The Q1 2020 Miami Real Estate Report: Investing in the Miami Real Estate Market

Part 8. Smart Miami Real Estate investing; What to focus on and what to avoid in the Miami Real Estate Market?

This is the final part to our 2020 Q1 Miami Real Estate Report. So far we have covered: The best performing neighborhoods, the worst performing neighborhoods, the strongest condo buildings, and the weakest condo buildings. We have unveiled how we analyzed the markets with the software we use and explored the economic mechanisms in play that are affecting our markets; we also took an overview of each and every neighborhood. In this final part we look forward through 2020 and explore the ‘investment opportunities’ in Miami.

This question “What Miami real estate should I be investing in?” is the one that I am asked very regularly. But never in 12 years of selling Miami Real estate (and with the incredible focus I have on analytics) have I ever been asked this question so frequently! So, why now would this be the most pressing question of all: ‘Is it a good time to buy?’ In Part 8 we will address: “Where we are in the economic cycle and why is this so relevant to investing?”, “What have been the most successful investments in the last economic cycle?”. “ROI and asset appreciation”, “Which neighborhoods saw the biggest % increase over the last 12 years?”. “Houses or Condos?”, “Commercial real estate”. “Where is the bottom of the market, and are we there yet”? “Should I Be Investing in the Luxury Miami Real Estate Market”? and “Why is ‘multifamily’ the holy grail of investment real estate in Miami today?”

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Where are we in the Economic Cycle and why is this so relevant?

 Miami’s last economic cycle started in 2009. The market crashed out and we hit the floor pretty much in 2009/2010. The market then rose aggressively and for condos it peaked in 2015/2016. Back in 2015 I wrote the Owners Guide to Brickell and Downtown Miami Condos  and in 2016 I wrote the Miami 2016 Residential Report.  In both cases I warned for the falling condo market and gave a substantial amount of advice to sellers to get out, at the same time I told single-family home owners to hold or buy as these markets were going to remain strong, which they have!

As you will notice, I did not start writing reports yesterday, I have been doing it for years and my predictions have materialized as truths. I am certainly not omnipotent, but I have learned to pay attention to the right metrics of the market and you should too!

Let’s now look at the condo market cycle and then the single-family market cycle.

Below I have highlighted the economic cycle across 3 different neighborhoods in the Miami real estate market (Brickell, South of Fifth, Sunny Isles). These markets follow the patterns mentioned above. What is very key in making a smart condo investment decision is recognizing where we can get close to the bottom of the market. I don’t say ‘at the bottom of the market’, because that can be impossible to predict exactly, but getting within a margin of error is good enough.

Currently we are a long way off the last peak and one of the reasons why Miami is becoming such a focus for investment is because we know we are dealing with a growing city: population is growing, infrastructure is growing, wealth in the city is growing and the fundamental desire to live in Miami as a city is at an all time high. But at the same time sold properties are now coming in at 2012/2013 prices, a significant drop from their peak.

The single-family market, notably in the working wealthy category across the $0M-$2M range, has risen substantially also to 2015/2016, it then bubbled along and has of recent started to rise again. Investors have also been successful at buying homes, doing renovations and selling. I myself have done this several times on account that my wife owns Design Solutions a full home and remodeling company: www.Ds-miami.com

Should I Be Investing in the Miami Luxury Real Estate Market?

Many investment reports focus on the cheaper Miami real estate market (the medium property price in Miami-Dade is $367,000 according to Zillow), but for many investors these properties are not suitable. They require too much attention and maintenance and for investors who are not on the ground, this simply won’t work.

As an established agent in Miami, I often help investors buy portfolios of units; multifamily, small buildings as well as larger condos and single-family homes. The luxury market is often not as much thought of for investors, but right now this could well prove to be a good focus. We have already seen a number of big investment trusts in Q1 2020 snapping up large parcels of luxury real estate in Miami. Please call me if your focus is luxury real estate in Miami and I will help you with smart Miami condo investments or single-family home investments.

With some many North Eastern relocations, limited and land locked neighborhoods we have solid demand. At the same time we have for the first time sellers who due to economic macro forces, eg: Currency, Covid 19 are being forced to sell and this disparity creates opportunity. According to business insider Miami will be the 2^nd best performing luxury housing market on the planet for 2020!

According to business insider Miami will be the 2^nd best performing luxury housing market on the planet for 2020!

How do I measure investment success – ROI and Appreciation of Asset?

When we get into commercial we tend to get more focused on the CAP rate, talks of 7-8% CAPS. Of course this is nice, but in developed housing markets like Miami and working on the higher-end of the market ($500k+) these caps become fewer and further between. What I do see however, which plays more of a role, is how much the property goes up in value.

When you have a basic cap rate of 4%, but then bake in the asset appreciation at 6 – 8% per year then a 10-12% ROI is very nice indeed. The purchase of a few properties can not only act as a good short against your position in other asset classes, but provide a very solid return.  We work with both types of clients, those who are commercially or multi-family focused and those who are focused on residential.

Which neighborhoods saw the biggest % increase over the last 12 years?

Miami condos (up to $2M) on the other hand aggressively rose between 2010 and 2015 and then took a drop shaving off at least 50% of some of the appreciative gains and in some cases even 80%. The nature of the cyclical condo market for investments is knowing not when to get in, but when to get out! Bear in mind that the average price per sqft increases for some markets has been very aggressive (like Bal Harbour and Edgewater) not because values in specific buildings went up 88% or 100%, but because new luxury product was introduced that was then selling at a totally different level.

In 2010 it was almost unheard of to imagine units selling at $1,500 per sqft, but today we have condos selling at $3,000 per sqft. The type of product has changed enormously as buildings that rival those of the Manhattan or Hong Kong skyline have started to appear in large numbers.

When we look below at the chart we can clearly see how single-family homes have massively out-performed condos. Coconut Grove, Coral Gables and specifically North Pinecrest in the $0-$2m range have really accelerated in value over the last years. With many families relocating to Miami and the land locked and limited nature of inventory this market has not only done well, but there has at no point been correction or downward movement. There has been periods of stagnation of price where it has remained the same and then jumped again.

So answering the question: What have been the most successful investments in the last economic cycle? Definitely single-family homes. They outperformed the condo market by far. Of course there are smart Miami condo investments and I have helped many buyers with really superb deals, but in the long run homes are simply safer.

The Q1 2020 Miami Real Estate Report: Investing in Miami Real Estate. The above graphs only include properties up till $2M 

Why is ‘multifamily’ the holy grail of investment real estate in Miami today?

The multi-family home market has become a huge focus for investors in the last couple of years. The ROI of multi-family is excellent and with people moving into Miami every day the need for multifamily outstrips supply. Stay tuned for my coming blog in the next few weeks which will be an interview with our top commercial guys as we discuss this area of the business.

Because of the nature of commercial if you are not truly plugged into a group who handle this sector you will be met with a cold shoulder. So many investors and so few multi-family opportunities, means that the best deals are gone before they ever reach the market. The same can be said for many other commercial real estate opportunities. At the David Siddons Group we are aligned with the top commercial guys at Douglas Elliman and this is all they do, all day long. So if you have a need in this area, please call me.