casino. At least then your money will be gone in a week and not slowly drained through special assessments.
Joe just stop. FYI – the Edgewater deal was pretty solid. The units were bought with a 5 year lease in place from a credit worthy school. They provided a 7% return after expenses
Gixxer 1000 — It’s at the point where it’s not even possible to debate with you. First you claim I said things I never said, and now your examples are so outlandish as to have almost no applicability to the people on this site.
Seriously, what is the point of a comment like this:
“If you have $20M in capital today why would you really be pressed about rental incomes today if your projections show a 10% gain 10, 15, 20 years (or whatever you investment time line is) in the future.”
Yeah, we all have $20 MILLION in capital just laying around to invest. Give me a break.
As for your other silly claims, why do you still keep using the 3% “risk-free” rate as your basis? Do you not acknowledge that interest rates are likely to spike, and spike a lot, over the next 5-10 years? Do you not acknowledge that the Miami r.e. market might not be at its bottom? Both of these render your example equation moot.
I know you’re having fun pretending to be a Wharton professor, but please tell me: Who in their right mind WILLINGLY buys properties so they can rent them at a loss for months, let alone years, at a time? There’s almost never a good reason to buy r.e. in bulk and hold it at a loss for years while waiting for the market to rebound. It’s not like the market can shift overnight, with rents being historically low on Monday and at highs on Friday. Please tell us: How does it make sense for anyone to subsidize someone else’s rent for years at a time while waiting for the market to rebound, when the same purchase/”investment” could be made several years later when the market starts returning to equilibrium, with no risk and no hassle to the owner/investor in the meantime? The landlord game is a serious pain in the ass when times are good. Why would anyone willingly lose money for months or years at a time on the front end when the same deals could be made later, with immediate income?
As “gables” said above, and as I’ve said from Day 1 in this debate, there’s assuredly some money to be made as a landlord in Miami if one is willing to grind it out on a day to day basis, but Miami is a big-time renter’s market right now, not an investor’s market.
“Who in their right mind WILLINGLY buys properties so they can rent them at a loss for months, let alone years, at a time? There’s almost never a good reason to buy r.e. in bulk and hold it at a loss for years while waiting for the market to rebound. ”
Joe, that statement shows your ignorance. Have you ever heard of a REIT?
As a matter of fact that statement above describes just about every investor. You are commenting on things you know very little about. Just admit to yourself that you missed a few important chapters in the book. Maybe then you will learn something and finally afford that condo on the beach, dido for “The Ace”. Actually I think The Ace is a lost cause, he is destined to spend the rest of his life in his mom’s basement, well until she passes on, then he is destined to spend his days pan-handling in Pace Park, how ironic.
Gixxer – why waste your time? These guys obviously missed a few chapters in the book.
let them keep guessing how some people are able to do while they talk about doing.
Yeah , Joe and The Ace and their likes are the experts on RE Investments.
…wink, wink
Joe –
“now your examples are so outlandish as to have almost no applicability to the people on this site.”
“Remember, your point above, which started this long argument, was that some people are making r.e. investments right now, on a large scale, that will make them fabulously wealthy over the next 10 years”
I’m sorry but it appears as though you are the one who is moving the goal post. I was under the impression (and you acknowledged) that we’re debating if there were investment opportunities available on a large scale. Now your saying that it doesn’t matter because people here can’t invest on a large scale???
“Who in their right mind WILLINGLY buys properties so they can rent them at a loss for months, let alone years, at a time? ”
“I can’t see how anyone making bulk purchases in this market could be posting big rental gains right now.”
In the last post The Ace quoted 5 bulk deals. These investors are either taking a current loss in hopes of gains later which contradicts your first point or they are renting these units at a profit which contradicts your other point.
“Please tell us: How does it make sense for anyone to subsidize someone else’s rent for years at a time while waiting for the market to rebound, when the same purchase/”investment” could be made several years later when the market starts returning to equilibrium, with no risk and no hassle to the owner/investor in the meantime?”
How do you know the same investment can be made several years later??? You already admitted that interest rates will be higher years from now. Would you rather borrow $500K @ 5% today or borrow $500K @ 8% 3 years from now when rents are higher?
If you bought now and sold in 2023 or you bought in 2013 and sold in 2023 the difference in monthly payment alone between 2013 and 2023 would save you $120k. I don’t think you would need to subsidize the rent for three years to the tune of $120k. Not to mention in 2023 when you sold your principal would be almost $75k lower as well. So were talking about a difference of $200k. You could lose money on rent for 3 years and buy the same property cheaper 3 years from now and still come out ahead buying now. The ONLY reasons not to buy now is if you feel prices will NOT be higher 10-15 years from now or you don’t have the capital to cover losses in the meantime.
“Why would anyone willingly lose money for months or years at a time on the front end when the same deals could be made later, with immediate income?”
I didn’t know people on average were in business of selling income generating properties. I know this recent real estate boom distorted everyones view where anyone could buy a property and rent it out the next day at a profit. But If I have a property that’s generating income immediately why would I sell it? There are plenty of property managers that will take care of the work for a nominal fee.
You obviously don’t understand the market to well either. If I’m going to sell my property and anyone out there can get a loan and have positive cash flow immediately, then I’m going to raise the price.
“Miami is a big-time renter’s market right now, not an investor’s market”
You seem to be confusing home ownership with investing.I agree for a lot of people right now it makes more sense to rent rather than own. But investors invest in every market, that’s their job. You don’t show up at work and say, “well real estate investment is down, let’s go rent some apartments.”
Besides, who do you think is making money right now on all these renters. The people who were smart enough to buy last time the market was down.
“As for your other silly claims, why do you still keep using the 3% “risk-free” rate as your basis?”
If your using cash how else would you calculate the cost of that cash????? Read a book.
“Do you not acknowledge that interest rates are likely to spike, and spike a lot, over the next 5-10 years?”
Yes, and if they do increase doesn’t that make buying real estate with credit more expensive in the future compared to now, all things equal?
Owning real estate is NOT a short term income generating investment. Look in any investing book and you see as an asset type real estate is classified as a LONG TERM investment.
Meakes Me Think — No one here has been talking about REITs. This discussion started with one guy saying he wanted to buy 2-3 condos for investment purposes and asking where the big-money rental deals are right now.
As with “Gixxer 1000”, you seem to have trouble staying on topic.
Gixxer 1000 — You’ve taken this discussion in so many different tangents that I have no idea what you’re even debating anymore.
For one thing, I highly doubt anyone on this site has “$20 million” to throw around right now, so continuing that debate is senseless.
For another, this discussion started off with a debate over the wisdom and cost associated with paying CASH for condos right now for rental purposes, but now, in your last post, you’re going off on yet another tangent about mortgage rates. Despite the fact we weren’t even talking about financing properties, your point actually bolsters *MY* argument rather than yours, as rising mortgage rates will drive condo prices DOWN, not up. This is the simplest of simple r.e. concepts.
Gixxer 1000 said: “Besides, who do you think is making money right now on all these renters. The people who were smart enough to buy last time the market was down.”
Are you being serious or just trolling now? Probably 80% of the rental units listed on this site didn’t even exist before 2003 or 2004 and were purchased at the height of the r.e. boom. How do you figure those investors are making a killing on rent right now?
Gixxer 1000 said: “Yes, and if they do increase doesn’t that make buying real estate with credit more expensive in the future compared to now, all things equal?”
Again, who said anything about mortgages? This discussion was about buying condos right now with CASH, with a debate about the long-term capital cost of doing same. As interest rates rise, the “risk-free” rate of return of just leaving money in the bank rises as well, while condo prices plunge because of the cost of credit for non-cash buyers. This is a double whammy for TODAY’s cash r.e. investor. This is a very simple concept that you don’t seem to understand.
Gixxer “Yes, and if they do increase (interest rates) doesn’t that make buying real estate with credit more expensive in the future compared to now, all things equal?”
This is the big question. Higher rates will reduce the principal on future home prices. By how much remains to be seen. But if interest rates move from 5% to over 8%, i can buy in cash rather than a mortgage.
Since over 90% of the people on this blog are either looking to buy to live in, or dipping their toes in the RE market with one or at most two units, for investment we probably should not discuss the finances of the “bulk” buyers in todays market. It has no use to most of us, although it does make for some entertaining fodder between us “experts” on this site 🙂
Any details on the Solaris unit listed above? I like the building from the outside, but dont know the finances of the building HOA. But that seems to be a pretty good deal all the way around. $182k for a newer 2B in Brickell. Lucas if you can pull another deal like that in Solaris with similar results I am quite interested.
Investor: “The term implies that a party purchases and holds assets in hopes of achieving capital gain or cash flow, not as a profession or for short-term income”
please note “HOPE” and “not.. for short-term income”
Investors will invest in a negative cash-flow business for years in “hopes of achieving capital gain or cash flow” . If it was as obvious as the nose on your face everyone would be an investor, well almost everyone (no offense Ace). That’s why most people work for investors
I personally know several buyers who are looking to make bulk purchases in Maiami now. They do not want to buy a portion of the building but rather buy an unfinished whole building and rent it. Let’s say someone who started doing condo conversion but never finished it due to the obvious financial reasons and went under water. In fact this market is so competitive that $20-40 mil deals are being sold in a matter of 2 weeks.
Part of it is because they buy at a relative discount and rents today still make sense for them to buy and they belive in good areas in Miami and its future. Also another consideration is they will run their own management co and avoid ridiculous HOA fees.
Lara, I can’t dispute the existence of bulk buyers. But they are not on this blog and certainly dont listen to our advice and comments. We live in a completely different world here with Lucas!
That being said, even the bulk buyers are making the huge assumption that home values will not fall in the medium term (whenever they plan on selling). Same with rents. Is this a wise assumption? Not really sure. Property prices AND rents have dropped by historic measures. Do they really need to bounce back with some correction? Ask the Japanese about the existence of a bounce from the free fall!
Or ask the dot.commers on the nasdaq!
Lara,
There may be some savings in self managing a building, but it costs a lot to run a large building. Elevators, insurance, maintenance, staffing, utilities. Some of the sponsors may get kickbacks from the suppliers, but in general the management companies aren’t getting rich. I believe that it is naive to assume that self management will result in a great savings.
BillP,
I do not believe the management companies take on the risk of cost to operate the building. They just push the paper. The common arguement in MIA has been, just how concerned are management companies at controlling the cost in the building? Do they have any incentive to find cheaper insurance, staff, etc? If you run your own management of the building, it requires legwork, but you may find cost savings. Management companies dont really benefit from these savings so they dont look for them.