Miami Real Estate – best and worst residential Investments.

When to Buy, When to Sell and How to Calculate the Potential Returns of residential Investments in Miami Real Estate

Not  a day passes when I do not have a client call me to talk investments in Miami. Even as the perception of the Miami market market cools down (it was so incredibly hot in the last 4 years) there are still plenty of opportunities in Miami and still buyers looking to put their money in the US dollar and notably real estate. In fact, I still have clients making healthy profits today.

Investment Costs vs Investment Returns

The first part is explaining the calculation of the investment costs then calculating investment returns. So here is how we calculate and recognize investment opportunity.  Lets take for example a Coconut Grove home. In this case an investor will buy and then lease the property for 3 years before he sells.

Investment Costs

Purchase price: $750,000 – The cost of any property will be accompanied by closing costs. Work to around 1% when closing. (Cost: $7,500)

Annual tax: This is calculated at a rate of roughly 2% of appraised value. Appraised value is NOT what you buy the property for, or even market value. Appraised value is around 80% of purchase price.

Calculation – purchase price x 0.8 x 2% = annual property tax. To get more details on this go here (Costs: $12,000)

Property insurance:  I recommend when buying an investment property buy one that has full insurance mitigation. Hurricane proof windows and doors, avoid flood planes. If done correctly insurance can be very low. New town homes in Coconut Grove for example can be just $2,200 for the whole year. I have a client with a $4m, brand new home in Coral Gables, they pay just $5,000 per year for insurance.

According to the Federal Reserve Bureau, for most homeowners, the annual costs for a homeowners insurance policy can be estimated by dividing the value of the home by 1,000, then multiplying the result by $3.50. More info on home owners insurance. Following this example we will have a costs of $2,625 ($750 * $3,5)

Maintenance fees: As a general rule of thumb you should budget $1 per square foot per year for maintenance and repair costs or use the “1 percent of purchase price” rule. This ofcourse, varies upon the value of your property and its general condition. If you own a Condo as opposed to a house you will be subject to Condo maintenance fee’s. Condos maintenance fees are often between $0,60 and a $1 per SF.

Income from the investment

We should aim for $3,000 per month for every $500,000 you invest. Done correctly it will yield you 5 – 6%. (A normal savings account yields 0.1% and Certificate of Deposits may earn you at best 1.14%).

A Coconut Grove house will rent for $4,500 per month. If you receive $4,500 per month you should keep it as an investment, if you receive less, the property doesn’t yield as much as it should.

This is only part of the picture

We spend so much time talking about months of inventory, price per sqft and % increases. Why? Because its the only true way to effectively forecast appreciation.

The chart below shows the performance from the last 12 months and makes up the core of our 2016 Miami Real estate report.

In the below tables we indicate per cel:

• Months of Inventory in the first half year of 2016
• Average Sales Price in the first half year of 2016
• Percentage of price change between the first half year of 2016 and the first half year of 2015

–The different colors mean

• Green: To Buy
• Orange: To Hold
• Red: To Sell
• Blue: More explanation needed

The 2016 Overview of Miami Homes
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The 2016 Overview of Miami Condos
Part 1
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The 2016 Overview of Miami Condos
Part 2
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Done correctly a property can comfortably appreciate 7-8% in 1 year but done incorrectly it could drop, eat all your rental profit and cost you.

With so many investors having bought in Miami in the last 4 years, most sellers will have big profits. Thanks to IRC Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.More information on the 1031 Exchange.

Gearing through a Mortgage

I will provide you with my own example.

• In 2011 my wife and I bought a $710,000 home on 3321 Crystal Ct in Coconut Grove
• We paid 20% down ($140,000) and financed the remaining amount at 4% interest per year on 80% of $710,000 ($568,000)
• In 3 years we spend $68,000 on interest and we spent $250,000 on interior renovations.

–

Total spent in 3 years:
$140,000 + $250,000 + $68000 interest = $458,000

Sales Price after 3 years
We then sold our Coconut Grove home for $1,75m

$1,75M – $458,000 (Total costs of $250k – $140K- $68k) – $568,000 (Mortgage pay off) = $724,000

In three years the property for which I paid $458K out of own pocket provided me with a $724K profit The return on my investment was 158% on the initial investment in 3 years. That’s just over 52% per year!

IMAGINE YOUR BANK PAYING YOU HALF A MILLION DOLLARS PER YEAR ON YOUR $1,000,000 SAVINGS ACCOUNT!

Interesting Links and Miami Real Estate News

Buying vs Renting in Miami
What is the best neighborhood in Miami for you?
The Miami Real Estate Market Reports
The Miami Real Estate News
Search for Miami Properties