Investment property in Miami
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There is much more to Miami than the hustle of the airport that welcomes millions of Brits from across the pond each year; it's a colourful cosmopolitan city with a lively arts scene dotted with art deco buildings and skyscrapers that sit quite comfortably alongside Latin American culture and Spanish colonial-style architecture. Bronzed beauties parade the sandy beaches by day with a pause for designer shopping, and at night the wannabe celebrities brush-up against the millionaires in the hip jazz cafes and trendy dance clubs.
The metropolis of Miami is divided into a number of neighbourhoods where the diversity and vibrancy of the city has helped the enormous surge in the property market in recent years. Since 1999, prices have rocketed more than 100 per cent in Downtown Miami, with some postcodes achieving a massive 171 per cent growth, according to economists, Fiserv Case Shiller Weiss.
Online real estate guide, Trulia, breaks this down further confirming average capital growth of around 40 to 50 per cent across Miami as a whole in the last four years. The average two-bedroom property for sale in Miami sold for $140,000 in 2002 compared to $290,000 (£148,000) in 2006, while a four-bedroom house in the same period increased from $195,000 to $475,000 (£242,000).
Ashton Coleman at Miami Dream Realty comments that the peak of the price rise was in 2004-2005, creating a strong seller's market of around 29 per cent. He adds that the market has levelled out now that the frenzy has subsided and the way forward will depend on interest rates and the economy.
The adjustment this year pushes property sales back towards being a buyers' market with average growth at a slower more steady 15 per cent - yet still a higher performer compared to the US national average appreciation of 3.4 per cent. The flattening of the market comes from a variety of influences such as a rise in interest rates, Hurricane Wilma and milder winters keeping northerners north.
Although Miami is not a huge city, there are neighbourhoods for everyone. Head to Miami and South Beach for glitz and glamour, go Downtown for contemporary loft living and out to the suburbs of Coral Gables and Coconut Grove for a quieter suburban lifestyle.
The millionaires' playground is scattered across the islands such as Fisher, Star, Hibiscus and Palm Islands where waterfront property is well over $7 million (£3.6 million) and can be bought for as much as $25 million (£12.8 milllion), while Miami Beach and Bal Harbour are also where some of the most luxurious property in Miami is found.
At the other end of the spectrum, the cheapest property is heading south in the suburbs of Homestead, and on the outskirts of the city going inland where there has been less regeneration. Average sales prices in the latter end of 2006 were $122,000 (£62,000) in Overtown, $179,000 (£91,000) in Model City, and $258,000 (£132,000) in Allapattah.
Property in Miami around the $300,000 to $400,000 (£153,000 to £204,000) mark can be found in the Cuban-influenced Little Havana, or Wynwood-Edgwater and Coral Way, while buying in Upper East Side, Downtown Miami and Coconut Grove starts to move into the $500,000 plus price bracket ($£255,000 and over).
Some of the best up-and-coming areas are in the cheapest districts but Lanette Sobel, from Miami Group Realty, cautions a long-term investment of at least five to ten years. Shorter returns are more likely in Upper East Side, Brickell Avenue and the Design District, but decisions to invest in more expensive areas should be carefully considered.
Downtown is one area in particular where development is booming and there is a danger of oversupply, although pre-construction as a whole in the city is at an all-time high. The number of condos has grown from 5,000 in the 1990s to more than 50,000 today and during 2006 there was around one or two new developments being released each month.
Skyline Mary Brickell, Marina Blue, Epic and Kubik, are just a few of the many pre-construction opportunities available where prices range from $200,000 (£102,000) to $6.5 million (£3.3 million). John Patrick, at South Beach Investment Realty, suggests The Boutique Miami where he is selling homes at a more reasonable price of $150,000 (£76,500) that are easy to rent out. Sobel, however, believes that some of the most exciting projects to look out for are the Icon Brickell and Infinity II.
There are mixed reports as to whether such a large number of new developments is likely to continue to bring good investment opportunities or not. The view being there is a fine line between oversaturation and a bargain, and the right investment being as fragile as choosing the right building on the right street.
Ron Fillion of Ocean View International Realty says although prices are starting to drop as supplies exceed demand, they could decrease by up to 20 per cent over the next two years. Coleman backs this view stating that new construction prices have fallen by ten per cent this year with some investors selling at prices found four to five years ago.
"Savvy investors are now taking advantage of excellent deals from the glut of inventory. With very low interest rates, good negotiating and long-term holdings you will find it to be a very lucrative investment for a five- to ten-year hold," he adds.
Pre-construction developments such as Loft 3 suggest the market is still buoyant as it is the third of its kind in Downtown, and only two units remain unsold after three weeks of marketing. Roy Bristow, marketing director at New Skys, also thinks that Downtown's proximity to South Beach continue to make the area desirable.
Such uncertain times are also reflected in the rental market, with an estimated 7,000 properties un-let in the Miami area and oversupply causing rental rates to drop to lower than mortgage payments in some cases. Chad Levin at RE/MAX Advance Realty goes as far as describing the rental market as "poor" for investors. "Speculators are stuck with properties they cannot sell for the profits they expected," he explains, "so they rent them out for half of their mortgages. The municipal takes and insurance rates are in a crisis mode - rates for insurance have doubled."
Bristow says the best suburb for holiday letting is Miami Beach because of the year-around temperate climate and the ten million plus annual visitors. "Limited land available for construction, combined with easy access to extensive beaches, a buzzing nightlife and easy access to airports and transportation, makes this the best long-term investment opportunity," he says.
Rental returns here and on South Beach waterfront properties start at $1,000 (£510) per month for a studio. A one-bedroom waterfront condo priced at around $375,000 (£190,000) could be rented for around $1,500 to $4,000 (£765 to £2,000) per month (low/high season), while a two-bedroom place costing in the region of $600,000 to $750,000 (£306,000 to £385,000), rents for between $2,000 and $6,000 (£1,000 and £3,000) per month. The island of North Bay Village has considerable room for appreciation, according to Ashton Coleman, as it is still an undiscovered island, where a studio can be bought for $180,000 (£92,000) and rented for $1,100 (£560) a month.
As a rule of thumb, the further west you go into the mainland, the lower the returns, with the exception of property hotspots like Coral Gables and Coconut Grove. Rentals can be seasonal in some areas, with the months of December to May being the high season. However, the right property can be let on an annual basis, managed by a property consultant for anywhere between ten and 25 per cent of the gross income.
Those looking for a year-around income should opt for the new breed of condo-hotel where you have a deed on a hotel-managed property that provides luxury services to guests. Nightly or weekly rentals are secured and the owner retains a percentage of the income of around 50 per cent. However, John Patrick points out that some buildings in Miami Beach have restrictions on the rental rate or minimum contract so it is important to use a realtor who can point out which buildings will suit the investor's needs.
Despite Miami's flattened market and pockets of uncertainty, the real estate industry is cautiously optimistic about capital growth as sellers are beginning to realise they need to be flexible and realistic about their pricing. The view is that the strategic investor will invest for the long-term - at least five years - as some level of appreciation will be inevitable during that time.
Miami is also still a growing city that attracts many visitors throughout the year to the beaches, festivals, designer shopping, and more recently, the new Performing Arts Centre. Sobel points out that the median house price of $246,000 (£126,000) works in the city's favour too as it is still significantly below that of those in other American cosmopolitan cities such as New York ($360,000 [£184,000]), LA ($418,000 [£213,000]), San Francisco ($576,000 [£295,000]) and Boston ($338,000 [£172,000]).
"These factors have helped shelter Miami from the drop in real estate prices that other areas of the country have experienced," she says. "South Florida is also considered the 'American Riviera' and I think it will continue to attract American as well as international residents and tourists alike over the coming years - we think our future looks bright!"
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First published in Homes Overseas Magazine March 2007.
Some information contained within this article may have changed since it was first published. Homes Overseas strongly advises you to seek current legal and financial advise from a qualified professional.
