Parc Lofts Foreclosure – $132,000
October 22, 2010 by Lucas Lechuga
A 1,169 square foot foreclosure hit the market yesterday at Parc Lofts. The bi-level loft has 20-foot ceilings, concrete floors and exposed piping and ductwork. The unit comes equipped with stainless steel appliances, a stackable washer/dryer, one assigned parking space and a balcony. The asking price is $132,000, or $113 per square foot. The area immediately surrounding Parc Lofts is far from appealing but the unique spaces have drawn the keen interest of artists, photographers, videographers and video editors. The spaces at Parc Lofts are unlike anything you'll find in Miami and many would say are the only true lofts in town.
For those investors looking to crunch the numbers, the HOA fee is $657 per month. Taxes are approximately 2 percent of the assessed value. I would use $250 per month as an estimate. The unit would rent for $1700 per month. Conservatively, $1600 per month which comes out to a 6.3 percent cap rate. Try finding that elsewhere in Miami. Contact us at 305-428-3860 if you would like more information about this foreclosure at Parc Lofts or if you would like to schedule an appointment to view it.
I rent units up and down Parc lofts. Demand for small units like this one far exceed supply. Rental rate is correct at about $1,500 on the low end to$1,700 on the high end for units of this type.
What is special about these types of lofts is that they are true live.work spaces. Many tenants use them as office, living, or both. Whoever snatches this unit at this price will be happy.
(fyi I am not in any way affiliated to this listing)… just giving my opinion and thoughts
Wow – $900 per month in taxes and HOA for a $132,000 unit in a bad area. Ouch.
AR — Of course rental demand is high. At $1,500 per month, that’s less than the cost of ownership. With 10% down, a buyer would be looking at a $900/mo. mortgage payment plus the $650 in HOA fees, plus the downside risk of owning in an uncertain market. With these numbers, it’s win-win-win for renters.
I think the numbers are good but the 6% /yr HOA is a killer. Any idea why it is so high? How are the reserves? Any upcoming assessments?
56 cents per square foot in HOA fees isn’t out of line. The building may not have amenities as nice as some of the other buildings in Miami but you have to keep in mind that you all the costs are divided amongst only 72 units.
You can get better deals at NeoLofts. Plus the views are amazing, the neighborhood is better than Overtown and it’s probably the only building with a dog park. Building is getting repainted and new furniture on the pool deck, obviously signs of a healthy HOA.
i given the costs in many other buildings in MIA, i would say that HOA is not too bad. insurance is a killer. Lucas, is this development located in a coastal flood plain?
The numbers here require an interesting type of buyer. There aren’t many people who buy $132,000 houses who would even consider spending another $650 per month for HOA. But for the work-at-home type, it could be an interesting option/building.
This is for an end user or someone who is buying cash and doesn’t have a mortgage on the unit… .56 psf on maintenance is not bad.
AR
I used to work for some large management firms in my younger days. I don’t it is a question of cash flow alone. That calculation was great when bank was taking the risk. There is no reason to leave 6% on the table when your own returns are less than 3%. People made decisions based on how much money banks were willing to give.
Monthly maintenance of $650 not counting the future assessments and increases out of $1800 month rent is extraordinarily high. At the moment in the tidal wave of selling, developers control the HOA, which are being run by the management companies. Insurance placement is the biggest profit center for the management companies.
To give you example – a broken gate requires repairs which may cost $200. But the management company would delay the repairs for a reasonable time of week. Placing a temp security officer at the gate 24/7. At $25 /hr (of which $10/hr get kicked back)that is $4200 additional expense for the HOA. but there is no way you can challenge that. Cost cutting is done by cutting facilities, such as shutting down pool, party room and regular carpet cleaning name few.
What do one get for $650 / month? Valet parking, so you can wait for half an hour to get your car in the morning? or is it, someone unknown to you demanding to see your birth certificate, social security card, financial history and drivers license (while not having one for himself) before allowing you to go to your very own apartment – unless of course you are handing out flyers and kicking back some money to the doorman.
If you familiar with the “Time Shares” you will understand the power of management companies. Once they are in place there is no way to displace them. They consume the entire buildings in to bankruptcies.
$0.56 / ft maintenance is excessive even if they were reserving in accordance with the Florida law governing HOA. But seeing that the buildings are taking loans for the maintenance means that a good lawyer has found the way around it.
In my humpble opinion, this would be a gamble. – Not what everyoine wants to hear unless one is putting his /her money where the mouth is.
I knew a guy who sells used Hummers. Talk to him and he will convince you that it is the best car in the world and get this – most fuel efficient for it’s Capabilities.
Dear Poor and Unemployed,
I love reading a good insider story – thanks!! Any tidbit will help for someone like me who became a condo owner for no good reason. I am flying back to Miami tomorrow.
Continued from above- I meant to say that I am flying back to Miami tomorrow to take the possession of my unit for the first time. The management kept me away from it till it finished flooring. I have very mixed feelings about becoming a unit owner – anxiety is more like it. But I’ll try to make the best of it.
AR
I run a security company and when a gate goes down we charge an emergency rate (less the 72 Hours) The property management company does not get a kick back. We use guards that work at the property that know the residents so we run OT. You must of worked for some shady ass small managemet company. No big management company would allow that. Please tell everyone here what company you worked for so we all know not to use them.
Uh-oh, no thanks, I’m earning 7% in a savings account in Brazil, risk free, tax free there + R$ > US$. Is that the place next to the cemetery and freaking far from Mover?
New images uploaded of Infinity at Brickell: http://www.miamicondoinvestments.com/condo/infinity-at-brickell/.
Hello, I’m hoping to get some answers and I’ve noticed the amount of responses in this blog has dropped dramatically in the past few months. Hoping some of the knowledgeable users are still around to help..
I am a foreign national, and I am considering a similar type of investment. Cash deal on a discounted condo to use as rental property. I have been looking at this option for several years, and it seems that at some of the current prices this is starting to make sense, at least would be a significant improvement to having the money sitting idle on a savings account yielding less than 1%..
I think there’s a mistake here in Lucas’ math. a 6.3 % capitalization rate should be calculated on the net income, but what about IRS taxes which are based on gross income?
In my case as a foreign national, from what I’ve read, the IRS would tax me about 30% on gross income; so if I rent this property for $ 1,600/month (which seems to be on the high/optimistic end of the spectrum), my gross income would be USD 19,200/year, and I would have to pay the IRS $ 5,760/year. That leaves me with $ 13,440 and then take the USD 900/month expenses ($10,800), and all of a sudden you are talking about a net profit of $2,640/year or a sad 2% cap rate.
did I get that right?
If this is the case, any other expenses (owners insurance, assessments, repairs, months without occupancy etc) would kill the deal easily and leave you on the same place where you started, only with a lot more potential headaches to deal with while managing this property
That savings account in Brazil is looking too good to be true all of a sudden. I can almost taste the caipirinha…
would appreciate your thoughts on my calculations. At what point do these things start making sense? Is the age of investing in rental properties over? I’d be really happy with a safe/conservative 5% return these days.
Historically condominiums were never good investments. If you want to make money in real estate you should franchise your name, much like Donald Trump does.
http://www.sun-sentinel.com/business/fl-trump-hotel-update-20101103,0,3519518.story
Most real estate investing book published before 1990 will explain the pitfalls of condominium investing.
Jorge,I think you pretty well summed it up in a nut shell.You are Brilliant in your summary.I was wondering where everyone has gone from here myself.
jorge, I think lucas math is closer to being correct than yours.
Firstly you are not taxed on the entire income of 19.2K/Year you are taxed on 19.2K – 10.8K = 8.4
I think you forgot to take into account the depreciation factor on the 132K purchase price. Once you factor in depreciation of the asser then your tax bill goes from $5760 to $1466
sorry about that, hit send by accident.
as I was saying. 1. 8.4K is gross income. 2. You get to depreciate he 132K which reduceds you 8.4K annual income to 3.5K taxable income.
your tax liability will be less than $1500/year and your profits will be $8400 – 1466 = $6900/year.
This makes your cap rate at $6,900/$132,000= 5.2%
lot closer to lucas than your calculations.
I agree with you though you have to consider vacancy,repairs an other unexpected expenses in calculations which we havent factored here.
I agree with wild bill.
traditionally condos has been considered bad investments.
I don’t know if the change in demographics have mitigated some of those factors contributing to assesment. Condos are now more of a mainstream housing option and more and more pople are moving to inner city. 10-15 years ago condos were a rarity outside of large cities like New York and Miami, today they are more common/known even in midsized midwestern cities. People are migrating from surburban cities to a more intown/urban lifestyle where condos are the only option available to many. Those factors may have somewhat mitigated the risks involved in investing in condos. There are still other factors which makes them less than ideal investment veichles such as HOA Costs and inventory at any given time.
Lets see what kind of a DEAL this condo at 132K really is. IS IT SOLD
There are multiple offers but the bank hasn’t asked for highest and best offer yet. It’s going to sell above asking price though.
Dear Make Me Think
I have a question. I became a unit owner recently. It is my second home. If I decide to rent it out sometimes in future, do I have to register with a government agency and declare that I am a landlord? Or just reporting the rental income at the tax time is sufficient? I am curious. Thanks
Lucas — So this place went on the market for $132,000 but despite one or more people bidding $132,000 or more, no contracts have been executed? That sounds like crap. If it was an auction scenario, why didn’t they just hold an auction instead of jerking people around? I see the fine folks in Miami r.e. are right back to their old boom-era B.S.
——
What Do You Think — The answer to your question is: It depends on the municipality in which you intend to rent. Some cities/counties require landlords to declare themselves (and, in some cases, obtain a permit), and others don’t.
On a related note, renting out properties that are in one’s own name can be risky business. Most rental properties are in the form of an LLC in order to shield the landlord from liability above and beyond that particular property. If you intended to rent this place, you probably should have bought the place in the name of an LLC. (Of course, if you have a mortgage on the property, this might have been tough. A lot of people lie about being a primary occupant in order to get a mortgage (and/or more favorable mortgage) and then go into the rental business immediately after closing, but doing so comes with some additional risks attached.)
Is there any house or condo for sale in Miami which does not have mulitple bids?
But again this is Miami. Half the properties listed have incorrect email of the brokers or non working phone numbers. If you actually get in touch with listing broker, they tell you that the property was either sold yesterday or has multiple bids above asking price.
Joe:
Nicely put concerning the rental advice.
Assuming there is no mortgage on the property, however, a want-to-be landlord could always form an LLC and contribute the soon-to-be rental property to the LLC in exchange for the LLC’s stock. No gain or loss on the exchange – – 26 USC 351 — and limited liability is achieved.
And I share your sentiment concerning auctions on reserve – – particularly in this market. But, as you and I know, it’s not just the agents/brokers trying to maintain their commissions that motivate these transactions; the lenders/mortgage holders are trying to minimize their losses. If the property will only sell for $X now; they assume (incorrectly, I note, because a dollar today is worth so much more than a dollar tomorrow) that it will sell for more later.
scriv
What Do You Think – Quick answer is no. very few municipalities require homeowners to register their home if it is a single unit. As Joe said, you should check though just to be certain. HOA communities may require you to notify them and they may have limits on the number renters in the community.
LLc’s are always a good idea and it is very simple to set up and move the property into. A lawyer will probably charge five hundred dollars to set that up or you can do it yourself for a few dollars.
IF your house is underwater and you don’t have other assets to protect then lawyers won’t be interested in suing you. you can wait until you actually have assets worth protecting. Just make sure you keep your house safe and free of hazards.
Joe,
I submitted an offer on behalf of a client last Tuesday. The bank still hasn’t asked for highest and best offer. At least that’s what I’ve been told.
LLc’s are easy to set up and transfer property into even if you already have a mtg on the property.
– set up your LLc with secretary of state where you live this can be done online in some states.
– get a tax id for LLc from IRS with a simple call 5 min.
– create a warranty deed transferring property from you to LLc
– Register new Warranty deed with county. You may be eligible for waiver of transfer tax since the property didn’t really change ownership.
– Open bank account for LLc with new tax id and Articles from SoS
– Have tenant make checks payable to LLc not you. You are now property manager not owner.
– Remember to report income on your personal tax return and take all expense and deductions allowed, including travel to property.
– Banks may send letter about the change in ownership of property but just call them and let them know you transferred to LLc you own. No change in ownership. Have done this several times and have never had a problem with bank as long as payments are up to date even on 2nd home.
Dear, Scriv, Joe and Make Me Think,
My hats off to you. Thank you for your helpful comments. I really appreciate it.
Makes Me Think,
sorry about the late reply, I’ve been away some days.
I checked the IRS website, and it says the 30% tax is on gross income, which according to the IRS: “passive rental income is subject to a flat 30 percent withholding tax (unless reduced by an applicable income tax treaty) applied to the gross income rather than the “net rent” received. Thus, the real estate taxes, operating expenses, ground rent, repairs, interest and principal on any existing mortgages, and insurance premiums paid by the lessee on behalf of the foreign owner-lessor, must be included in gross income subject to the 30 percent withholding tax”
I might not be reading it right, and I was surprised to find they would tax on the gross amount rather than the net profits. But at least in some cases, that seems to be the case.
more info here: http://www.irs.gov/businesses/small/international/article/0,,id=129631,00.html
thank you
jorge
Dear Fellas,
We often talk about what kills us in the real estate investing here at this site – HOA, insurance, etc. Here is another one, I think. Why does my small one-bedroom unit in the sky command such a sky-high property taxes? It is too late to appeal for this year because I just got the bill and the deadline to appeal has passed. The developer’s estimate of the taxes at the closing (9/13) was way too low and now I’ll have to ask for re-proration and get my money back. Nothing is easy. And I heard that the property taxes in Miami are going up even higher. I might as well live in the Himalayan mountains.
Jeorge, that is the withholding tax. Uncle sam want to make sure he gets his share of the pie since you are not a us resident. I guess they want to make sure you don’t take the money and run. I am assuming when you file your taxes you can take the deductions and get a refund. Sounds like your effective tax rate will be much lower if you file a tax return in a timely manner. I can’t imagine anyone investing with a 30% tax rate on gross income. If this was the case then half the condos in miami would be empty.
The link also says “A nonresident who fails to submit a timely filed income tax return loses the ability to claim deductions against the rental income, causing the gross rents to be subject to the 30 percent tax. “.
You should call the irs or talk to a property manager or an accountant with experiance in this area. I am pretty sure the effective tax rate will be much lower.
The developers are trying to sell the place in a tough market. Take everything they say with a grain of salt. The tax assessor is suppose to get those assesment to you in a timely fashion and they allow you a certain amount of time to appeal. If they didn’t get it to you in time to file an appeal then it is not your fault. I think they are required by law to do so. If you just bought the condo (9/13) then I don’t know if that affects your ability to file an appeal for this bill you may have to wait until your next assessment. In order to file an appeal I think you need to be the owner of record by a certain date,(9/13) seems really late.
What Do You Think — I’ve been talking about the absurd property tax rates in high rise buildings since I’ve been here. It makes no sense that people who live in high rises, and who save cities huge money on roads, police, sewer lines, etc., should be paying the same rates as people in single-family homes. A single police car can patrol the SoFi area, with its thousands of condos, in mere minutes, while it would take hours (and several units) to patrol an equal number of single-family homes. It’s a blatant rip-off/subsidy, but until people start screaming, nothing will happen. (The politicians say they want people driving less, etc., but then when people move into the city, they’re charged the same if not more. It’s insanity.)
Joe,
You are so right. I agree with you. You do have a cunning observation and insight. Why don’t people wake up to it? It is indeed absurd! It reminds me of a medieval folktale I read somewhere as a child in which the kings made absurd demands on their subjects and laughed all the way to heaven.
Make Me Think
I am afraid you are right because the Owner’s name is still the developer. I’ll have to wait until the next assessment.
Thank you both for your comments. I feel better somehow.
Does anyone know what is going on with the proposed park right next to the Icon? Where the miami circle is located.
I have seen they started the work but it seems like it’s been halted. I have not seen any improvements for several weeks already? Is this another case of the city running out of funds???
Has nothing been happening in Realestate in Miami last week.at least thats according to this Blog.It is very very quiet on here and that is NOT a good sign. O W K
http://www.housingwire.com/2010/11/15/sp-predicts-more-home-price-declines-through-2011
http://www.housingwire.com/2010/11/15/fiserv-expects-another-big-drop-in-home-prices-next-year
Not in Miami! We have the Argentinians, Brazilians, Chileans, Colombians, Bolivians and Venezuelans buying in Miami at above market price and creating shortage of condos.
Lucas ,is there any true sales stats. that you can give us that shows the actual sales in the miami area.I believev you used to publish that info. That would be very helpful to a lot of us that are in a fog about whats really happening. Thanks Lucas and I really enjoy this Blog.