Investing in Miami – The Best Return on Investment in Miami Real Estate
A better return on investment: Miami Condos Vs Miami Homes
Everyone who invests in Miami wants the highest return on investment on their property. In the last few years most of my clients looked at Miami condos for investment purposes. These days however, a growing number of buyers are looking into single family homes to maximize their return on investment. As with everything in real estate, your investment success depends on many factors, such as location, the market and the subject property. Despite these dependencies, we try to provide you with a good overview of the pro’s and the con’s of condos and homes as an investment as well as a working example of cap rates on each one when renting them out.
The best investments in Miami – Condos vs Homes
How to Decide on the Best Miami Investment Property?
To determine whether a property is a good investment property (here defined as a property that brings you the most return on investment) we looked at asset appreciation over time, the cap rate* from potential rental, general ease of upkeep and ease of renting the unit. The cap rate is the annual return on investment from renting the property out.
Pro’s of a Miami Home over a Condo
- Appreciation potential: In Miami, single family homes are more stable than condos. Sure, if you would have bought a condo in 2009 and sold it in 2014 you would have probably doubled your money, but in the current market this ‘Condo flipping’ is not that easy anymore. While the single family home market didn’t increase in value as fast as Miami condos, this market is still climbing and investors still see rising home prices (given you didn’t buy your home in the very height of the market). In other words, the single family home market is more stable and is growing more steadily than condos. Miami condos are seeing high inventory levels at the moment, which is not favorable for sellers. Miami homes are more scarce than condos (limited supply) and the growing amount of young professionals in our city will at one point be looking at a home for their family (growing demand). This low supply / high demand scenario is a promising sign for owners of Miami homes.
- Price per SF: The Price per SF of Miami homes is generally much lower than the price per SF of condos. So more value for your money
- Lower costs: Condo owners need to reserve money for their own personal unit upkeep as well as condo fees, which are generally a lot higher than the maintenance and insurance costs of homes (Besides the fact, that HOA fees can increase over time and special assessments might occur). Many people prefer to spend this money on home improvements of their own choosing.
- Unlimited renting possibility: If you want to rent your Miami home, you can do this every month or every week if you wish. Many Miami condos have strict rental restrictions that permit rentals only once or twice per year. Besides this, the higher costs of condo maintenance will have to be paid by the tenant as well, which makes the rent higher and the potential market for your property smaller. Not all tenants would like to pay a surplus for aspects they might not even use (Think of condo investments, the gym, the 24/7 security (not always necessary) and/or a pool.
Pro’s of a Miami Condo over a Home
- Properties selling for less than their assessment value. In the current Miami condo market we see a lot of inventory and many sellers are looking to sell fast. This provides for great investment opportunities if you can purchase properties below market value. To know if you are purchasing below market value, please verify with our online Miami market reports
- Upkeep and Maintenance. Owning a condo is less of a hassle than owning a home. A condo doesn’t have a yard, a roof or a pool to maintain and are generally seen as low maintenance investments
- Condo Lifestyle. Many Miami condos offer a lavish lifestyle with great services and amenities. This adds to the value of your condo and this can be a great selling point when renting a unit.
Comparing the Investment Value of Homes and Condos in practice
This is a rough guide for a $1,000,000 property with a 20% downpayment and a $800,000 mortgage. We cannot generalize* the Miami real estate market, but for the simplification of this example we assume that a $1M dollar home or condo can be rented for approximately $6,000 per month
*Of course costs like maintenance and upkeep vary from property to property and these should always be considered on a property specific basis.
*To determine the cap rate:
- You first need to know an estimated rental price for your property (Gross Income).
- From this estimated income you deduct the annual expenses of owning the property.
- Projected vacancy costs (Annual rent loss when property is vacant or tenant defaults), which are typically calculated by professionals at 5% to 10% of the annual rent
- Real estate taxes
- Property and liability insurance, such as a landlord’s policy, and
- Repair costs and maintenance costs
- Calculate your annual net income (Point 1- Point 2)
- Calculate the property’s capitalization rate by dividing the annual net income by the property’s cost