Miami Condos: Is Now the Time to Buy?

• February 24th 2009

by Will Smith

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Miami is often mentioned in the same breath as Phoenix and Las Vegas as a city whose real estate market is suffering the most in the country. Thousands of new condo units have come on the market in Miami over the last decade and speculation was rampant. Many believed that demand from snow birds and international investors could support the bulging supply. That unfortunately turned out not to be true, and the city now has a huge glut of condos with prices plummeting from just a few years ago.

However, like Prince William County, because Miami was one of the first markets to fall, it is expected to be one of the first markets to bottom. Prices have dropped so much in the last year that the Miami condo blogs are a flurry of debate about whether the bottom has been reached and if now is the time to buy.

Evidence abounds that it is. You can now find the occasional sub-$100,000 condo. Vulture investor groups have started buying units in bulk. Even condo flipping has come back. This one-bedroom/1.5-bath unit at the Carbonell in Brickell Key sold for $215,000 in December, or $209 per square foot. It is now back on the market for $295,000. The author of the Miami Condo Investments blog, Lucas Lechuga, notes that the second cheapest one-bedroom in the building after this unit is listed for $415,000. “I know everyone hates to hear the word ‘flip’. However, I think the investors will be able to accomplish just that,” he writes. “The condo doesn’t have much of a view but it’s a very spacious floor plan, is in great condition with beautiful marble floors in the living room and kitchen and is in one of the best buildings in Brickell Key.”

Here’s another condo in foreclosure that Lechuga thinks is a great deal: 1,051-square-foot, two-bedroom/2-bath in the heart of downtown for $159,000, or $151 per square foot.

Careful, though. Detractors cite a number of reasons why the Miami condo market could see prices fall further. Here are some of the points that anyone interested in a Miami condo needs to consider:

• Both HOA fees and property taxes are high in Miami, so the cost to carry a condo is considerable.
• Many condo buildings are suffering budget shortfalls from a combination of high foreclosure rates, unsold inventory, and residents who are delinquent in paying HOA fees. To compensate, these buildings will either have to raise the fees on residents or start cutting corners on maintenance and amenities.
• Because of the HOA shortfall in many buildings, Fannie Mae has introduced Florida-specific regulations stating, among other things, that the institution will only provide financing for units in buildings where less than 15 percent of the total units are more than 30 days late paying HOA fees. So if you want to buy in a building with HOA fee collection problems, you may have to buy in cash. (You might want to avoid buildings like this anyway. That level of HOA fee delinquency makes it risky.)
• The rent-versus-buy analysis of many Miami properties still heavily favors renting, strong evidence that condo prices need to come down more before the market correction is complete.
• Buyers should be wary of buildings with the aforementioned bulk sale opportunities. If an investor buys multiple units, it tends to have the effect of resetting all prices in the building down to the level of the bulk sale. For example, if you were to buy a one-bedroom in a building for $200/square foot, then an investor bought thirty units for an average price of $150/square foot, his price would reset the value of your new condo down to what he paid. Ouch.

This article originally published at https://dc.urbanturf.com/articles/blog/miami_condos_is_now_the_time_to_buy/573.