Remaining Developer Inventory at Met 1 to Go on Sale This Sunday
June 28, 2012 by Lucas Lechuga
Get 'em while you can! Starting this Sunday, the developer of Met 1 will sell its last remaining developer units. With 1 bedroom condos starting at $231,000 and 2 bedroom condos starting at $385,000, this is an amazing opportunity! If you look at currently available inventory in the area you will quickly learn that it is virtually impossible to find a 1 bedroom condo in a building of comparable quality to Met 1 for less than $250,000. 300 developer units will be sold in batches. The first units sold will be the best priced. For those who missed the boat on other well priced developer close-outs over the past two years, this could be your last chance to redeem yourself.
Met 1 is located on the southern edge of Downtown Miami at 300 S Biscayne Blvd, within a few blocks of Brickell and a short walk to Mary Brickell Village. Contact us if you would like to learn more about the inventory and pricing for the first batch of units which will go on sale this Sunday. You can reach us via email at [email protected] or by phone at 305-428-3860.
Comparable Quality to Met 1 = Garbage
Second-rate construction, with third-rate finishes, with no covered entry, parking is around the corner (you WILL get wet on a rainy day), and with VERY misleading square footage on their brochures.
Home prices up 10% in the Miami Metro:
http://therealdeal.com/miami/blog/2012/07/02/home-prices-jump-10-percent-in-miami-metro/
Met 1 will definitely shape up to be a nice location. Lucas have you heard anything about Met Square or Met 3?
Here is the latest renderings I have for Met Square.
And Met 3
Having restaurants, retail and a Whole foods next door will mean a lot for Met 1. Then there is the Metro move across the street so you’ll be able to ride to Brickell Citicentre in a matter of minutes.
No, I haven’t heard anything new about Met 3 or Met Square. The renderings look pretty sweet. That will definitely be a great addition to the neighborhood.
Sorry, I have been super busy. I thought summer would give me a breather but I am twice as busy as during the so called “Season”. Miami Beach also is super packed. why are all these people coming here round the year? It never used to be like this. I will reply to Gixxer and Lara who questioned my previous post in “Updated” after I am done with 2 very important upcoming gigs that I am preparing for.
http://www.huffingtonpost.com/alyce-robertson/miami-development_b_1634219.html
http://news.yahoo.com/apartment-rents-rising-vacancies-10-low-140611799–abc-news-savings-and-investment.html
I think Renter Tom did a great disservice to every one who wanted to buy and held back after listening to him rant for 2+ years. This is only going to get worse. The guy in the story has a rude shock waiting for him if he thinks market will not absorb or he will not pay it on principle. This is precisely what I said when you will end up paying close to 60% of your income on housing just like they do in the rest of the World. I thought we will get to that situation in 15-20 years in America. but this is happening faster than I thought. Say good bye to vacations, luxuries, eating out, shopping etc. Pay most of what you make to have a shelter. Americans will get used to it. The market will not adjust because johnny wants to have fun with his disposable income. Johnny will adjust his spending because he will have very little disposable income after paying half or more of his salary for a roof over his head.
That is why I always said, once you have a paid off house, you are the king of everything you survey. Guys like renter Tom and others put forward stupid arguments about renting is cheaper than buying etc. Even if it is true, it is only true for a short blip. and then it is always advantage owner. In any case, once a home is paid off outright or in 15-30 years, you have no more rent. A reter will be paying for th erest of his life and getting kiscked around by their Land Lords from place to place. Some one on this blog once said “A deed is just a paper with your name on it” Oh boy, he is so wrong. I hope he is getting his arse thrown out cause his rent just went up 30%.
Read the full story:
On June 1, Dan Nainan’s landlord informed him that at the end of August his rent would be increasing by more than 28 percent. A five-year resident of his one-bedroom apartment located in a prime spot in New York City, Nainan’s rent is set to rise to $2,700 to $2,100 in less than three months.
“I was really upset. I was in shock because I have been here for five years,” said Nainan. “I’m a great tenant. I don’t have loud parties or make noise. I’m a model tenant and I’m gone a lot. I don’t have any pets.”
Across the country, rental prices have begun to spike as vacancy rates reach a low not seen in a decade, according to Reis, which tracks commercial real estate performance.
Nationwide, vacancy rates have fallen below 5 percent to 4.7 percent in the second quarter of 2012, a low that hasn’t been seen since 2001.
“For most markets, once vacancies tighten below 5 percent, effective rents tend to spike as landlords perceive that tight market conditions afford them greater pricing power over tenants. With overall vacancy below this level, it appears that rents are beginning to accelerate,” according to Reis senior economist Ryan Severino.
In the U.S., the average price for effective rent rose by 1.3 percent to $1,041. New York City had the highest increase in the second quarter after average rents rose 1.7 percent to $2,935.
For Nainan, who lives in Chelsea, the hike is 15 times the average increase, and he has already begun looking for a new place.
“I understand the landlord part of it-it’s market forces,” said Nainan. “If I don’t want it, someone else will. It’s very much a landlords’ market. It’s definitely not a renter’s market.”
A feeling many renters across the country may be experiencing. After New York, apartment renters in Fort Lauderdale, Seattle, San Francisco and Nashville saw the highest effective rent growth.
New York’s second quarter vacancy rate of 2.2 percent makes it one of the tightest markets for finding a rental apartment. A few other areas experiencing low vacancies include Portland, Ore., Minneapolis, New Haven, Conn., and San Jose, which round out the top five.
According to Severino, “vacancy has not been this low since the wake of the dot-com boom more than a decade ago and there is a paucity of available units.”
He continued, “as the market tightens and vacancy reaches very low levels, landlords shift their strategy for growing revenue vacancy decline to accelerating rent increases,” which is what is currently happening.
With his landlord politely taking a take it or leave it approach, Nainan says he is actively looking for a new apartment of the double digit percentage hike.
“I don’t think the market can support that. I’m resolved not to pay it just on principle,” said Nainan.
The reasons for higher rents include an exodus of people from houses and condos that were foreclosed during the real estate meltdown and tighter lending standards that have locked more buyers out of the market.
Aj,
Paid off house or not…. Don’t pay your property taxes or association fee’s and see what happens.
You still have “Rent” payments even after your house is paid off. In Miami that amount is equal to what people in the middle 3 quarters of the country pay for housing period.
Unfortunately due to conditions such as above (Landlord Market), Some buildings are terrorizing their tenants.
Please do not Rent in AXIS if you can help it. That building has an arse hole management and board. If I was an owner I would have straightened up those retards quickly.
To compensate for their lack of class or all things good, they are creating obscene rules trying to imitate Continuum or other super high end properties. My friend has to sleep on the floor cause they would not let him bring a mattress in after the moving date. They say he needs to set up a date just to bring a mattress and no date available for another 7-10 days. In another instance, one tenant has to pay twice shipping for a bulky item because it arrived a day early than he declared and they sent it back!! I think this building has a small penis syndrome. They act the toughest cause they have little else to show. Wht a shame.
AJ, i used to agree with you regarding stiffling management rules. But with some experience, I actually like it and want any building I own in to have stiff rules. This impacts renters to a far greater degree than owners, due to their transient nature. But having seen how renters can quickly cause a building to deteriorate with alot of move ins and outs, I am happy to put up some restrictions. If I invest a quarter of a million or more in a property, I want it treated gently. But as a renter, I could care less. It is not wanting to be Continuum, but rather wanting to protect the property from wear and tear. And if I am renting in the building, I do not want to wait 5 minutes for an elevator because a bunch of bulk is occupying the lifts. I don’t pay good money to be inconvenienced!
Gables, while it is a sound argument, ridiculous is ridiculous. If my building rejects a package they would have to pay hell for it. Even if they do not let me move it upstairs, they should have held it in some receiving area (1800 club has one and I am sure Axis does too and if they don’t, then it is a poorly conceived building)until opportunity allows it to be transported to the unit.
Strict rules of conduct are one thing but torturing people because they can is nothing but perverse.
I think the only thing ridiculous here is AJ’s take on the market. I recently ran a rent vs. buy analysis for myself looking at a 2/2. Right now to rent the unit it would run me about $2,300. However the unit is about $415k to purchase. I have benefits where I can get purchase up to a $417k with no money down, but let’s assume a modest down payment of $20k. That makes my mortgage $1880. Then add in HOA ($750), property taxes ($830) and a minimial amount of $50 for monthly maintenance and you have a total of about $3,500. When you factor in tax benefits of owning in a 28% tax bracket that brings the monthly cost down to $2,950.
So clearly in the short term renting is cheaper than owning. Even if you grow rent by 4% it will remain cheaper over the next 7 years. So you’ll pay less per month and not have to shell out $20k. And for most people this would be a lot higher as most bank you need 20% down. Now if you were to hold this property for 7 years and achieve an average of 4% annual appreciation then property would be worth $546k. Factor in a 6% sales commission for Lucas and another 1% for fees, plus probably $2,500 to clean, paint and make the unit ready for sale, minus the remaining balance on the loan and you walk away with $172k profit.
So if I were to invest that $20k in a unit it would net me about a 23% return which is pretty go compared to renting and putting that $20k in a 7 year tbill which is at about 1% right now. Even if I risked it in the stock market it would be hard to get a 23% return.
But you have to be sure you’re going to stay at least 7 years. If you have to move in the next couple of years you’ll clearly be better off renting.
But your argument that rents are going to go to 60% of income is just flat out crazy!! First let me say that I work in the business of purchasing multifamily properties and structuring them as investments to private investors. We self manage all the multifamily properties we own. There is no way residents could afford anywhere close to what you are saying. If we were to raise rents that much on our units people would simply just move out. There are just to many other options.
Downtown Miami/Brickell is a nice place to live. Right now rents are in the $2.00 a sf range. So a typical 1200 sf 2/2 is about $2,400. Most people are currently renting at about 30% of income. For rents to get to 60% of income rents would have to essentially double. There is NO possible way this happens. People would immediately move out to places that are close with less rent. There are a lot of average new buildings up near 20th and biscayne on the west side of US-1 with rents 20% cheaper.
Then on top of that every developer in the world would be building rental buildings to capitalize on rising rents. Once all those units get built the supply would increase and prices would start decreasing. Miami isn’t like other European countries where their cities are already built out. Downtown/Brickell still has acres and acres of VACANT land.
Gixxer, you will never get it. Throw that calculator in the trash bin and think with your head. You are espousing the exact same argument Renter Tom and the likes put forward time and time again.
Go back and read my post in totality.
A fully paid off home will bring you peace, stability and prosperity. Some buy it outright and some pay off in 15-30 years. Once you have a paid off home, you are the king of everything you survey. But then of course you are a typical American who has been indoctrined over his or her lifetime to be forever indebted. So I do not fault you.
That is the reason why most of you failed to see that these units will be lapped up by foreigners in no time and they will never ever let prices fall below $200 when some people were predicting $125. Now they are hovering around $350-$400 in Downtown Miami. Folks routinely pay $1000/sf in all cities around the World for flats in buildings that are not half as good as the Miami Condos. I have a birds eye perspective of how communities around the World view housing. Home ownership It is almost sacred for them. For transient natured Americans, it is not that important. So people like you will keep talking and trying to justify your continuing renting with all kinds of numbers while foreigners and foreign born Americans are quietly buying up properties and enslaving you for the rest of your life.
I was the one here arguing that it was going to get better back in 2010. I have pointed out how buying is better right now if you plan to stay put for 7 years. But I’ve been making that argument based off math.
So while were in agreement buying can be better for some there is no possible way this justifies Americans paying 60% of their income to housing.
AJ,
First off you argument is stupid because you’re talking about when the home is paid off 30 years from now. So to even indulge your argument one would have to stay in the same home for 30 years. This just isn’t logical. Right now I’m in my 30’s and I’m fine with a 2/2. 15 years from now when I have 2 teenage kids a 2/2 isn’t going to cut it.
As far as you financial argument it’s clear you have no understanding of money. You get tax deductions against the intrest you pay on your mortgage. There are a lot of financial reason to not tie up all your money in a paid of house. Why have 400,000 tied up in a home that appreciates at an average of 4% a year when you can borrow money at 4%, get a tax deduction for the interest and then use the 400,000 you don’t have tied up in your house earning 12% in the stock market.
In the scenario that I gave earlier, if I were to stay in that house for 30 years when I sold the house I would have a 12.97% return. Pretty much any idiot investing in an index fund should be able to get the same return as the stock market pretty much averages that over the long term. So I would have stayed in the same house for 30 years for an extra 1% return and that’s without any sort of investment understanding. We average 18% returns on our investments. That would mean that I would LOSE money to stay in the same house for 30 years.
Now yes I agree that I could make up for that if I then stay in the house after it’s paid off. But now you’re talking about a 40 – 50 year time horizon. Not considering the fact that most people in their 20 – 30 can’t afford the type of housing they want to live in, especially not for 50 years.
And regardless none of this has to do with people spending 60% of their income on housing. That is just flat out stupid. That would mean that 30% of Americans discretionary spending would evaporate. That would essentially destroy the entire WORLD economy. And its pretty stupid to think that when all they would have to do to keep housing around 30% of their income would be to simply move down the street for a year or two and wait for new buildings to be built.
This isn’t American indoctrination its called MATH.
As with everything there is a clear cycle of supply and demand. Right now there is more demand than there is supply. There was very little rental building during the boom. People are moving back into the cities where there was already limited supply as the majority of building during the boom was suburban. Now that there is limited supply landlords such as the company I work for are raising rents. Those rents just yet haven’t hit a point to justify new construction. Once those rents get high enough new construction will begin. There will be a few years of lag and then all of a sudden a lot of properties will come on line. The supply/demand balance will shift back into the renters favor because there will be more supply than demand. Prices will then become stagnant and start to fall and voila the cycle will repeat itself.
People spending 60% of their income on housing is an ignorant notion.
“This isn’t American indoctrination its called MATH”
—and this math test failed miserably.
Go ahead and call someone stupid who has been consistently & rightly predicted the bubble back in 2004 (before the MCI days) and the recovery to the closet year back in 2008 (I predicted bottoming in 2010 while it happened a tad bit earlier than that and all condos getting sold out by end of 2012) when such talk got me labeled as crazy but it is all vindicated now.
This living in a house for less than 7 years is American problem and dilemma. The rest of the Worlds population do not have this problem. They strive to buy. Buy early. Pay off quickly and keep it till they die. So you will never understand how it works. That “Stupid” argument of when I have kids 2/2 will not cut it is how most Americans think and is their downfall. So friggin what if you have another kid? Let them share a bedroom. Who told you that they each need a room of their own just because it was done that way in this country for the past 60 years? Stupid things need to change.
Rest of the World, flats are going at $1000/sf while it takes 2/3rd of ones wages to afford a roof. In America, the wages are not rising and in fact will continue to go down and match the rest of the World. The population pressure is always there and the construction and commodity prices are going up. Eventually one will have to fork out 50-60% income just for shelter. That is when a person with a paid off home will be the have and those who rent will be the have nots.
Aj,
In all fairness if you predicted the bottom in 2010, why did you buy in 2007/2008?
Thats right…you’re full of it 🙂
and don’t be a 20 something Mr. Know it all while you are still going to school. You need to be a World traveler and have empathy towards different cultures and their lifestyles to actually gain insight into how this whole thing works. Your narrow minded knowledge of all things American will not serve you well. this is an integrated Global economy and start thinking how the people outside America live and think. Then you will be good at what you do one day.
Uh, I think I just wrote that I’m in my 30’s. I went to graduate school while I was in my 30’s. Furthermore I was fortunate enough to travel the world at a young age in the military.
Oh and as to wages not rising:
http://www.payscale.com/payscale-index-Q2-2012/cities
Miami is tied at second with 2.9% wage growth. You clearly have no ideal about what your talking about. Look at any report and you’ll see that rent throughout the vast majority of America will only grow around 4%.
I argued that the bottom was 2010 so clearly that can’t be used as a basis for this. The difference is that I was pointing to things like the Case Shiller home price index as proof and you were just talking about your condo. You weren’t right it’s just that other people were more wrong.
I’m good at what I do now, which is why I know what your saying is ignorant. When you look at America and you look at the rest of the world they just don’t compare well to each other. And as a “world traveler” you should know this. Many European cities are hundreds of years old and are already built out. The most similar example we would have is Manhattan where plenty of places go for $1000/sf. Obviously Miami doesn’t have that problem as half of our downtown is still VACANT or under developed.
Again, why would I pay 60% of my income toward housing when I can simply move down the block and pay 30%??? We have an abundance of vacant land to easily build new cheaper housing for decades if not centuries. It’s simply supply and demand. In America we can simply create more supply, in other places they cant.
If the cost of living is to high in Miami then why not simply move to another up and coming city with great housing like Dallas?? After all America is double the size of all of Europe. You can easily move freely between all the states as we speak the same language. However if you live in Paris it’s not as easy to simply pick up and move to Germany.
Only any idiot would point out that something has been the same for the last 60 years and then think things are going to all of a sudden change just because.
The international market has helped to prop up downtown Miami condos. But that can only help so much. After all most of these units are ultimately rented out to people living here. And renters can only pay so much and it damn sure ain’t 60% of there income. Especially when pretty much most of downtown is either vacant or underdeveloped.
you mean to say someone taking home 4000 a month in NYC paying 2100 for a studio is an anamoly? Go look at SF, San Diego and other big cities. People are already paying close to 40-50% of their income on rent. That would only get worse and spread to all other cities.
Yes, to your argument America is big and land is available far outward of city centers. But the car is being despised especially by the younger generation. Second and most importance is the building costs. Now even a substandard construction will cost $200/sf to build. How much should the developer charge to make a profit? $250? $300. And when it comes to luxury the cost goes up by $100.
You answered your own Q. wage rise is so low, it is almost a negetive when you factor in inflation which is officially 3% but unofficially double that.
“you mean to say someone taking home 4000 a month in NYC paying 2100 for a studio is an anamoly?”
Absolutely. I have rented in Manhattan. Most landlords require that your salary be 30%. They quick rule of thumb to make the math easy is to take the monthly rent and multiply it by 40. So a $2,100 rent would mean the person would have to have a yearly salary of $84,000. If you don’t have that salary then you would have to go and find someone else to co-sign for you. So you might have some young professionals who just graduated at 22 and found a job for $60,000 so their parents cosign for them because it’s quite obvious they’ll be make $80,000 in a couple of years.
“Yes, to your argument America is big and land is available far outward of city centers. But the car is being despised especially by the younger generation.”
The majority of urban places in most up and coming cities have vast amounts of vacant and underdeveloped land. Miami, Atlanta, Dallas, Houston, Austin, San Antonio, Denver, Charlotte, etc. and the list goes on and on.
“Now even a substandard construction will cost $200/sf to build. How much should the developer charge to make a profit? $250? $300. And when it comes to luxury the cost goes up by $100.”
Right now cap rates are around 6% (if you even know that is). You can easily build what’s being built now (ex. MyBrickell) for $250. But that doesn’t have parking so let’s bump it up to $300. That would mean that a 1,400 sf 2/2 would essentially be about $$420,000k. Keep in mind this is what they are charging at 1100 Millecento a LUXURY property. So that would mean in that at a 6% cap rate that unit would have to rent for $2,100 to justify construction. You could rent that unit for $2,500 any day of the week.
The only reason that there isn’t more construction right now is that lending is still very tight. So the projects that are under construction or about to start construction (MyBrickell, 1100 Millecento, Brickell House) are able to get started without traditional financing. They are taking deposits of up to 80% from the buyers and using their deposits to finance the construction. Once these buildings finish construction and the banks see the units are selling then banks are going to jump back on board and easing up the financing restrictions.
Do you even realize that right now there are over 45 buildings is South Florida that are either approved are under construction:
120 Ocean Drive | 18 floors | Approved | Construction TBD
1101 Brickell | 849ft | 74 fl | Approved | Construction Late 2012
23 Biscayne Bay | 18 fl | Under Construction Q3 2011
400 Sunny Isles | 2X 20 floors | Under Construction Late 2012-Early 2013
Apogee Beach | 22 fl | Under Construction Q4 2011
Beachwalk Hallandale Beach | 305ft | 31 fl | Approved | Construction Q4 2012
Bellini at Williams Island Aventura | 24 fl | Under Construction Q4 2011
Brickell CitiCentre | 6 Towers | 634 ft | Under Construction June 2012
Brickell House | 46 fl | Under Construction June 2012
Broward County Courthouse | 20 fl | Approved | Construction Late 2012
Chateau Beach Sunny Isles | 35 fl | Approved | Construction Q3 2012
Dade County Children’s Courthouse | 224ft | 14 fl | Under Construction Q4 2010
Grand Beach Hotel Surfside | 20 fl | Under Construction 1Q 2012
Grove at Grand Bay Condo Towers | 2X 20 floors | Proposed | Construction TBA
Island Gardens – Shangri La Hotel | 515 ft + 375 ft | Approved | Construction TBA
The Mansions at Acqualina Sunny Isles | 643 ft | 46 fl | Approved | Construction 3Q 2012
Met 3 + Met Square | 32 fl | Under Construction 2Q 2012
1100 Millecento Residences Brickell | 42 fl | Proposed | Construction 3Q 2012
Monte Carlo Miami Beach | 20 fl | 217ft | Under Construction 1Q 2012
mybrickell | 326ft | 28 fl | Under Construction 1Q 2012
Oasis On The Bay | 2 X 20fl | Approved | Construction TBA
Oceana Key Biscayne | 2X 14 fl | Under Construction 1Q 2012
1010′ One Bayfront Plaza | Opening 2018 | Construction 2015
Orion Condo Tower Fort Lauderdale Beach | 18 fl | Approved | Construction TBA
Porsche Design Tower Sunny Isles | 641ft | 57 fl | Approved | Construction TBA
Resorts World Miami | Proposed | Construction TBA
Regalia Sunny Isles | 485ft | 43 fl | Under Construction 4Q 2011
Saxony + Atlantic Hotel Miami Beach | Rem Koolhaas + Sir Norman Foster Design | Approved | Construction TBA
Versailles Hotel-Condo Miami Beach | 13 fl | Under Construction 4Q 2011
Villa Magna | 2X 60 fl | Approved | Construction Late 2013
“You answered your own Q. wage rise is so low, it is almost a negetive when you factor in inflation which is officially 3% but unofficially double that.”
Wage growth is supposed to be near inflation. They go hand in hand. Inflation is calculated from the consumer price index that looks at the price of goods and services including HOUSING. So if the cost of all my goods and services including housing is going up at 3% and my wages are going up at 3% then the cost to the average person is staying flat.
Right now effective rents in most places are going up 3% – 5%, which is higher than inflation. But that is primarily because over the past few years housing prices have been decreasing rapidly. Housing affordability is extremely high right now. I mean seriously think about the nonsense that your saying. Right now the problem in America is that home prices are so low and you’re arguing that home prices are going to DOUBLE.
Bookmark this page and come back to it periodically and you’re realize how completely foolish your argument is.
Gixx: “But I’ve been making that argument based off math.”
You have been making this same argument since at least November 2008. You were way off in early January 2009 – – when you argued that (based on a set of namby-pamby sales figures for South Beach condos and a Case-Shiller housing report, if I recall correctly) – -real estate prices had hit a bottom – – and you still are way off. Check you math and facts again. Until the next wave of foreclosures are completed – – and the market absorbs the “shadow inventory”- – market values remain tenuously unpredictable, at best. Basis still exceeds real fmv.
scriv
No actually I called for the bottom in May at the end of the second quarter of 2009. I then later pointed out that I was wrong in saying ALL of the market bottomed in the second quarter of 2009 because I was only tracking downtown properties, which I would think most other people here were as well. It’s not like anyone here is coming to “Miami Condo Investments” to buy a condo in Homestead.
So while many of the downtown/Brickell properties had bottomed in mid 2009 most of the suburban areas were still decreasing, taking the overall average down. I then stated that I felt by the end of 2010 there would be enough properties on the upswing to bring the overall average up:
If you wanted to buy a condo and you had access to capital then mid 2009 was clearly the best time to get the best deal with the best available selection. Just as AJ points out prices at a lot of places were around $200 SF and now they’re around $300. I could have purchased a 2/2 in my building for $270k. Now Lucas’ recently sold section is showing the same unit selling for $400k+.
Gixx,
I understand where you are coming from in your calculations but I don’t see where you accounted for yearly rental increases in your formular. Seems like you are making the same mistakes as those buy v rent calculators. I might be wrong but I am willing to bet major money that you won’t see 12% annual returns over 30 years again, even on index funds. The Market (stock) has changed dramatically over the past decade, just look at returns over the past 10 years. Also 12% is theory. How many people do you know who kept their money invested in those indexes when the market droped in march of 09? Theory is a great idea but reality is very different when dealing with investors sentiment. Many people are also skeptical about the Stock market especially with their high frequencey trades, black boxes and flash crash.
I still think aj 60% argument is way off. Americans have already shown that they will pay their credit cards, Auto loans and cable bills before they pay a mtg. They will simply downsize or move back home.
An index fund was just one example. For some people that might be putting that money into a 401k with an employer match. My wife gets a 100% match on 5% of her income. So the stock market could stay flat and she’d still double here money. We consistently generate returns in the 12% – 20% return for our investors. Now that’s not to say that there isn’t risk. We’ve got stuck on a couple of deals and had to keep them longer in order to not generate lower returns. But when you’re talking about 30 YEARS. If you can’t average 12% then buying might just be the better option for you.
If someone pulled all of their money out of the market in 2009 and they had another decade or two to go then they don’t even remotely understand investing. If anything they should have been dumping in more money as they were only getting a discount. And if they were close to retirement in 2009 and they had a considerable amount of money in the stock market then again, they don’t understand ivesting. As most of their money should have been in more stable assets.
The 30 year treasury is currently around 3%. If you look at it’s average over the last 30 years its easily close to 5%. That is pretty much guaranteed money. So you’re going to get 5% with no risk. With a half competent financial planner, diversification, dollar cost averaging, 401k matching, etc. 12% should be a cake walk.
As far as the rental increase I increased rent annually by 4% which is pretty hefty. So in year one rent is $2,300 and owning is $2,950. After you factor in your monthly return from investing the down payment it comes out to be $875 cheaper a month to rent. That number decrease each year at the rent goes up and in Year 10 it flips and become more expensive to rent because you mortgage cost have been held constant.
But now that you mention it the only thing I didn’t account for were the escalations in property taxes and HOA fees. So I went in and grew just those two items leaving the mortgage and interest payments the same and you end up with a 10.67% return for owning and the 12% return for renting.
I think the moral is that even if you change a few things here or there it’s not going to come out too much of a difference. At least not enough to lock yourself into living in the same place for 30 years to get this so called financial freedom to be king of the castle that AJ is talking about.
Here are a few scenarios when I change the return rate you would get on the down payment:
8% vs. 11.18% to own
9% vs. 11% to own
10% vs. 10.92% to own
11% vs. 10.79% to own
12% vs. 10.67% to own
13% vs. 10.54% to own
So under this scenario it looks like 11% is where it becomes more advantageous to rent. But maybe you get 5% appreciation, or maybe rent on grows by 3% on average over the next 30 years. These things throw the returns back and forth slightly.
So it seems clear to me that one isn’t necessary more advantageous than the other and it pretty much comes down to a lifestyle choice. Some people don’t have discipline to save. If they don’t put that money into a down payment they would spend it instead of investing which would clearly put them at a disadvantage. Other people might have more financial savvy and be able to get an 18% return making renting the clear favorite. Or maybe I buy a unit in a less expensive building, renovate it to me liking and therefor have a more personalized unit at a price comparable to renting in a better building but not personalized to my liking.
As usual the truth is gray. But this nonsense that AJ is talking about is flat out wrong. It’s not that Americans won’t pay 60% of their income in housing, it’s that they don’t have to. Will Americans pay $2,000 for a flat screen tv? Sure. Will they do it when someone can come along and create the same quality tv and sell it for $1000. Obviously no. There is too much opportunity for future development to be built and sold closer to the current 30% ratio.
Look at all the growth and where people are moving. Dallas, Houston, Miami, Denver, Phoenix, etc. There are places where the urban areas aren’t developed. These places are growing at 3 and 4 times the rate of places like NY and Chicago where the urban environment is already built out. Now maybe 150 year into the future these place will end up like NY and Chicago. But it damn sure ain’t going to happen in our lifetimes.
gixxer, your annual rate of return is a bit too rosy at 12-18% for personal investments. that is very very difficult to make over the course of ones investment lifetime. even today, if you are making 6-8% return you are beating out most investors, depending on your timing of the market. large pension plans around the country have “conservatively” used 8% in their estimates and are significantly underfunded as a result. and you really cannot use company match in a 401k in your rate of return-that was earned income and not investment income in any way. any financial advisor who includes my company match to calculate my return is fraudulent. low rates of return will most likely continue for quite a while into the future, making it even harder to reach your 12% average rate over 30 year periods!
AJ, the 60% of pay to mortgage is inaccurate in America because of 1) mobility of the workforce and 2) lack of job security in the workforce, compared to other parts of the world. AJ, when you compare us to European countries in particular, those excessive numbers occured because people could not and/or did not want to move to other locales. they had acquired a job over the past 20 years which was nearly tenured due to labor laws, so they had no interest/ability to look for another job since turnover was small. this meant they would be staying in the same city for a lifetime-so why not buy housing with that long term mindset.
but the US is very different-we have a great deal of job mobility-and this means you cannot wrap up too much of income in your housing. the bubble revealed this with many underwater homeowners unable to move to better employment opportunities. I was a lucky one, able to move and increase my income while even decreasing my cost of living. and i still am in demand from other employers, because i am experienced at what I do and am not stuck underwater in a specific geographic locale. the 60% number you reference would make this country uncompetitive economically due to employer mobility-something I do not see happening. As gixxer said, too much vacant developable space exists in our cities for those expenses to result in a long term trend. those condiditons existed for a couple of years at the end of the housing bubble-and look what happened. you have a clear example right now of our economy with housing at 60% of income.
gables,
I 100% agree with you. You make a lot of sense and I already know the cultural & Life style differences between Americans on one side and the Europeans, Koreans, Malaysians, Brazilians etc on the other side. That is also the reason why Americans have (or had) the highest disposable incomes in the World after paying for their shelter. But before everyone is pouncing on me over my 60% figure did anyone care to read that I said we are heading towards that scenario in 15-20 years? It used to be that The American Middle Class = Rich class in the rest of the World. Not anymore. The middle class here is slowly but steadily resembling the middle class everywhere else due to globalization. Falling wages to match the World average wages, Cities declaring bankruptcies to nullify pention and labor contracts etc mean your notion of 1950 Style American Middle class will be an urban myth in not too distant future. Trust me, when gas hits $7/gallon, you can have all the land you want outside the cities but will do nothing to stem the prices in the city. Just travel one hour outside Rio, Sao Paulo, Bombay or Shanghai and you will find endless open fields. That did not stop a $1000/sf flats in rotten looking buildings in all these cities. Go figure.
AJ, the US has spent far more in civil infrastructure in our outlying and small towns than the rest of those developing worlds. every small town has water, electricity, sewer, etc of far higher quality than the countries you mentioned. people move to the cities in those developing countries because their local village has very few resources. our people move to the urban cities because of the excitement-not the need to access modern infrastructure. i think you paint too gloomy of a picture of our suburbs and small towns.
The idea of suburbia emerged in America post WWII (Levittown in Long Island is the first American Suburb) and this failed concept will die here. Suburban life resulted in every evil and everything wrong that is America today From strip malls to cars to Mc Mansions to ultra consumerism to anti socialism to obesity and the list is endless. You and Gixxer are a product of that failed thinking. The Y generation despises the car. They do not want a lawn or white picket fence or a commute. They want to live among other people. Your generation is the last one that is hanging on to a bad idea.
This is complete non sense. I live in Brickell, walk pretty much everywhere and I have a graduate degree in development and URBANISM!! The stuff you think you know about I actually studied.
While I agree there is an overall shift back towards cities, this has nothing to do with your ridiculous argument of housing taking up 60% of the average household income.
http://www.miamiherald.com/2012/07/14/2894236/best-urban-block-in-south-florida.html#disqus_thread
I am nominating North Bayshore Drive from The Grand on 17th st to the Unity Church on 21st. If anyone feels the same you should too. You might win the $3000 prize. Sniggers aside from jealous Brickell types, I think this is the best Urban Block in South Florida.
“Sniggers”??? Is this the British version of a racial slur?
Perhaps you meant “snickers.”
I too read that article today. I nominate the intersection of Krome Ave / Kendall Dr. Very cutting-edge, pedestrian friendly and mixed use.
Urban Dictionary: snigger
http://www.urbandictionary.com/define.php?term=snigger. Australian word meaning to laugh quietly. It will make you snigger, snort and laugh out loud. buy snigger mugs & shirts · snort chuckle giggle laugh ..
snig·ger/ˈsnigər/
Noun:
A smothered or half-suppressed laugh.
Verb:
Give such a laugh: “they snigger at him behind his back”.
Synonyms:
noun. snicker – titter – giggle – tehee – chuckle
verb. snicker – giggle – titter – chuckle – tehee
Sorry, but I don’t speak jive. I consult real dictionaries.
AJ,
You constantly don’t make any sense. Housing cost are at the lowest rates they have been in decades. Here is a chart that shows the median mortgage payment as a percent of income:
http://static.seekingalpha.com/uploads/2011/12/14/saupload_chart_median_mtgpayment_income.php.png
Currently that rate is around 14%. The historical average is 24%. Add in a few percent for taxes and insurance and you see that housing cost has average 30%. But clearly it has tanked and even if you add in a few percent to the current rate for taxes and insurance you’d be around 20%.
Again, how on earth do you think housing is going to go from the current lows of around 20% to all time highs of 60% in 15 – 20 years? Gas prices going up would only mean that more income would be going toward non housing items taking the ratio down further.
And why do you keep talking about the suburbs? We have tons of vacant and undeveloped land in the cities to last for decades.
Even if wages stay FLAT for the next 20 years housing prices would still have to skyrocket in order to get to 60%. How on earth are housing prices going to go up that much with flat incomes. Are you suggesting non Americans are going to start buying all of our houses?
As per MCI, unit 1209 in 1800 club shows that it sold for 450K on June 26 which puts it at $390/sf. That is a record for a low floor. But I am not sure if it is a real deal as it shows that days on market is only 1.
But the next real deal is on July 10 for Unit 2209 which sold at 430K at a per SF cost of $372. Even that is impressive.
At this rate $400/sf for East facing Units in 1800 Club are almost here if not already there for higher floors. I heard the larger 2/2s (Lines 5&7) facing East are valued at half a Mil now. But no sale has been recorded yet at or near that price. BTW, I heard one unit in Line 5 is being rented at close to $3000 per month!! That is unbelievable!
AJ,
I agree with you that North Bayshore Drive is a very pleasant block but it still lacks a bit of pedestrian friendly feeling. No attractive cozy outside cafes, and other little elements that would make it perfect. At the same time what a dramatic change from what it was several years ago.
Yes Lara, I was talking to a another friend in Pace Park yesterday and she was saying “the place was iffy 4 years ago when we bought here and look at it now!! The transformation is totally amazing”
But I have been telling that to her 4 years ago and all along. just wait and this will be the “IT” place to be. She was not so sure. They wanted to sell and go back to Boston. They are so glad they didn’t!
While on the N bayshore Dr itself there is not an abundance of sidewalk eateries and cafes save “La Bottega”, one block west to Biscayne Blvd has everything you could imagine and more. So i would not hold it against. I am sure when they say the best city block, it is not exactly one linear city block. I think the area bound by Biscayne Blvd & Biscayne bay between 15th st and 21st street is a Utopia in the making.