Neighborhoods

Miami Investment Property: Why Investors Buy Miami Real Estate

So you are interested in a Miami investment property or possibly multiple properties. Well the time to get in is now! Miami real estate appreciated 102.59% over the last ten years. The city is no longer just considered a playground for partying, but also fertile grounds for finance and tech. Established corporations and start-ups alike are flocking to our subtropical oasis, and Miami is drawing international attention as THE hub for work AND play. When embarking on a potential Miami real estate investment or any investment opportunity, it is important to do your due diligence. Luckily, you have come to the right place in your search for the the best real estate in Miami, so let’s get into it…

Why consider buying Miami investment property?

Real Estate nationwide is booming. In South Florida, and Miami specifically it is in super boom mode. Downtown Miami, Edgewater, Brickell and Coral Gables–the investment property opportunities are endless. Well that is, as endless as the finite resource of land can be! Commercial, residential and everything in between is hot—like a sunny Miami afternoon post downpour—steaming HOT! Inventory in many regions has hit record lows, and the market is no longer defined by days or weeks for sale or for rent, but instead hours. Exciting, right? We are going to explore home values, the rental market, commercial real estate and how you can get in on the action of the best real estate investments in Miami.

 

Miami real estate investment: Why should you invest in Miami?

High Demand Driving Price Increases

Real estate investment has long been considered a sound investment, and for good reason. Before the 2008 crash, housing prices appeared as they would continue to climb indefinitely! With few exceptions, the average sale price of homes in the U.S. increased year-over-year between 1963 and 2007.

Since the crash, the housing market has displayed its resilience, showing steady recovery. As of 2021, inventory is at a record low, and demand at a record high. So, home prices are up 15.8% on average nationally since last year, according to a recent National Association of Relator’s report. In Miami specifically, single-family home prices increased 21.6% year-over-year, and have risen for 111 consecutive months, a streak of more than 9 years! Existing condominiums increased in price 17.6% year-over-year, also trending above the national average. Why is Miami real estate investment so hot (no pun intended)? Balmy year-round weather, an open economy, fewer masking requirements, relatively low COVID-19 case counts, a booming remote work scene, and no state income tax are a few factors fueling the insatiable demand that are driving prices higher and higher.

But rest assured this boom is not built on a house of cards, like that of the boom preceding the 2008 crash. The key difference now vs. the housing bubble created in 2008, is that back then it was easy credit (loans taken out that people actually did not have the financial ability to pay back), whereas this boom is fueled by cheap credit (The Fed has kept interest rates at 0% to work towards target inflation rate). High net worth individuals fleeing states that had stricter lockdowns and regulations, as well as millennials in search of larger homes in “exotic” locations, as many work remotely in the wake of the Covid-19 Pandemic, are fueling this high demand. Not to mention, the cost to borrow money to purchase these homes is essentially free! Without getting too deep into the nuances of economics, the demand curve has steepened, and the supply curve remains the same, so prices go up.

Inflation Risk

If you are considering investment opportunities in Miami , you likely have a savings account that has accumulated some capital. You probably deposit some amount every so often and feel a sense of security and satisfaction. Even the most extreme form of frugality, however, will only take you so far. In fact, every day that you leave money sitting in your savings account you are losing money—Why? Inflation is taking care of this.

Inflation is the gradual rising of prices. The Federal Reserve has targeted an ideal inflation rate of 2% per year, so if your savings account is not yielding at least 2% annually, you are losing money. I am pretty sure your savings account is not and you and I both know your checking account is definitely not—Scary, right? So, while your hesitation to invest may be because you are averse to taking risk, the risk of loss of purchasing power, also known as inflation risk, is a very real threat to your accumulating capital.

Simply stated, if you have $1,000 sitting in your savings, you will not be able to buy as much with this money as you could the year prior: Happy hour with your coworkers, a bite with your best friend and date night with bae—all are increasing in price faster than the increase in value of your money in the bank.  A primary objective in investing, therefore, is to maintain, or even better, grow, your purchasing power by earning a return above the expected rate of inflation.

The rise of inflation is inevitable. Right before the 2008 crash, in fact, the annual inflation rate was as high as 5.6%–the highest rates in 17 years. There are few better assets to protect you from inflation than your real estate. Land is a finite resource, as you cannot make more of it so, in the long run, the best protection from inflation will be to own a piece of it–especially, a Miami investment property.

Local Real Estate Trends

Just 5 years ago, Miami’s impressive skyline that boasted a plethora of 50 story skyscrapers in tight echelons, lining Biscayne Bay were primarily vacant.–Why? Many of these condominiums were owned by foreign investors looking for a secure place to put their money, but not necessarily concerned with renting the unit. The oversaturated market made it so buyers and renters alike could get great value, especially when compared to New York and LA.

While foreign investors are still a major player in real estate investment in Miami, and even with the increased demand prices are still relatively affordable, this period is unique in that many people are relocating to Miami, as opposed to buying vacation properties and rental properties. Relishing in their permanent work-from-home situations, they are looking to be homeowners or longterm renters. As of today, Miami-Dade is considered the fifth fastest growing county in the U.S. Thus, rental property in Miami is in high demand, as there are many Miami real estate investors looking to take advantage of these remote workers testing the waters.

As we previously discussed, single-family home prices are steadily increasing and the industry seems to be in agreeance that they will continue to do so well into 2022. There aren’t enough homes on the market to meet demand, which means more people are being forced to rent. As a result, it’s fair to assume landlords will find their assets receiving a lot of attention. What does, “a lot of attention” mean? Well, more than two-thirds of people in the area rent instead of own. For comparison, roughly two-thirds of Americans own their home instead of rent. So, this rental dominated market in Miami, creates massive pent-up demand for local real estate.

With an average monthly rent of $2,400 dollars a month in Miami and $2,000 in the suburbs, those who can land a house for that monthly payment and afford it, will take it. This is why homes in the $300,000 to $400,000 are a seller’s market. There hasn’t been much inventory growth in this price range, which includes the median price point for homes in the Miami real estate market. Builders were too busy building condos, apartment buildings, and luxury homes, instead. However, now there is no chatter about new condo developments, just about developer selling out existing condo developments. With the cost of construction materials at record highs, this environment will likely continue through 2021.

Tax and Liability Benefits

Florida is one of only seven states that does not have state income tax. That means more money in your pocket every month if you make your investment property in Miami your primary residence. This is a huge benefit, especially for those coming from a state with a high income tax, such as California, Oregon, New Jersey or New York.

Even better? Florida’s homestead law protects Florida resident’s primary dwelling from levy and execution by their judgement creditors. Basically debt collectors, cannot force the sale of your home to satisfy their collection of debt. This is a constitutional right in the state of Florida, so it is infallible.

Types of Miami Investment Properties

The best Miami real estate investment properties come in all shapes and sizes, prices and locations.

Thus far, when exploring the benefits of real estate investment in Miami, we have been generally speaking about residential properties. But let’s break it down:

Miami Condo Investment Type

Miami Condominiums have long been a a secure place for foreign investors to put their money. More than two-thirds of people in Miami-Dade county rent instead of own. For comparison, roughly two-thirds of Americans own their home. So, while it serves as a secure place to invest your money, investing in a Miami Condo can also serve as a vehicle for residual income as a rental property. That is, as long as you can find renters to pay a monthly price that covers your HOA fees, which can get quite pricey with the lavish amenities that some of these modern luxury high-rises offer. Additionally, if you’re paying for a view, take into consideration if there is a possibility that this view could be obstructed by the latest and greatest new construction residence. If there is an older building or vacant lot closer to the coastline, chances are it will be developed.

The best neighborhoods to look in for Miami condo investment opportunities:

1.) Edgewater 2.) Brickell 3.) Downtown Miami 4.) Miami Beach and 5.) South Beach

Miami Single-Family Investment Type

Single-family homes were not considered hot real estate so, development efforts were focused elsewhere (mostly Miami Condos); therefore, the inventory of this type of of real estate investment in Miami is low compared to the other kinds of Miami investment properties. Limited supply and high demand means a great real estate investing opportunity! To further exasperate the limited supply of single-family homes, is the fact that construction materials like steel and lumber have spiked–Why? You guessed it! The Covid 19 Pandemic.

The National Association of Home Builders (NAHB) found that the price of an average family home has increased by $24,386 since April, largely because of an interruption to raw materials supple chain when lumber mills shut down at the start of the pandemic. After lumber mills reopened, lumber prices have spike by nearly 200%. Now it seems homebuilders are turning this price increase to their advantage.

What does this mean for you as a potential investor? You have an additional factor working in you favor: As newly constructed homes are priced higher to pass down the increase in raw material price to the consumer, the value of your home is elastic to these comparable investment types, so it too will appreciate in market value.

The best neighborhoods to look for Miami single-family home investment opportunities:

1.) Coconut Grove & Coral Gables 2.) Miami Beach 3.) Palm Beach 4.) Key Biscayne  5.) Little Haiti

Miami Vacation Home Investment Type

So you’ve fallen in love with Miami’s endless sunny days, white sand beaches, legendary nightlife, and year-round events and want in on the action. Buying a vacation condo or second home in Miami is a great prospect. Having a second home in Miami would mean having a permanent winter escape to flee on a whim–much easier than booking a full fledged vacation destination. The time you are spending now to do your due diligence,   will be repaid in tenfold in the time and money saved on hotel bookings. Of course it can also be turned into a short-term rental property when vacant, so your home makes you money while you’re away.

Whether its a condo or a single-family home, the best neighborhoods to look for Miami vacation home investment opportunities are:

1.) Miami Beach 2.) South Beach 3.) Downtown Miami 4.) Brickell 5.) Coconut Grove

Commercial Properties

Compared to the returns on residential properties, commercial property cash flow and returns are far more attractive. More space equals more tenants, which equals more money in your pocket. Moreover, it offers investors a more diversified (multiple tenants), balanced (tenants are businesses, as opposed to individuals), and scalable (easier to get higher returns based on capital deployed) approach to real estate investing.

One of the biggest differences in residential and commercial real estate is how property values are determined. While residential real estate is largely influenced by comparable properties, commercial real estate is directly impacted by how much revenue it generates: the amount of cash flow a commercial property is earning, dictates the property market value. With the right tenants, investors could see an increase in value at a much faster rate than residential housing.

Traditionally, commercial real estate projects required large amounts of capital, so only investors with clout and deep pockets were able to tap into this type of investment. Even more limiting, you had to be an accredited investor to even qualify—meaning a bank, pension plan, insurance company or individual who earns a minimum of $200,000 annually or has a net worth of at least $1,000,000—guess that ruled out most of us. However, that is no longer the case with commercial real estate crowdfunding, and School of Whales is making it even more accessible with an initial investment opportunity of only $500. Through our diversified commercial real estate portfolio where we pool your money to go towards multiple throughly vetted commercial real estate projects, you minimize risk and maximize stable returns—ever heard the saying, “don’t put all your eggs in one basket?” Well, that definitely applies to investing! You can learn more about

Miami Office Building Type

Miami is transitioning from being a tourist destination with the year-round party scene, to a viable primary home that facilitates an amazing work-life balance. Who doesn’t enjoy a walk on the beach after 5:00pm or weekend yacht charter with friends to let loose after a long week in the office.

It is this sentiment that is fueling the migration of the finance and tech industry to the Magic City. Moreover, the laissez faire approach to Covid-19 regulations, makes it the ideal refuge for burgeoning and established businesses alike to continue to flourish even if we get another surge in cases in the U.S.

So, what I am saying is that demand is high for Miami office space investment properties. According to the South Florida Business Journal, Garden Plaza office tower in Palm Beach Gardens just sold for $30.55 million in May of this year. It was acquired just 6 years ago for $23 million–thats almost a 33% increase in price. While we cannot be sure the capital deployed in improvements and maintenance, we can only assume there were healthy profits to distribute to stakeholders.

While, pretty much no one has that kind of capital to even be a partner in this kind of venture, platforms like School of Whales make it possible for you to get a piece of the pie, with as little as a $500 initial investment.

Miami Multifamily Type

Multifamily commercial real estate encompasses residential properties with more than five units–a duplex, small or large apartment, townhome, or condo complex. These rental properties are broken down into the following asset classes:

1. Class A: These are your luxury condo and apartment buildings with the 5-star resort-like amenities. This is your luxury real estate that garners the highest rents, but also requires the biggest investment. For many real estate professional in Miami, this is their bread and butter.
2. Class B: Meanwhile, Class B properties still offer a good amount of value in terms of quality, location, and function, but do not offer the same 5-star amenities.
3. Class C: Class C properties are still functional, but generally outdated. These Miami condo investments offer the most affordable rents.

Miami Retail Type

Since the start of 2021, retail-related commercial real estate property investment activity has picked up in Miami with notable sales including the Shops at Sunset Place, which sold for $65.5 million, and the Winn-Dixie-anchored site in South Miami, which sold for $18.95 million.

Retail-properties have been selling for record prices per square-foot. This includes mixed-use properties that have both office and retail spaces. Sunset One, for example, a 9,674-square-foot retail and office building at 5875 Sunset Drive in South Miami, sold for $515 per square foot. School of Whales has at least one multi-use project in the pipeline.

Best Neighborhoods to own a Miami Investment Property

Miami is a collection of unique neighborhoods that are geographically close, but vary vastly in architecture, people and culture. We have briefly touched on the neighborhoods in Miami and the type of commercial and residential properties that you can invest, but let’s get into the specifics of each neighborhood and what it has to offer in terms of vibes and Miami investment properties.

Downtown Miami

Downtown Miami, also known as the financial district, is the urban center of this subtropical city defined by beaches and palm trees. It is one of the few pedestrian-oriented neighborhoods in Miami. The area is home to one of the highest concentration of luxury residential units in the world. But, do not be fooled by its glittering cityscape over Biscayne Bay and the stunning canals. While there are plenty of Class A multifamily investment opportunities, there are also many commercial properties oozing with potential that have not been fully realized. School of Whales’ founders and partners already repurposed and renovated a historic bank, making into what is today, the Langford Hotel. Next on the roster: the historic Walgreen’s Building. Located at 200 East Flagler Street, this multi-level complex will become Julia & Henry’s: Five floors of restaurants and co-working space, as well as a 7,000 square foot rooftop restaurant by a world renowned chef with stunning views of the city.

Since 2010, the population of Downtown Miami has increased more than 38%, with continued momentum anticipated, and over the last few years, Miami real estate investors, institutional buyers and private equity have invested close to $3 billion in a 6-block radius in Downtown Miami.

Coconut Grove & Coral Gables

The Grove and Gables are the primary markets for home owners, real estate agents and investors looking for single-family homes. These two neighboring areas are brimming with great schools, cool local restaurants, parks, country clubs and gated communities. It won’t necessarily come cheap, although Coral Gables is a little easier on the wallet than Coconut Grove. Real estate investors in Miami are eager to capitalize on the northeastern family relocated for a job promotion looking for a rental while they get their bearings or the UM kids pooling their money together to rent their mini-mansion by campus.

Wynwood

Wynwood is Miami’s creative cultural hub. The streets are flanked by vibrant murals and a plethora of art galleries, peppered between local breweries, restaurants and bars. Just a few years ago, this neighborhood was warehouses and dilapidated buildings, so while property values still remain affordable, this neighborhood tucked between Downtown, the Design District and Edgewater, will continue to rise in price due to location alone! Miami Condo investments and multifamily commercial real estate is the most common investment properties in Wynwood.

Edgewater

Edgewater is just east of Wynwood on the–you guessed it!–edge of Biscayne Bay. This neighborhood is small but mighty. An echelon of high rises with spectacular views, many of which cannot be obstructed. So if you’re looking for a condo investment opportunity that is sure to hold its value, look no further. This centrally located neighborhood right on the bay is teaming with young professionals and hip families looking for a little quiet while still being minutes from the hustle and bustle.

Miami Beach

Miami Beach is one of Miami’s most desired and best known luxury markets. The most desired Miami Beach homes for sale are located in the many gated communities, as well as exclusive islands. Miami Beach is also considered a tax refuge for those from the northeast and California. During Covid-19, realtors saw the demand for single-family homes increase considerably while inventory decreased rapidly. The Miami Beach condo market, however, has slowed down a little bit in 2020, due to this caliber of buyer looking to avoid lobbies and elevators. So, if you’re looking for a Miami condo investment, this is the time to get good deals in high-end Miami Beach buildings.

Key takeaways

Real estate investment has long been considered a sound investment, and for good reason. In the wake of the Covid 19 Pandemic, the world’s priorities have shifted–people are paying more attention to their quality of life. Thus, resulting in a mass migration to warmer climates. High demand and limited supply are giving Miami real estate investors a very positive outlook and confidence that properties will continue to appreciate in value. As an inspiring investor yourself, you simply have to decide: residential or commercial?

Remember, diversification is key when investing and this is the added benefit that School of Whales has to offer. Well that, and you only need $500 to get in on the action, as opposed to $500,000!

Resources

• https://www.miamiandbeaches.com/neighborhoods
• https://www.bizjournals.com/southflorida/news/commercial-real-estate
• https://www.colliers.com/en/news/miami/langford-owner-picks-up-historic-walgreens-building
• https://www.forbes.com/sites/petertaylor/2021/02/19/south-floridas-real-estate-market-is-now-officially-in-super-boom-mode/?sh=592b80c95fc0
• https://www.miamiherald.com/news/business/real-estate-news/article250121869.html