Investors snapping up Miami condos

[flintlock]

http://cbs4.com/local/miami.condos.condo.2.1133338.html

In recent weeks developers have sold hundreds of condos, in a flurry of activity they haven't seen since the peak of the housing market. Some builders are actually running out of inventory. The first building to sell out, Brickell on the River, happened quietly and quickly selling 120 units in just six weeks time.

I can hear them now, " Gee, who'd a thunk it? Drop the price in half and the condos sell!"

The next housing boom. " We sell them at a loss but we make it up in volume".

[jk]

Re: Investors snapping up Miami condos

key quote:

So how did Asion do it?

Price. They dropped it roughly a $100 thousand under their closest competition. The final prices were half of what units sold for at the peak of the market.

even so, if ej's prediction of s&p 500-600 by the end of the year happens, i expect people to be walking away from their deposits AGAIN.

[ThePythonicCow]

Re: Investors snapping up Miami condos

I can hear them now, " Gee, who'd a thunk it? Drop the price in half and the condos sell!"

So your guess then is that this selling is just due to lowering price?

[flintlock]

Re: Investors snapping up Miami condos

So your guess then is that this selling is just due to lowering price?

Ummm, yeah! Everything has a price. Even the bloated FL condo market. I also agree with what JK says. I think the article mentioned that as well. But for $220k it has a lot more reasonable chance of making some sense as a speculative investment. At least some will see it that way. Those with deep enough pockets may see something positive out of that some day. Maybe. It is downtown Miami after all.

[cjppjc]

Re: Investors snapping up Miami condos

So your guess then is that this selling is just due to lowering price?

Yes. If you're going to move that much inventory in a buyers market, you have to slash prices.

[ThePythonicCow]

Re: Investors snapping up Miami condos

Yes. If you're going to move that much inventory in a buyers market, you have to slash prices.

Well, I'll have to agree. I just sold some Florida real estate myself, from an inheritance. It was a trailer in a senior mobile home park. There have been six other trailers in that park that have gone unsold for the last six months. The one I sold was the only one to sell so far this year. I sold it for half the price that everyone told me I should insist on getting.

[GRG55]

Re: Investors snapping up Miami condos

Well, I'll have to agree. I just sold some Florida real estate myself, from an inheritance. It was a trailer in a senior mobile home park. There have been six other trailers in that park that have gone unsold for the last six months. The one I sold was the only one to sell so far this year. I sold it for half the price that everyone told me I should insist on getting.

I'll bet you're real popular with the other six sellers...

I think I heard one of them muttering "Big hat, no trailer..."

[cjppjc]

Re: Investors snapping up Miami condos

I think also in addition to price, people are hearing, MSM bullhorn (Appologies to EJ) about how the bottom might be in. Combined with prices that are low when compared to the market top. You can move alot of inventory.

I think alot of these "investors" imagine themselves saying things like I bought at the bottom in 09. Made a killing.

[ThePythonicCow]

Re: Investors snapping up Miami condos

I'll bet you're real popular with the other six sellers...

Eh - no problem. I live a thousand miles away in North Texas .

[Wild Style]

Re: Investors snapping up Miami condos

http://cbs4.com/local/miami.condos.condo.2.1133338.html



I can hear them now, " Gee, who'd a thunk it? Drop the price in half and the condos sell!"

The next housing boom. " We sell them at a loss but we make it up in volume".

no one sees the problem in this? They are selling to investors who think prices are going to sky rocket again. These condos are still over priced given local incomes hence the reasons the average joe is not purchasing this stuff, but instead bargain hunters hoping and praying prices will go up to silly levels again one day. This situation is fraught with problems.

[Tybee Island]

Re: Investors snapping up Miami condos

Gang, this is a snow job by a local television reporter who did a 3 minute on air segment. He did no investigation to support the claims of the realtor or anyone else for that matter. Where is the developer in the story?

Let me explain:

There isn't a single plan in the bldg. that shows a 2,220 SF 2 bedroom. I reviewed all of the plans and they count air as livable SF and outdoor terraces. This is an old developer's trick in Miami, We measure from the center of the drywall stud and anything that can be called out as salable SF is thrown in. The true size of these units are 1,1,00 SF at best. That's right a 2 bedroom unit in 1,100 SF with no privacy in the master bedroom as it opens into the living room below.

The Developer is not in charge, the bank is. The developer most likely has been left onboard to direct the sales force to sell at all costs and get them out. Why is the the developer incentivized to help out the bank? Well the banks says something like this: "Maybe we will reduce the value of our deficiency judgement against you by a few bucks if you move this carcass of a project off our balance sheets like yesterday!" This way the Developer can go home at night and pretend to his wife that they aren't wiped out and keep living in the same house for another 6 months.

The bldg. cost with land was better than $400 PSF. That cost went much higher when buyers did not come to closing and new marketing dollars were spent and more interest on the loan had to be paid. Assume they are better than $600 PSF into this project now.

They paid Brokers 50% of their commissions in advance of closing at the peak when the contracts were tendered with a 10% deposit. These early buyers, never came to closing and the Developers lost all of the advance deposits. Assume 75% of the building was sold out and the Developer paid out 3% of the "then valued" units in cash. I would roughly place this at an initial $200,000,000 million in sales contracts and $6,000,000 went out the door to realtors never again to be seen.

[I can tell you stories of realtors with less than high school educations, driving around in $200,000 luxury imports as a result of this practice that was but one component of how the bubble got so over inflated in South Florida. I knew of numerous brokers making trips to South America and holding marketing caravans in hotels coming back with signed contracts and checks based on nothing more than a rendering of a future building to be completed sometime in the next 5 years if they ever bothered to read the condo docs. In fact, I know of several realtors that never provided any condo docs and claimed that they could only be read in the sales office and that they could not be copied which is an egregious violation of the law.

Here is a tip to those looking at the validity of their condo contracts. Did your broker accept any portion of a commission payment based on your contract being tendered to the developer in advance of closing? Did the broker have any unethical incentive to misrepresent the condo as a "sound investment" or in any way misrepresent the unit and or the building in order to be paid an upfront commission or any portion thereof? Were you ever made aware of this arrangement between the broker and the developer?

Would you have a suit against your broker for "misrepresentation, offering unlawful investment advice and unethical inducement?" Were you given a "complete copy" of condo documents prior to executing any contract? Were you given any subsequent amendments to the condo documents after you received your initial copy in a timely and forthright manner? Were you aware that the "actual " square footage of your unit was less than what was represented by your broker and/or developer? Did you or any representative of yours, verify the actual square footage of the unit prior to closing?......I digress.]

The HOA expense = big ongoing problem. Now the banks says cut the price to 50% of what we have loaned on this building and get us out, the HOA fees as the majority holder of units is killing us each month. Several of the units in the bldg. of those who did close at the peak are already in foreclosure and are not paying anything towards upkeep.

Assume that a bulk buyer who has now bought several units in the bldg., lets say 10 units, has a an HOA fee to pay per unit of $350 minimum. Thats $3500 per month before he brings in a single renter.

Now, I can tell you that he is competing against thousands of units in the downtown market many with far superior views then this bldg. This particular bldg. is nestled up against the elevated track of the Miami metro rail and just below the Miami River bridge at Brickell which is a nightmare for traffic when it is raised. Also, this bldg. is in the most vulnerable of areas for hurricanes. The views are awful from this bldg.

So a $220,000 purchase price divided by 1,100 SF is really $200 PSF which is only marginally better than what units have been selling for in the last 3 months. You will note that oceanfront units on Miami Beach recently sold to a bulk investor for a 94% discount or $.06 on the dollar. these units had a luxury pool and beachfront cabanas.

Now for our bulk investor to make 10% on his money after HOA fees, RE tax, Insurance, and unit repair what does he need to charge in rent?

10 units at $220,000 = $2,200,000 x 10% = $220,000. I am going to assume that his nut for expenses is 4.07% or $8950 per annum assuming that he is all cash in the deal. That means he needs to charge $2,580 per mth per unit to make 10% assuming that he has zero vacancy, no marketing and no sales commissions to pay for a realtor bringing him a renter.

I can tell you that I can rent a penthouse overlooking the ocean for less than that in Miami right now. Also, based on a 30 year fixed mortgage at 5.25% that rent payment would be the equivalent of a $469,262 mortgage P & I payment.

Bottom line, the deal stinks and unless he can buy these units for $50,000 a piece he has no protection from renters who won't pay after they lose their jobs, the legal and eviction costs, higher future insurance and tax costs and non-payment of HOA fees by other owners in the bldg.

[jk]

Re: Investors snapping up Miami condos

thanks for that analysis, tybee.

just shows this is an example of people thinking something is cheap because they compare the price to the peak price, instead of looking at its economic value.

[don]

Re: Investors snapping up Miami condos

Great post, Tybee. I'm now calling this a Case Study in Contemporary RE Crapola :cool:

[Tybee Island]

Re: Investors snapping up Miami condos

I wanted to post the plans but I haven't mastered the I-Tulip posting functions yet.

Nonetheless, here is the link: These guys are amateurs. Make sure you take a look at all the expensive "air" in the "open spaces to below."


http://www.brickellontheriver.com/so...ghFPlanNew.pdf

[cjppjc]

Re: Investors snapping up Miami condos

I wanted to post the plans but I haven't mastered the I-Tulip posting functions yet.

Nonetheless, here is the link: These guys are amateurs. Make sure you take a look at all the expensive "air" in the "open spaces to below."


http://www.brickellontheriver.com/so...ghFPlanNew.pdf

Almost all new construction (stick built) includes volumne in their square feet. There are some honest builders that use heated living space.