The Sub-$100K Brickell Condo Hits the Market
October 8, 2008 by Lucas Lechuga
Prices have continued to fall hard at Vue at Brickell for quite some time. It's incredible to think that in May 2007 when I wrote the post entitled, "Vue at Brickell - Overpriced or Insanely Overpriced", the average price per square foot of condos listed in the building was over $550!
Yesterday evening, a 1 bedroom foreclosure at Vue at Brickell hit the market for $125 per square foot. With a list price of $99,900, it was the first one bedroom condo for sale in Brickell, built after 2000, to fall below the $100K mark.
[poll id="2"]
I suppose there is a knife-catcher out there who will buy it at this still inflated price! Just kidding! Not bad price at all, wonder if it will set the market. Still, buying into a condo building with massive HOA problems is like being in a life raft with people what are only concerned for themselves and aren’t hesitant to turn to cannibalism. Desperate people do desperate things…
Heck, maybe I’d buy one just or a hurricane evacuation pad….
Renter Tom,
prolly wont be much of a hurricane pad since its two blocks from the bay. The Vue has the most problems out of all the buildings, but its in a good location (relatively speaking), one block from brickell ave. and 2 blocks from Mary Brickell Village, with a little paint job on the ugly exterior you got yourself a nice building. under 100k sounds good to me, you would just have to weather the storm of crap in that building for a few years.
Wow…this sold for $490,000 in 2006! That is quite a haircut. I just wish their were included pictures to see just how crappy the actual unit it.
It doesn’t surprise me at all, 1 br below $100k is the tip of the Iceberg.
South Beach already has 1 br below $100k hitting the market. The buildings are older and some of them don’t have parking but you can’t beat the south beach location, location, location.
The realtor could have put $50,000 as list price—its all subject to lenders approval. Very misleading–makes car dealers look almost legit with their small print
@Richard
the 1br below $100k in South Beach I’m talking about is bank owned.
I did look up other “11” line units in that building….there are others for sale under $120K if that is helpful.
Get ready folks… my guess is that we will see a lot of these in the near future.
Can anyone say $200psf average?
Guess I’m in the minority. I see MUCH steeper drops.
Can someone here explain to me what significance there is what it previously sold for when money was monopoly money, no doc loans ,104% financing ruled the day, straw buyers everywhere, Just what significance?
NONE.
At 100K would this unit cash flow positive at current rentals with 20% down?
Maintenance at $450 (796sq feet)
Taxes $7550 year (based on similar) = $630
Rents are asking, ASKING $1275
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Please explain to me, just how on earth $99K makes sense?
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Let’s assume that the country where these properties are located are NOT in two wars and NOT facing a recession/ depression.
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Now, explain why this 99K is a deal.
Muir – You must not have been paying attention. Owners are supposed to chip in hundreds if not thousands of dollars to their rental condo each month. It doesn’t need to be cash flow positive! LOL LOL LOL You just need to make friends with your tenants…that’s priceless.
I’ll answer my own question so you can criticize my analysis and hopefully I’ll learn something.
Assume a 30% decrease in taxes to $5300.
Assume renting it for $1050
Make/break point is 50K for me.
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Now taking into consideration a domestic deep recession, Europe’s Asia’s problems, HOA problems….
I would CURRENTLY still use the 50K as the make break point only because at some point you have to put it somewhere before the oncoming inflation (after the current deflation cycle) arrives.
However, as this goes lower, I could revise and go lower.
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But 100K?
I thought investments were supposed to make money, NOT lose them.
Muir – I was being sarcastic and kinda rubbing it in on our long lost buddy and former (apparently evicted) real estate investment cheerleading resident, AJ…
renter tom, you must have a crush on AJ I’ve never heard someone talk so much about another person haha.
Sorry Tom.
Actually answered my own post before I read yours. I know your position on this.
Still, I just want those who answered on the poll to justify their answers.
I can’t see where my numbers and logic are wrong.
What is their logic if not speculation?
Unless they believe that an Argentine type hyper-inflation is just around the corner, in which case i’d like to hear about it.
But really, other than just pulling a number out of the air, how did they arrive at an answer, did it sound good?
More importantly, how will they know when it IS a good buy?
I agree that this is a sign of the times. There is absolutely no way that prices can remain artificially high in any real market, let alone this one. Stock market’s in free-fall, we might be in a recession, and credit’s tighter than my first girlfriend. Just think about how many people are out there now that want to buy, but are no longer qualified. The question now is when will the sellers and developers admit that this is the case and lower their asking prices or begin to accept the low-ball offers.
I tried to explain to this my realtor the other day but he didn’t seem to want to hear it and tried to convince me of otherwise, which kinda turned me off to him. If you guys remember, I’m planning on buying a condo soon for cash in the $500k range. I want a nice place to live for a while. Does anyone have any recent data that reflects how much sales prices are decreasing on average here in Miami? It seems like most of the steals out there are all REOs on sub-par units, but the average seller doesn’t seem to facing reality.
Muir… I agree with you 100%. Dead on with the $50K number.
Purchase price: Goes for $100k (forget closing costs for now)
Rents: Assume you can rent it at $1,200. $1.5/sf, should be OK for that area.
HOA: The $450 in the HOA fees translates into $0.56/sf. IF the HOA has no problems (not sure), this number should be OK for that building.
Taxes: Assume they come down and stabilize at 2% of the purchase price ($5k, $420/month).
Assuming all of this, you net $330/month ($1200-$450-$416) or $4k/year.
That’s a 4% return on the $100k.
The question is, who would buy this at a 4% return with the asociated risk that it might depreciate and the income could go down (vacancy, possible lower rents, HOA problems, etc)?
I would definitely not, but I do think that at these prices, you might get more some smaller foreign ALL CASH buyers who might want a second home and are running from the stock market.
That being said, I don’t think that there are enough of those to maintain these prices.
For me, it’s gotta get at least to an 8% return (your $50K ), so we can start clearing some inventory here.
Back to basics
DJ…. Amen
I had the same experience with my broker and she started to give me all this historic data from the peak days and convincing me I had a deal. Not biting. Made a decent offer for a new condo and wasn’t accepted. Let’s wait and see. Lots of sellers are still trying to sell at a profit and it just ain’t happening.
No one wants a loss, but it will start hurting soon and prices will adjust.
the problem(s) with sellers is that they are reacting, rather than anticipating. mainly, if i’m throwing something on the market now and i’m SERIOUS about selling it, i would price it at a level where i anticipate asking prices to be six months from now. instead, everyone follows the leader…however…the leader’s place ain’t selling in the first instance.
Check that…. just noticed I made a mistake in the taxes: If they stabilize at 2%, it’s $2k and not $5k. ($166/month)
This bumps the return to 7% and the price to $87K (8% return)
DJ – I’m sorta in the same boat but am perfectly fine with renting what I’ve got now since it is a great place at half the price! My thought is the capitulation will happen in this quarter. You’d have to be pretty thick skulled to not price to market after being hammered with all that is going on. But we have to remember that the denial out there is strong…very strong. People had already “cashed in” there real estate lottery ticket in their minds and are now psychologically anchored to those prices…they simply can’t face the reality of a loss instead since it would dash their mental dreams of retirement, etc. It really is a huge blow for many. But the burden of being bled each month with no end in sight will eventually get people to throw in the towel…you CAN’T beat the market….macro econ will win every time so it is better to go with the tide than try to drain the ocean (yep, that is an original quote…. 🙂 ) I really ought to be a guest host on Fast Money! LOL
Hugo, I dont understand your math. Where are you getting $87K? Also, dont you think a 2% tax rate is quite a bit of “wishful thinking”?
Muir, where do you get $7550 in taxes on a $100k condo?
Trying to learn here so dont flip out please. Thanks in advance.
SB
oh, and $450/month HOA is a tad absurd for a $100k residence too
the fundamental reason you are not seeing private owners price at a fire sale level is they cannot afford to do so. if you paid $300k recently for a condo now valued at $200k, you would have to write off $100k. most owners have no ability to do so. they have a shot only if the banks will allow them to short sale-but many banks are not pushing the short sales-they seem to prefer to take the property in foreclosure and then fire sale the unit. the only low sale prices i see in the listings seem to be REO. i have not seen many of the short sale listing actually close. thus you cannot blame the owners for not adjusting to the new market reality-its the banks that are in denial. most owners would run from their property if given the opportunity.
Muir & Hugo P,
Your calculations are wrong.
For a cash deal, the numbers for an investor would be:
Annual Revenue: +$14,400 (Rent @ $1,200/month)
Real Estate Taxes: -$2,000 ($100,000 @ 2%)
Tax Credit: +$600 (R.E. Tax Deduction of $2,000 assuming a 30% Tax Bracket)
HOA: -5,400 ($450/month)
Depreciation Credit: +$1,463 ($100k for 20.5 years & assuming a 30% Tax Bracket)
NET on Cash: $9,063 (or 9.1% on your $100k).
For a financed deal, the numbers for an investor would be:
Annual Revenue: +$14,400 (Rent @ $1,200/month)
Real Estate Taxes: -$2,000 ($100,000 @ 2%)
Tax Credit: +$600 (R.E. Tax Deduction of $2,000 assuming a 30% Tax Bracket)
HOA: -$5,400 ($450/month)
Annual Mortgage Payments: -$4,769 (30% down = $70k mortgage @ 5.5% for 30 years).
Mortgage Interest Deduction: +$1,245 (Annual interest of $4,149 & assuming a 30% Tax Bracket).
Depreciation Credit: +$1,463 ($100k for 20.5 years & assuming a 30% Tax Bracket)
NET: $10,308 (or 34.4% on the $30,000 down payment).
For an investor, the HOA dues may or may not be tax-deductible. The IRS allows certain expenses of the HOA but not all.
For a home buyer, if you include the tax credits for the mortgage interest and the real estate taxes, the monthly outlay is $860/month.
I am not suggesting that this condo is a good investment. You need to take into consideration vacancy, possible lower rents, HOA problems, repairs, headaches, etc.
All I wanted to convey is a complete financial picture of owning/investing in a rental property.
RAM, You are the smartest guy on this blog. I see and hear so much bullshit here. Mostly self serving personal opinions of people. It is rare to see hard facts presented like yours. Great job.
Folio No.: 01-4139-088-2420
Property: 1250 S MIAMI AVE 1111
Mailing Address: DEUTSCHE BANK NAT’L TRU CO TRS
4828 LOOP CENTRAL DR HOUSTON TX
77081-
Property Information:
Primary Zone: 6408 RAPID TRANSIT-HIGH DENSITY
CLUC: 0007 RESIDENTIAL- CONDOMINIUM
Beds/Baths: 1/1
Floors: 0
Living Units: 1
Adj Sq Footage: 796
Lot Size: 0 SQ FT
Year Built: 2004
Legal Description: VUE AT BRICKELL CONDO UNIT 1111 UNDIV 0.2257100% INT IN COMMON ELEMENTS OFF REC 23102-262 OR 22937-4474 1204 2
Sale Information:
Sale O/R: 24696-1536
Sale Date: 6/2006
Sale Amount: $490,000
Assessment Information:*
Year: 2008 2007
Land Value: $0 $0
Building Value: $0 $0
Market Value: $330,170 $330,170
Assessed Value: $330,170 $330,170
Total Exemptions: $0 $0
Taxable Value: $330,170 $330,170
*The market and assessed values are accurately reflected.Information related to this property’s exemptions and taxable values are being updated as a result of the recent passage of Amendment One and will be available shortly.
Here’s my question, if this unit sells at 100K tomorrow
How long is it going to take Miami Dade to take the taxable value from $330,170 to $100,000.
From what I’m hearing, you can’t make any assumption that the taxable value will correlate to the purchase price and that really makes it hard to make an investment thesis.
When condos were selling for $0 in the previous bust, what were they getting taxed at…. any ideas?
Pissed your an amateur.
Ram, Gables, SB
Monthly HOAs run around 43-50 cents.
My exact $450 I got from this site but is quoted elsewhere for units with same square feet (someone could just call and verify. 796sq/ft * 50 cents is $398 and not $450 but I have SEEN worse)
The taxes see above. (http://www.miamidade.gov/PA/)
Pissed. What is the mill rate? Common what is it?
Look at assessed value and multiply. Investment or living there? I calculated investment for my $7500.
Prove me wrong.
I PREDICTED a drop to $5300, thoughts?
Ram, $1200 / month?
Are rentals going up or down? Thoughts?
Renting it 365 / year? No leeway for downtime? Reserving anything for minor repairs?
Ram $2000 for taxes?! Show me the money.
SB, So what are HOAs running per square foot since you say it is ridiculous.
JL look above
OK Ram, Gables, SB
Show me the money!
Pissed don’t bother, out of your league son.
Do NOT get me wrong guys, I’d LOVE to be proven wrong cause am sitting on a shit full cash and if you convince me I would be REAL happy, let’s just use real numbers instead of wishing numbers.
Millage? Appraised value ?(JL nailed it and I posted on it with a prediction of a 30% reduction in appraised value)
Are rents going down? (This is easy to check and I do know the answer to this one)
Your are assuming occupancy of 52 weeks?
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Let’s start with that.
Then we can get into other numbers. How many times a year can you rent? What are the buildings finances like?
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No need to even mention the economy, let’s make believe that all is well.
Hugo, I think your original post was right on. Then you assumed a 2% on the sale. See JL my comments above.
Tom? Your numbers? I know your thoughts and we seem to agree, but how do you see the numbers?
Finally before lights out here are my original numbers:
“I’ll answer my own question so you can criticize my analysis and hopefully I’ll learn something.
Assume a 30% decrease in taxes to $5300.
Assume renting it for $1050
Make/break point is 50K for me.”
My question was:
“Guess I’m in the minority. I see MUCH steeper drops.
Can someone here explain to me what significance there is what it previously sold for when money was monopoly money, no doc loans ,104% financing ruled the day, straw buyers everywhere, Just what significance?
NONE.
At 100K would this unit cash flow positive at current rentals with 20% down?
Maintenance at $450 (796sq feet)
Taxes $7550 year (based on similar) = $630
Rents are asking, ASKING $1275
–
Please explain to me, just how on earth $99K makes sense?”
–
My numbers still hold up RAM.
Your numbers work only if the following assumptions are true:
“Annual Revenue: +$14,400 (Rent @ $1,200/month)
Real Estate Taxes: -$2,000 ($100,000 @ 2%)”
Your wrong on the second and the first I’d like to hear more about in a market with much more supply than demand.
Again everybody, if I am wrong I will CELEBRATE!
Just show me where if that is the case.
RAM you forgot to factor in the tax’s you would have to pay on the rental income 1200 x 12=14400 x 30%=4320. Let be realistic and say you deduct a few grand that’s still over 3k in taxes that must be factored in.
Another thing to point out is yes it would be fair to calculate the property tax’s as mill rate times the price you paid which is about 2% however that’s not how it works nor will it ever be like that because the state couldn’t afford such a hit so the mill rate will be multiplied by the their “market value” which is over 300k.
A third point due to the over building rents will most definitely over the next couple of years go down due to the inventory.
I want prices to go up as I am losing and will continue to stand to loose a lot of money but I am calling it as it is really. Nothing is an investment now, you will loose. Will prices go much lower I doubt it, you have to factor in construction cost not only rental cost as must of you do. It just wont be a good investment for a long while until prices stablize and rental prices increase but to think prices of a unit like this will drop below 50k is insane despite the fact the cost/rent ratio doesnt work out.
Muir,
O.K. Let’s use your numbers:
Annual Revenue: +$12,600 ($1,050/month)
Real Estate Taxes: -$5,300 (using your 30% discount)
HOA Dues: -$5,400 (again your number -$450/month)
R.E. Tax Credit: +$1,590 (30% Tax Bracket on $5,300)
Depreciation Credit: +$1,463 ($100K for 20.5 years @ a 30% Tax Bracket)
NET: +$4,953 (4.95% return on full asking price of $100K).
The analysis goes for any rental property. Not just this condo.
Again, “I am not suggesting that this condo is a good investment. You need to take into consideration vacancy/occupancy, possible lower rents, HOA problems, repairs, headaches, etc.
All I wanted to convey is a complete financial picture of owning/investing in a rental property.”
RG – FYI the income taxes are paid not on total rental income but on the net after expenses. Moreover, construction costs will not be a price floor on existing home inventory, it will only prevent new construction from coming online. You are correct that govt will be slow to mark down the assessed values. There is a ton of inventory and it will take years to work through that inventory and so the bottom is a long ways off. I’d buy my rental condo at $200/s.f. this minute, $250/s.f. wouldn’t be bad either, but $300/s.f. would make me think that I could do better….
RAM – You are looking at cash flow. From a wealth accumulation standpoint and assuming you do not hold this asset until you die, you should not include the “Depreciation Credit” as an expense since it will be recaptured when sold so it is just a temporary thing. Moreover, the entire purchase price can not be the basis for this depreciation since the purchase price includes items that can not be depreciated such as land which reasonably would be 15%-25% of the purchase price (all condos have X% undivided interest in the common areas which includes an interest in the land). So, the return on a cash flow basis is an inflated return until the asset is sold. Other than that nuance, good analysis and good job.
Wow Renter Tom, you are really smart!
RAM you factor in the depreciation credit, but then you keep it as profit? Buddy you’ll be spending 1.5% on maintenance on that unit trust me. You can’t just pocket it or pretty soon you’ll be a slum lord. You will likely spend more than that. Also this unit is likely a TRASH OUT meaning the insides are gutted. Copper pipes and wiring likely stolen. So you’ll be investing quite a bit at the outset. Also, rents are headed down baby. If you think otherwise you’re out of your mind. $1/SF will be the norm in 1 year. How do I know this? They built 66% too many condos (they were all non-owner occupied), purely for SPECULATION. There aren’t enough people in Miami to actually rent all these condos. The city’s population is 409K and there are currently 25 thousand condos for sale. Think about it. There aren’t enough renters plain and simple. Prices WILL fall below construction costs.
Also keep in mind if you look at case shiller the price crash in Miami didn’t start until July/August of 2007 so this is only 1 year in. And housing in Miami is in infinitely better shape than condos and has only fallen 50% of the way. So what do you think will happen to condos?
I guess you missed the “dont flip out” part…
Thanks for providing nothing to help me learn more. If you dont think 5.5% in HOA fees is absurd, Ive got a bridge in Brooklyn to sell you. Hope you enjoy being your own biggest fan. Thank you very little.
SB
Can anyone provide a link detailing the past condo bust where condos were going for $0. This sounds quite amazing to me.
If it is a shortsale that is not approved they caould have listed it for $50.ooo for that matter,does not make any difference unless theres a written set price from the lender it is all sheer speculation.
Like many of these posters, I think taking the old school real estate investment approach makes sense.
However, like many have also pointed out, there are a TON of variables out there that make it hard to really forecast how low prices will go (global recession, tight credit markets, stock market down, rising unemployment, hurricanes, Florida losing its status as retirement capital, etc). Just like we way overshot the fundamental values on the upside, I think we’re likely to overshoot them on the downside, as well.
And based on RAM’s analysis, I don’t think it makes sense to buy this thing at $99k if you’re only getting a 4.95% return (with some big assumptions: you make enough money to get the tax benefits, there are no maintenance costs, no vacancies at all, you paid cash, taxes will go down, rents will not drop).
When you can get 5% guaranteed on an insured CD, why would anyone bother with an investment like this?
RAM, TOM thx, that’s what I am talking about with the numbers.
Guys, it works better if we all try to help each other with info.
Each of us might have some knowledge the others do not have.
I’m here because I am interested in buying not talking down Miami condos.
My uncertainty is when to do so.
RAM // Oct 8, 2008 at 11:54 pm
Muir,
O.K. Let’s use your numbers:
Annual Revenue: +$12,600 ($1,050/month)
Real Estate Taxes: -$5,300 (using your 30% discount)
HOA Dues: -$5,400 (again your number -$450/month)
R.E. Tax Credit: +$1,590 (30% Tax Bracket on $5,300)
Depreciation Credit: +$1,463 ($100K for 20.5 years @ a 30% Tax Bracket)
NET: +$4,953 (4.95% return on full asking price of $100K).
The analysis goes for any rental property. Not just this condo.
Again, “I am not suggesting that this condo is a good investment. You need to take into consideration vacancy/occupancy, possible lower rents, HOA problems, repairs, headaches, etc.
All I wanted to convey is a complete financial picture of owning/investing in a rental property.”
–
Renter Tom // Oct 9, 2008 at 12:05 am
RAM – You are looking at cash flow. From a wealth accumulation standpoint and assuming you do not hold this asset until you die, you should not include the “Depreciation Credit” as an expense since it will be recaptured when sold so it is just a temporary thing. Moreover, the entire purchase price can not be the basis for this depreciation since the purchase price includes items that can not be depreciated such as land which reasonably would be 15%-25% of the purchase price (all condos have X% undivided interest in the common areas which includes an interest in the land). So, the return on a cash flow basis is an inflated return until the asset is sold. Other than that nuance, good analysis and good job.
what your analysis is also leaving out is that this building is a toilet. I toured it in 2004 when it was brand new and hated it then. it has only gone downhill since. a friend who recently moved out tells horror stories of squatters occupying vacant units. and it is now surrounded by taller buildings on all sides, so there will be zero view. it is competing with The Club and The Sail for “Crappiest Condo near Brickell.”
On the tax front, I think the County is going to have a tough time with the comps on these properties to come up with the taxable values because they are forbidden by state law from including “distressed property sales” in thier evaluations. How many downtown condo sales are not “distressed” (ie. not short sales, foreclosures…etc)?
RG // Oct 8, 2008 at 11:45 pm
“I want prices to go up as I am losing and will continue to stand to loose a lot of money but I am calling it as it is really. Nothing is an investment now, you will loose. Will prices go much lower I doubt it, you have to factor in construction cost not only rental cost as must of you do. It just wont be a good investment for a long while until prices stablize and rental prices increase but to think prices of a unit like this will drop below 50k is insane despite the fact the cost/rent ratio doesnt work out.”
It is unfortunate that you are losing money, I gain nothing from your loss and your integrity is apparent in calling it like it is.
I was writing something long about construction costs and selling prices when I realized it wasn’t important, if they are in a position where they have to sell, they have to sell.
Finally thx on these 2 points:
“Another thing to point out is yes it would be fair to calculate the property tax’s as mill rate times the price you paid which is about 2% however that’s not how it works nor will it ever be like that because the state couldn’t afford such a hit so the mill rate will be multiplied by the their “market value” which is over 300k.
A third point due to the over building rents will most definitely over the next couple of years go down due to the inventory.”
In Palm Beach downtown condo rentals have gone down quite a bit. Different market same principle.
Tom (post # 20)
I hear what you’re saying man. I’m fine renting for the time being as well, but I’m kind of at a point in my life where I feel like I need to own my own home. I’ll be turning 30 in a few months, and I guess I have sort of a psychological desire to own my first place. I’ve been pretty dead set on this for a while now, but the more I think about, the more I realize I cant let my own impulses dictate this decision. I guess now it’s just a matter of waiting things out until the best deal comes along. Hopefully it’ll be sooner than later.
Shelly stated “Can anyone provide a link detailing the past condo bust where condos were going for $0? This sounds quite amazing to me.” It sounds quite amazing to me, too….. amazing BS. Who is going to back up JL’s statement? Are any of you doom and gloomers (who are likely rolling around in laughter and greenbacks right now) already standing in the free-condo line? I heard that Mercedes Benz is giving away S-Classes to anyone who can pay the gas-guzzler tax and sales tax. They just don’t want to keep holding on to those depreciating vehicles any longer.
In all seriousness, if condos on Brickell went for $0 in the last bust, and this RE/condo bust is considerably worse, then owners shouldn’t be giving them away for free. The seller should be paying the buyer to take it. So forget free condos, let’s get payed to own one. Okay, I wasn’t serious after all.
DJ – I’m renting at 1/2 price without the asset price decline or HOA worries….. It is a great deal. I’m saving a ton! If you include the asset price declines, I’d save enough for a free condo in 2-3 years.
In fact, I was really looking to buy before deciding to rent but couldn’t put a value on anything to make an offer because of the uncertainty. After getting over the “must own” mindset, I decided to rent and am very very happy! When I decide to move, I won’t have the burden and expense of selling….it is a hassle with showings (if you still live in it at the time) and of course the commission. I’ll just move out, have cleaning lady do the final cleaning, and be done….so simple. Renting is the way to go in this market!