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    When does owning in Miami become a better deal than renting?

    February 21, 2017

    Renting Versus Owning Real Estate in Miami – What is the Breaking Point?

    Many new Miami residents ask us whether it is better to buy or to rent in Miami. As a general rule of thumb most people would argue that buying is always better than renting. You are building up capital and you don’t pay someone else’s mortgage. We decided to go deeper into the topic and to explain the financial difference between buying and renting in Miami.

    Zillow’s Breakeven Horizon Report

    According to Zillow buying a home in Miami is a great deal – so long as the owner stays in it for more than two years.

    In Zillow’s latest Breakeven Horizon report, which calculates how long the average homeowner has to stay in a home before it makes more financial sense than renting, the nationwide breakeven horizon in 2016 was 1 year and 11 months. According to the report, that is a 20-day increase from 2015, and the result of a widespread slowdown in home price appreciation.

    Buying in Miami, however, a person needs to own his or her home for two years and a little over two months before it makes more financial sense than renting (assuming the home appreciates 1.73 percent in the first year). While that’s a relatively high breakeven horizon for Florida, it remains well below many other major metropolitan markets. The areas with the longest Breakeven Horizons tend to be concentrated in expensive markets along both coasts, driven by a slowdown in home value growth over the past year and by continued slowdowns to come. A slowdown in these pricey, fast-moving markets such as Miami means it may take longer going forward to break even financially when buying a home in those areas compared to renting it.

    Factors in Zillow’s research include expected growth in rents and home values, price-to-rent ratios and mortgage interest rates, which can all have a significant impact on the costs and benefits of renting versus buying.

    Because home values are growing more slowly, it will naturally take longer to earn enough equity in a home to offset the very large upfront costs necessary to purchase a home in a pricey market.

    Breakeven Calculations for Miami Homes

    We made a calculation for you based on a home of respectively $500,000, $1M and $1,5M. For each property we assumed that you make a 20% down payment and finance 80%. The interest rates for the mortgage are set on the current 4% and we calculated this based on someone with a 700 – 720 Credit Core.

    We then calculated the yearly costs of owning this property in the first year (slightly more expensive because of the closing costs) and following years. Based on this you can see what the monthly costs are of owning a property and determine the threshold as to where it becomes more cost effective to rent versus to own.

    GOLDEN RULES TO APPLY

    There are lots of moving parts when buying a house and therefore the below calculations need to be seen as A ROUGH GUIDE. The monthly costs can vary significantly depending on mortgage costs, the state of the house you buy and the status of the market.

    Generally speaking, a market on the rise will results in price appreciation so your property will value more in the future. A market that is showing signs of slowing down might indicate one better rents a property.

    Also the upkeep costs as mentioned in the calculation below should be as low as possible. If you make a smart buy, your maintenance costs will be as low as possible. Therefore one should always be aware of the quality of finishes and hidden elements in order to not spend high amounts in maintenance each year.

    The same goes for insurance costs. A very safe and well maintained home with the latest in technology and building requirements will have a lower insurance amount than an older home.

    This is a rough guide for a $500,000 house with a 20% downpayment and a $400,000 mortgage.

    *The tax value is 2% of the appraised value. The appraised value is approximately 80% of the sales price. In this case 2% of $400,000 is $8,000
    ** Maintenance / Upkeep. With this we understand the upkeep of the property such as new floors, fresh paint, new airco system. This is estimated at $1,500 per year for a $500,000 property.
    *** The insurance can vary widely depending on the status of your house. We estimate $2,500 per year for a $500,000 home. If your house is built according to the latest standards the insurance costs will go down, while older homes that are not hurricane proof will have higher amounts of insurance.

    Click on image to enlarge

    Screen Shot 2017-02-20 at 8.11.04 PM

    The first year you will pay $3,038 per month and in following years you will pay $2,333 per month. In case you are renting a $3,000 property, it is more affordable to own a house especially in a bullish market with rising property values.

    This is a rough guide for a $1,000,000 house with a 20% downpayment and a $800,000 mortgage.

    *The tax value is 2% of the appraised value. The appraised value is approximately 80% of the sales price. In this case 2% of $800,000 is $16,000
    ** Maintenance / Upkeep. With this we understand the upkeep of the property such as new floors, fresh paint, new airco system. This is estimated at $3,000 per year for a $1M property.
    *** The insurance can vary widely depending on the status of your house. We estimate $5,000 per year for a $1M home. If your house is built according to the latest standards the insurance costs will go down, while older homes that are not hurricane proof will have higher amounts of insurance.

    Click on image to enlarge

    Screen Shot 2017-02-20 at 8.11.10 PM

    The first year you will pay $5,964 per month and in following years you will pay $4,667 per month. In case you are renting a $5,000 property, it is more affordable to own a house from the second year onwards, especially in a bullish market.

    This is a rough guide for a $1,5M house with a 20% downpayment and a $1,2M mortgage.

    *The tax value is 2% of the appraised value. The appraised value is approximately 80% of the sales price. In this case 2% of $1,2M is $24,000
    ** Maintenance / Upkeep. With this we understand the upkeep of the property such as new floors, fresh paint, new airco system. This is estimated at $4,500 per year for a $1,5M property.
    *** The insurance can vary widely depending on the status of your house. We estimate $7,500 per year for a $1,5M home. If your house is built according to the latest standards the insurance costs will go down, while older homes that are not hurricane proof will have higher amounts of insurance.

    Click on image to enlarge

    Screen Shot 2017-02-20 at 8.11.16 PM

    The first year you will pay $8,834 per month and in following years you will pay $7,000 per month. In case you are renting a $8,000 property, it is more affordable to own a house from the second year onwards, especially in a bullish market with rising property values.

    In case you want more information about buying vs renting in Miami, please contact David Siddons. As mentioned above there are a few golden rules when investing in Miami Real Estate which will keep your costs down. It is very important to work with an experienced realtor that knows the market and has an insight into which properties will likely costs you more than they wil bring in.

    David Siddons | Siddons.d@ewm.com | +1.305.508.0899

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