Renting vs Buying Real Estate in Miami – Facts and Calculations
Renting vs Buying Real Estate in Miami – What Are the Advantages of Investing in a Miami Property?
The main real estate related question for most young professionals or families is whether they will rent or buy a Miami property. This is always an important question, but even more so when families are relocating to Miami.
In this blog, we will provide you with the costs of purchasing and owning a home in Miami on a monthly basis. We will show you how to calculate a monthly mortgage payment as well as your average insurance and maintenance costs. We also provide you with the average rental prices in Miami’s most desirable neighborhoods, thereby allowing you to make a more informed comparison between renting or owning a Miami property. We understand that everyone’s circumstances are different and we are happy to sit down and discuss what is most relevant to you. Please contact David Siddons at: +1 305 508 0899 / david@siddonsgroup.com
Would you rather rent this house for $5,000 per month or own it and pay $2,700 in monthly mortgage payments (against current interest rate of 3.8%). In the long run, investing in a Miami property will be better value than renting. The appreciating values, low interest rates and tax deductibles will make your monthly payments lower for owning than for renting. In the section below the reasoning behind the statement “Owning is more affordable than renting” will be explained in greater detail.
Renting vs Buying Real Estate
Some people consider renting to be “safe” and less of a financial burden, whereas those that purchased a property will argue that they don’t want to “waste” money every month and would rather not pay “someone else’s” mortgage
The main reasons why people choose to buy vs own
Buying a home in order to build equity is one of the main financial reasons prospective buyers jump into the market. While the sobering effects of the housing crisis may have prompted a more cautious approach by buyers, the drive to be a homeowner remains strong.
In the section below we outline to you the costs associated with owning a property in Miami. We will discuss closing costs as well as the costs you can expect to pay on a monthly basis.
The Costs of Investing in a Miami Property
What are the costs of buying a home in Miami? Besides the actual purchase price, there are other costs such as closing costs and maintenance costs. We will break down the total costs that are associated with owning a Miami Property.
- Closing Costs (Click here fore an explanation of all the below closing costs)
- Documentary Stamps (Doc Stamps) on the Deed: $0.60 / $100 of the home price.
- Documentary Stamps on the Mortgage: $0.35 / $100 of the amount of money borrowed.
- Intangible Tax on the Mortgage: A $0.20 / $100 intangible tax on the amount borrowed through your mortgage
- Recording Fees: Expect to file between 10-15 pages for a home purchase at the rate of $10 for the first page and $8.50 for each additional page.
- Title Insurance: Rates are assessed per $1,000 of your home’s value according to the following schedule:
- First $100,000: $5.57 per $1,000
- $100,000-$1,000,000: $5.00 per $1,000
- $1-5 Million: $2.50 per $1,000
- $5-$10 Million: $2.25 per $1,000
- Over $10 Million: $2.00 per $1,000
- Mortgage Payment: The Mortgage payment consists of the principal amount and the interest over the loan. As the loan amount decreases over time, the interest costs go down and the principal amount goes up.
- Insurance on your home: According to the Federal Reserve Bureau, the average cost of an annual premium for homeowners insurance is between $300 and $1,000. 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
- Maintenance Costs: 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.
- Taxes: They’re roughly 2% of assessed value (not sale value). So if your house or condo is assessed at $200k you can expect to pay around $4,000 per year in property tax.
Keep in mind that in the example above almost 25% of the total monthly payment is dedicated to paying off your mortgage, making the real costs of lending money and building equity considerably less.
Mortgage Calculator Tool
(Click on image to calculate your own approximate mortgage costs)
In Pinecrest your rental budget of $7.500 can also buy you your own Pinecrest Property
Tax and other Financial Advantages of Home Ownership
The above calculation doesn’t take into consideration the tax deductions which home owners are entitled to. Some of them are:
- Mortgage deduction: The tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people this is a huge deduction, since interest payments can be the largest component of your mortgage payment in the early years of owning a home.
- Closing cost deductions: The first year you buy your home, you are able to claim the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller. And because origination fees of 1 percent or more are common, the savings are considerable.
- Property tax deductions: Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.
- Homestead Exemption: Florida State law allows Florida homeowners to claim up to a $50,000 Homestead Exemption on their primary residence.
- The first $25,000 of this exemption applies to all taxing authorities.
- The second $25,000 excludes School Board taxes and applies to properties with assessed values greater than $50,000. More information on Homestead exemptions
- More about tax benefits of home ownership
If you buy a home to live in as your primary residence for more than two years then you qualify for Capital Gains Exclusion. This means that when you sell, you can keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes.
Read the 7 financial Benefits of Homeownership by Forbes.com
Asset Appreciation – The Increasing Values of Miami Homes
In addition to the monthly savings of owning your own home and paying off on your mortgage, there is the important aspect of appreciation. Many of Miami’s most desirable neighborhoods (Pinecrest, Coral Gables, Coconut Grove) continue to experience a higher level of demand for homes than supply can handle. This high demand ensures continued appreciation of homes in these neighborhoods. Check our neighborhood updates to see price increases over the years and much more.
- Coconut Grove
- Coral Gables
- Key Biscayne
- Miami Beach (South Beach, Venetian Islands and Star/Palm/Hibiscus Island)
- Miami Beach (Mid Beach and North Beach)
- Pinecrest
- South Miami
The Costs of Renting in Miami
Rental prices for Miami homes start at (on average) $3,200 for a 3 bedroom South Miami home. As you can see the prices are going up in areas such as Miami Beach, Coconut Grove, Pinecrest and Coral Gables.
Please be aware that these are averages, so the better located, better maintained or newer homes in these respective areas might be rented for a considerably higher amount than the prices indicated below.
As mentioned before, if you are renting a 4 bedroom property in East Coral Gables you are spending an average of almost $7,000 a month on a property that is not yours and there is no equity built.
Average rental prices in Miami. Data taken from the MLS South Florida over the period of Nov ’14 – May ’15. Please note that these are average prices and the rental of your dreams might be lower or higher than the prices indicated here
In summary – Renting Vs Buying A Property in Miami
As far as renting versus owning a property in Miami, buying will be better in the long term. As detailed above, mortgage interest and mortgage insurance are all normally tax deductible. As such the ‘after-tax’ payment generally comes out lower for owning rather than for renting. When owning a property, part of the monthly payment is normally going towards the payment of your home – building more equity. While your monthly payments remain the same, the principal portion of your payment increases every month. A renter has nothing to show for his/her rent payment when the month is over. Over time rents usually go up and so do property values. Miami’s continued growth as a major business and investment center should ensure ongoing demand for properties. Furthermore, the security of living in your own home, building equity and making home improvements will continue to be a more attractive option than renting.
For more information on mortgages please contact:
Dave Wolfe | Mortgage Loan Officer | Cell +1-561-445-2023 | Dave.Wolfe@everbank.com| www.everbank.com/dwolfe
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