The $400K Price Point for 2 Bedroom Condos Has Been Breached
December 6, 2007 by Lucas Lechuga
Neo Vertika currently has 11 two bedroom condos that are priced for under $400,000, Isola has 2, Courvoisier Courts has 3, One Miami has 7, Solaris at Brickell has 1, The Club at Brickell Bay (surprisingly only) has 2, The Mark on Brickell has 3 and Vue at Brickell has 11 (with 2 of the 11 two bedroom condos priced for under $300,000).
With the additional inventory, from the soon-to-be completed condo developments, I think the $400,000 price point for 2 bedroom condos in desirable condo buildings throughout Brickell and Brickell Key will become more commonplace in 2008.
Of course, the size and square footage of the condos needs to be taken into consideration. Most of these new condo developments are delivering 2 bedrooms that have 1,145-1,300 square feet. Anything larger will, of course, fetch higher prices. It should go without saying that 2 bedroom units at ultra-luxury condo buildings such as Jade, Four Seasons and Santa Maria are exempt from this discussion.
I'm actually looking forward to the opening of Plaza on Brickell in January. In my opinion, it offers the best value in Brickell. I think within 3-4 months after it opens we'll see aggressively priced 2 bedroom condos throughout Brickell approach the $350,000 mark.
I was at the Plaza on Brickell sales office last week with out-of-the-country clients and we were both shocked by the prices that were offered. The prices had come down considerably since September, when they last visited the sales center with me. One bedroom units now start at around $210,000 and two bedroom condos start at around $340,000. Investors have become more motivated to sell as their closing date approaches.
A few days after I visited the sales center with my clients they told me that "at these prices we would regret not making an offer". They are looking to hold for about 10 years. Where else in Brickell can you get such prices, much less in a brand new development? I think Plaza on Brickell will act as the buoy for the Brickell condo market.
This is why many investment groups have their eyes set on Plaza on Brickell. They all want to buy units in bulk at a deep discount to get positive cash flow. However, I don't think that this will happen at this development. I think prices offered, at the present time, are appealing enough to end-users. They, too, have their eyes on the Miami condo market because it is in their own backyard.
I know from reading your comments lately that you all are very opinionated. So I ask you, where do you think 2 bedroom units will ultimately be priced? More specifically, where do you think the top 10% best priced two bedroom condos in the well known Brickell developments will be priced by the end of 2008?
As an owner of a 2/2 on Brickell Key, I am very interested in seeing where this goes. Honestly, I think we need to come up with some type of classification for condominiums. Clearly, we have high-end, mid-end, and low-end condos. Second, I would think we could have direct waterfront, near-waterfront, and no-waterfront.
I guess we could create a matrix to determine where prices should be. I think ~$400 a sq foot for direct water front for a mid-end building is correct. There are VERY FEW direct waterfront buildings, in fact, almost all of the new construction is near and no waterfront.
On the topic of rentals, a friend of mine wants to rent a unit, with the condition that the owner has been there at least 5 years. Although there will be a lot more supply on the market in the next year, I think people have become concerned about renting in these new units. First off, the buildings aren’t complete missing things like the pool, gym, etc. Second, a vast majority of the owners can’t pay, so the tenant becomes trapped in a legal battle between the lawyers and the owner.
So basically, I feel older (wiser) buildings are going to do much better than the new ones.
Formula to prove I know what I am talking about.
Here is the Golden Rule of the Housing Bubble and Crash.
… What you can Rent a unit for monthly, is what the Monthly PITI should be if you owned the unit.
Ex…. You can only rent the unit for 1800 a month?
Then the mortgage, taxes, association fee, and insurance should be 1800 a month.
Does that make you giggle? Well stop giggling because that is what is in store for Miami and that is how far the crash is going to go before it stops.
Lets assume that 1800 a month is
600 a month Taxes/Association fee and Insurance.
That leaves 1200 left for mortage.
1200 dollar mortgage = $182K Condo.
In summary…
If you can rent a unit for 1800, The Real Market Value of the condo is 182K.
Get ready for some more price drops!
Lucas: I am from NYC will escape over weekends to get some sun in Miami. Will use as a second home. Maybe later on I will rent it. So many people panic about prices droping, i am long term. I really do not care it condo prices go down in next year. I am a long term, and plaza on Brickell is a greta building on a great location close to brickell village and it will do fine long term. Thanks for your reply Lucas. Love your blog and read it every day
Matt – I’m willing to be your state representative. Are you, or any others, willing to endorse me? Just kidding!
I’m a huge baseball fan so, if I were a state representative, my primary objective would be to obtain a waterfront baseball stadium in Miami (a retractable dome stadium at the American Airlines Arena sounds logical to me). I would love to see home runs hit into Biscayne Bay from the stadium. Miami should be a major baseball city but it isn’t. I’m originally from Chicago and I’ve seen the Scrubbies play more times than I’ve seen the Marlins play. That’s pitiful since I’m a White Sox fan.
There’s no appeal for me to visit the Marlins’ stadium because their stadium is not ideally located. I loved hopping on a train in the River North neighborhood of Chicago to catch a Chicago White Sox game. I think a lot more people would show up to Florida Marlins’ games if they were able to hop on the MetroMover to catch a game.
I’m also a big football fan but I don’t think the Miami Dolphins deserve a waterfront home. You can place them at the Homestead Miami Speedway. Bring on a real team like the Chicago Bears to this city. They may not be playing well this year but they brought themselves to Miami last year during the Super Bowl.
Lucas, When will you finally get it.
400K for a 2 bedroom condo is not a steal, its a rip-off.
300K is a ripoff.
200K is a ripoff.
These condo’s will be sub 200K units in 3 years. I would bet my left testicle on it.
1300 sq foot condo… lol… In most of america right now that kind of real estate goes for 130,000 dollars.
I will give you the benefit of the doubt and say that Miami, with the water, weather, and weed will go for 180-190K tops.
a 50K premium above the standard 100 dollars a sq foot that most working Americans can afford.
Point is that you will see prices drop to 100->190 a Sq foot before the decade is done.
Mark my words… it hath been foretold.
Chris, I’m sure you are aware that the tax laws allow you to deduct your mortgage interest (virtually 100% of your payment for the first five years) and your property taxes. It makes a big difference between buying and renting at the same price.
In addition to tax deductions, buyers typically pay a premium over renters, in order to make the place their own (get rid of trashy carpet, choose paint & finishes).
However, I agree with you on your most important concept: there has to be a sensible relationship between rents and buying prices.
Right now, Miami does not have that relationship. If rents fall 10%-15%, it’s inevitable that property prices will fall hard – the gap already makes no sense, and with rents 10%-15% lower, buyers will capitulate.
The buyers who will make the most in the disaster will be the big guys who buy in bulk. Individual sellers are doomed.
I agree with Lucas on this point: if you are a seller of a spec or rental unit, be the first rat off the ship. Yes, it hurts. It will only hurt more if you wait.
Ten years’ inventory, anybody?
Are these worthing looking at from a rental income point of view? Or is the rental market soft as well? I live in Canada and have been watching your site for a while. The strong Canadian dollar coupled with these lower prices makes Miami worth looking at ( Not too mention winters are much warmer!! )
What do you think 2br units will rent for in the Plaza?
Lucas,
when is closing at Plaza?
Does it look nice, ammenities, pool?
Did you see it?
In general I believe 400k for 1200sqfeet brand new low floor 500k for above 20th floor
Old buildings(ie 5 years) will get softer i d say around 300k for low floor
I am not talking about bank foreclosure which could go 20-40% lower
The real question is how many forclosure will you have
Your list of desireable buildings leaves something to be desired. You also make no statements about the differences in pricing between waterfront buildings and non waterfront buildings. And within one building views and floor height make all the difference in the world.
If I’m a buyer who usually shops at Neiman Marcus and Neimans’ has a sale, I’m very happy and it will incent me to buy more or to buy sooner. If the Gap has a sale at the same time, and even if offering clearance, I am certainly not going to change from Neiman’s to the Gap just because the Gap is having a clearance sale.
Your generalizations devalue the conversation about pricing. Someone who wants to live in a building on Brickell is not going to even consider living at Neo Vertika. It’s a different buyer and a different product.
I think a more likely conclusion is that the market is great for buyers in all price points, but that there will continue to be a widening gap in prices between “desireable” and “undesireable” buildings.
What you should have concluded is that the disparity in prices between
Laurent I think its goign to be the opposite I think older more established buildings are going to be more expensive than new buildings. New buildings have a lot of speculators, a lot of new inventory in the market and the fact is not everyone is going to move in and the condo association will not be able to run the building, thus making it worse and cheaper to buy
I think that waterfront buildings and others will make all the difference.
Laurent:
You talk of 300K+ like it was a cheap price, almost like a deal.
Now I think, how many persons in this city where the median income is around 40K can afford such a mortgage (plus all the extra expenses like HOA, taxes, etc).
From that small amount how many would consider moving from their current places (because they most probably own a place already) to those buildings and most probably have theirs taxes duplicated.
I bet that the number is low, very low.
Go to a site such like money.cnn.com and use a calculator like “how much house can you afford” there you will see that the pricing for miami should not be in the 400k, not even in the 300k.
I read a post here (do not remember the precise thread) that read that a flipper buy a condo in 300k, an owner buys it in 180k
I recommend everybody to read a post from a month or so ago regarding a building in Brickell that in the last burst was in foreclosure and owned by the FDIC. It’s an eye opener.
Funny, I have a friend of mine that is “realtor” (one of the new kind that wanted to make easy money in the bubble) and she was willing to bet her life that real estate prices can never go down. I would love to see her face now 🙂
I just read a UBS research report that estimates a further 10% drop in home prices nationwide. Given that the Miami condo market is at the extreme of the repricing cycle, I would estimate a possible additional price drop of 20% before we see prices stabilize. The fly in the ointment is of course foreign buyers with strong currencies like Canada and Europe that might be tempted to buy in before that extreme a drop.
A couple of thoughts from someone who just went through the search process for 6 months before buying.
First, if these condos are being offered in this market for 400K – they certainly can’t expect to get it. In my search, the point of an initial offer was to see whether i would get 15% or 20% off this number. So what are they selling for? I wouldn’t pay more than 320K right now. But to be honest, at some point the foreclosures will kick in and the prices could go to around $250 sq/ft. The important thing for a buyer is where is the market going, not where it is right now. And its on its way down, and the recovery may be 7 to 10 years and the current absorption rates.
Secondly, my understanding is that over the next 12-18 months – 15,000 new units will be delivered. The majority of these will be in the downtown, brickell area. I have never heard anyone with a coherent story of who is going to buy these units. Yeah, a few foreigners here and there – but a lot of them are scared of the taxes and the HOA. Some people maybe moving from the beach to get a bigger place – but this will be renters most likely. Older americans aren’t going to retire to downtown miami/brickell. Young families by and large prefer homes. Rich people will be on the beach, or naples, palm beach etc. There has to be some kind of renaissance in the business community for young professionals – businesses need to relocate headquarters to miami etc. I just don’t know if this will happen.
Finally, we need some competent people to be elected to city government. Ones that will deal with the reality of the situation and take the type of action that is necessary to give this downtown/brickell area a chance. Get a new stadium for baseball/football. Do something meaningful with the performing arts center. Get the bayside marketplace up to snuff for higher end visitors etc. After 6:00 pm, its like “escape from new york” down there. Also, state officials need to give real tax reform and deal with the insurance companies.
Matt,
Good comments made! I have many of the same similar thoughts about investment in a Miami
or South Beach condo. The property taxes and HOA are enough to stifle many buyers. HOA fees of $400 to 600 on a 1 bedroom unit and taxes of approx $8 to 1$10K yearly make the yearly cost of carrying such a unit quite overwhelming; especially if one is only able to use the unit on an irregluar basis (used as a vacation or 2nd property). The unit cannot be rented for anything close to breaking even either! In most situations, it is a guaranteed way to throw 15 to 20K away yearly. Maybe a lot more movie stars or celebs will move to the area to help throw a lifeline to the local Miami real estate economy!
Merv – Rentals are very much in demand right now because not many people are buying. However, due to the high number of condos that will be coming onto the market within the next year or two, rental prices are predicted to go down 10-15% within the next year. Click on the following link to view a news story that aired on CBS4 about a month ago that provides great insight into the rental market in South Florida.
http://cbs4.com/video/?id=42783@wfor.dayport.com
Joe – I’ve seen the lobby at Plaza on Brickell but I haven’t seen the other common areas. It looks great! Like I said, I think Plaza offers the best value in Brickell. What are your plans for your unit? Are you going to rent it or sell it?
IRR – I think 2 bedroom units at Plaza will rent for around $1,900-$2,300, depending on the view and any work that has been done to the unit.
Lucas et al: Here’s my take as an investor, not an owner, and also as a tenant.
A 1200 SF apartment on Brickell for $350,000?
Cost of capital at 8% (a reasonably safe assumption if invested in stocks and bonds over ten years): $28k/yr.
Maintenance, HOA, whatever @ 50c/SF/mo: $7.2k/yr.
Property taxes at 2% (annual) $7k.
Insurance (a wild stab) – at least 1.3k/year. Probably twice that, but I’ll use my bargain price.
That adds up to $3625/mo in carrying costs before assessments, and anyone buying in these troubled and unoccupied buildings on Brickell can expect those – hell, anyone buying anywhere with a ten-year horizon can expect those.
I did a quick search on realtor.com for rentals on South Beach (not Brickell, note) and the only rentals I could see asking $3500/mo for a 2/2 were in the Cosmopolitan.
Let me assure you there are no 1200 SF 2/2s for sale at the $350k price point in the Cosmopolitan. And maintenance psf in the Cosmo far exceeds $0.50/psf/per month.
So something’s got to give. As much as I like South Beach, where I have the basic necessities of life on hand (supermarket, endless restaurants, 18-plex cinema, etc;) I would have rented that lovely 1BR Lucas featured recently for $1595/mo. Yes, it’s off SoBe, but big deal, I will drive over there when I need to. Gas doesn’t cost that much, yet.
My landlord will discover this when we go to renew our lease.
My point is, prices will fall even below where Lucas is pointing.
I don’t think it takes Mother Nature to do this, I think it will happen anyway. But a hurricane (remember those?) will rip the impact-resistant windows off all those new condos.
Not your problem because windows are common elements? Think again. First, balconies are not. That’s your problem. Second, if the condo needs to replace the glass in every window, that’s an assessment. Third, if we get a big one, and we will, your condo will be unfit for occupation while you wait and wait for the shoddy window-replacers to come fix the windows.
I’m a happy renter. I will have lots more options when my current lease expires.
In short, I’m short.
I own a townhouse in Coconut Grove and paid about 30K in mortage interest + property tax in 2006. I saved a grand total of $4K in taxes due to my mortgage interest/property tax. I always though that I was saving a HUGE amount in taxes and was very disappointed to see how little it saves me in taxes. I am single and dont have any kids, so I have zero tax deductions except for the mortgage interest/prop tax.
Business is good and I will be able to pay off my house in a couple of years (about 7 years after my date of purchase). The benefits of tax deductable mortgage interest are overblown.
Home ownership does not make financial sense in the current economic environment (especially in south FL). If you add up all the costs, headaches and the nightmares that you go thru during a housing downturn, it is probably not worth it.
I did buy a house because i liked my house and like the fact that I can get the type of hardwood floors I like and get the house remodelled exactly the way I want. I am sure the fact that my dad, grandfather, uncles, etc own their own home had an impact on me wanting to own my own house. Maybe there are other psychological factors that are not “logical” that go into a condo/home purchase.
To summarize:
1. Mortgage interest benefits on tax savings are overblown.
2. People buy a condo/house because they are expect to at some point in their life. i.e when they get a good job or when they get married, etc.
3. People are influenced by what their peers are doing and it has a huge impact on their decision making process.
4. People also try to compete with each other on who has a better house or bigger pool or better ocean view. I know of a few friends who bough their condo because it has bigger than a condo that my other friend had.
Conclusion: Very few people crunch numbers and do analysis on their purchase. If the payment amount is something they can afford, they will go for it. Whether the places is worth the $$ they are paying for it or not is not really what people think about up front. Thought like actual worth of the place cross their minds when they are trying to sell or during a housing downturn.
NEO/Epoch builders of Wind really did it bad this time.
If you are under contract in the Neo Wind building, be aware that the units that were advertised as 3 bedrooms 2 baths are actually 2/2 and the units that were advertised as 2 beds 2 baths are really 1/2.
Check your documents, they are delivering the plans to the city as 1/2 and 2/2 . Not 2/2 or 3/2
Try selling your unit a few years from now when you purchased a 3/2 and you can only sell it as a 2/2 or you purchased a 2/2 and you can only sell it as a 1/2.
I am no lawyer , but looks like False advertisement to me.