0 Miami Real Estate Market Forecast: 2020 Looks Promising In Miami Beach

Posted on February 25, 2020 by Sean Greco

For many, 2020 has brought with it a feeling of potential. Like a deep breath of fresh, crisp air at the beginning of a new adventure. I suppose every new year is like that, in a way. Bringing with it the promise of a new chapter, a fresh start. But this one has admittedly felt more powerful. The energy is palpable and catching. Have you felt it in your life?

Surely, I am not going to advise you to invest in Miami real estate simply because the energy of a fresh decade holds promise. But with any fresh start comes a time for fresh ideas and opportunities. If you are considering investing in real estate this year, you should really look at Miami, paying special attention to the submarkets. Miami Beach is looking good, as are several other key submarkets.

Miami Real Estate Market Forecast Is Promising as Population and Income Growth Continue

Population and income growth are great leading indicators of real estate investment potential. Miami has seen strong growth in both of these areas, a trend that is expected to continue. In fact, SmartAssets just listed Miami as one of the top 10 “boomtowns” in the country. Boomtowns are cities where rapid economic growth is creating jobs and attracting new residents. Americans are flocking to these cities because “business is booming, jobs are plentiful and salaries are rising”.

Miami population grew by 9.43% from 2014 to 2018. The Bureau of Economics and Business Research, Florida Population Studies has predicted Miami population could grow by another 13% from 2020 to 2030, ending at close to 3.5 million people.

Income growth in itself is a sometimes forgotten metric that has a huge impact on the state of the housing market long-term. Miami household income grew by a whopping 31% from 2014 to 2018. This rapid income growth helped Miami achieve the rank of second-fastest-growing large city in America in a recent study. The study compared 515 U.S. cities across 17 key factors ranging from population growth to college-educated population growth and unemployment rate decrease.

Miami’s population and income growth can be directly correlated to growth in the housing market. According to a Comprehensive Housing Market Analysis by the U.S. Department of Housing and Urban Development, during the 12 months ending February 2019, new and existing home sales increased 7% in Miami-Miami Beach-Kendall, Florida.

According to a 2019 Knight Frank Wealth Report, Miami takes the title of #1 fastest growing luxury real estate market in the US, and #5 fastest growing luxury real estate market in the world after Madrid, Berlin, Paris and Cape Town.

Miami Housing Demand to Surpass Development Growth

There has been a large amount of development in Miami and Miami Beach in recent years. So much so that it has even slightly outpaced population growth, leading to a surplus in real estate supply. Some of these developments are still under construction with closings expected throughout the year, but the flow of new inventory is slowing. A forward-focused eye can see that this is likely to level out in the investor’s favor.

Far fewer new Miami developments are slated to break ground than there were several years ago. With population growth predicted to continue at a healthy pace, supply will fall off as the inventory is absorbed. This presents an opportunity to secure an investment now when the competition is less fierce and sellers more motivated due to properties languishing on the market. Eventually, the seller will need to sell. So, buy right, then the fundamentals will take over from there. You truly ‘make your money’ on the buy-side in Real Estate. Especially if you follow the fundamentals and truly understand the sub-markets.

While there has been excess demand in several sub-markets, Miami Beach is a sub-market with good fundamentals that has been somewhat stagnant in the past several years. With sound fundamentals and reduced competition, Miami Beach is worth a good look. The State of Florida has so much momentum right now. Miami Beach is positioned extremely well and will continue to be a key piece of the puzzle.

Savvy Investments Continue in Miami

The slowing of new development is a natural thing that allows the market’s supply and demand to re-balance. However, new development has not fallen off of a cliff entirely. Continued investments from experienced investors offer another positive sign for Miami’s real estate market forecast.

Moishe Mana, who owns a major redevelopment project in Wynwood, has put together a growing portfolio of roughly 45 buildings in Miami since 2014. According to an article by Forbes, in October, the Mana Group unveiled a timeline for the redevelopment of his downtown Miami properties, including 11 buildings between Southeast First Street and North Miami Avenue that would be delivered between the first quarter of 2021 and the fourth quarter of 2024.

As all good investors know, the key to making a sound investment is looking closely at the fundamentals when identifying the potential for growth. In Miami Beach, the fundamentals are as good as ever. Interest rates are low, tax advantages are large, and demand is slated to grow. Miami is a buyer’s market now, and a seller’s market to come. That makes it the perfect time to get in on a sound real estate investment in Miami. As Warren Buffet would say, “be greedy when others are fearful”.

0 Capitalism Feasts on Miami Real Estate Market, Consumers Suffer

Posted on January 29, 2020 by Sean Greco

Let’s face it, the Miami real estate market is oversaturated with under-qualified agents and over-promising vendors. A slew of agents with a severe lack of experience and dedication are fed leads from automated systems daily. Overwhelmed with the noise, many customers inadvertently do themselves a disservice by working with the first agent they speak to. And the vendors – oh, the vendors. They prey on the real estate industry because it’s a big, lucrative, easy target. They offer forward-looking solutions, but what value are they adding to the end customer?

Miami Real Estate Market – Fastest Growing Luxury Market in the US

When you look at the sheer size of the Miami real estate market, this oversaturation starts to make sense. According to Knight Frank Wealth Report, Miami takes the title of #1 fastest growing luxury real estate market in the US, and #5 fastest growing luxury real estate market in the world after Madrid, Berlin, Paris and Cape Town.

Total sales volume for Miami in Q2 2019 topped $3.6 billion dollars. And the beast is still growing. Median home prices have increased for 30 consecutive quarters in Miami, a streak spanning 7.5 years while short sales and foreclosures have decreased heavily over time.

Miami Real Estate Market Foreclosures Over Time –

Lucrative Real Estate Markets Create Opportunities for Vendors

Any industry of this size is bound to have an influx of opportunistic vendors and agents, all grabbing for their piece of the pie. A great example of this is Zillow. About 70% of Zillow’s revenue comes from the company’s “Premier Agents” who pay for placements on Zillow to generate leads. It’s reported that Zillow brought in $300 million in revenue in Q1 2018 alone, which equates to over $200 million in revenue from agents paying to be connected to customers in one single quarter.

What is the consumer getting when they are connected to a Zillow “premier agent”? Literally just someone who has paid a fee to Zillow. That’s it. Not a trusted provider or anyone with any sort of guaranteed experience. This is a perfect example of the type of thing that exists to falsely build confidence and ultimately creates confusion.

There is no shortage of agents paying the Zillow’s of the world, which adds to the noise for the consumer. The chance that a consumer gets paired with an inexperienced agent while shopping around online is quite high. In fact, a 2014 NAR study reported 87% of all new agents fail after five years in the industry and only 13% make it, mostly due to issues with sales volume.

Capitalism Feasts on the Real Estate Industry

Outside of property listing aggregators, there are innumerable other “top” real estate agent short-lists and certifications. Many aimed at giving agents another badge with which to attract potential customers. While perhaps well-intentioned, many of the accolades that are not backed by the NAR are not executed or regulated consistently enough to prove any real distinction or value. In this way, they only serve to offer further confusion for the consumer.

According to statista.com, in 2016, agents and brokers’ ad spending amounted to 9.3 billion U.S. dollars. There are so many agents out there that don’t produce, yet they throw money at whatever hot new thing they think will make them rich and it skews and distorts the industry as a whole. And then 87% of these agents are gone in 5 years, largely because they weren’t able to generate enough business to remain profitable.

Investments in technology amidst the changing landscape also come into play. “According to PitchBook, an analysis firm owned by Morningstar, the amount of venture capital invested in real estate technology companies was up to $1.2 billion in 2017 from just $31 million in 2012.” But what technology is helping the consumer, and what technology is just designed to increase transaction volume for real estate agents?

When It Comes to Picking An Agent – Be Picky

Consumers in the real estate industry are still too trusting. In general, they are not taking the time to vet their agents. NAR found that an estimated 72% of customers do business with the first agent they talk to. This is a recipe for disaster, leading to over 26% of people stating that they would not use their agent again, and so many more not knowing what they were missing.

Our advice to all consumers in the real estate industry: Break the trend. Take the time to vet your real estate agent. This is hard to do amidst the noise from vendors and inexperienced agents, but we promise it’s worth your time. Do this for yourself before paying an agent thousands of dollars to sell one of your most valuable assets, or signing a mortgage for hundreds of thousands of dollars that spans the next 30 years of your life.

Don’t just go with the first person you hear from. The automation that likely drove the speediness of that response will not replace the real value of an experienced real estate agent. The real value comes from the years of experience that are used to guide you through the real estate transaction process and maximize the potential of your investment.

The Limitations of Automation in Real Estate

Automation can sometimes be used to the consumer’s benefit, but the process itself is so complicated, granular, local, and personal. We’re not even close to tying all of the pieces together effectively in an automated way. Automation is still largely insufficient given the large amounts of money at stake and the magnitude of the decisions.

You need to know if the area in which you’ll live, vacation or invest will increase in value over time. This process can be so granular that two neighboring buildings can have vastly different property values and sales hurdles based on factors that an algorithm may never consider – such as frequency of maintenance, zoning, and whether or not they have a doorman and a secure lobby. The process is complicated. There is still a human element to real estate that can’t be relegated to an algorithm.

A good real estate agent focuses on the quality of their customer’s experience over the number of their leads. They make their customers feel comfortable and heard as they guide them through the process. Speaking to a knowledgeable real estate agent about the market, the pros and cons of the decisions to be made, and what to expect along the way provides a level of comfort that no amount of automation can replace. No automation can really take you through that complicated process in an informed way. Neither can a hyped-up vendor or a bad or inexperienced agent.

In Conclusion

The growth in the Miami real estate market has created an opportunity for vendors and entrepreneurs to make money. Unfortunately, that doesn’t correlate to sustainable businesses that help consumers. Instead, a landscape has emerged where vendors prey on real estate agents and the consumers ultimately suffer through a lack of personalization and clarity. Vendors should exist to service-producing real estate agents, allowing those agents to add value to the end customer. Agents should leverage the available products and technology to the consumer’s ultimate advantage. The real estate industry has a ways to go to achieve a more symbiotic relationship between all parties.

0 What Is A Hotel Condo?

Posted on June 22, 2017 by Sean Greco

What is a hotel condo?

A hotel condo is a building that is legally a condominium but also has a short-term rental program that operates like a hotel. This entity has a front desk, and the rental program comes with full hotel management service. These buildings are often luxurious high-rises operated by big names like Ritz-Carlton and Hilton. Hotel condos give people the ability to enjoy a vacation home that can be effortlessly turned into a short-term rental investment when they are not using it.

Benefits of Hotel Condos

Luxury Living

Hotel condos can represent the ultimate in luxury living. Often being in great locations with resort style amenities, they can offer the perfect vacation experience. Your hotel condo could be enhanced by amenities such as rooftop pools, gyms, spas, bars, 5-star restaurants, the possibilities are endless. Hotel condos are often operated by the big names like Four Seasons, Ritz-Carlton, Hilton, Rosewood, Clarion, etc. This means more fun for you when you make the trips down, and more money in your pocket if you decide to take advantage of the rental program.

Income Generation

Hotel condos can act as vacation homes which are setup to generate income in your absence. While these purchases aren’t always investment driven, having the ability to rent out your property short-term and hassle-free creates a huge advantage for hotel condo owners. You get to benefit from the reputation, marketing, and operational expertise of the hotel business that is handling the rental portion. All you have to do is pay the management fees. Take a look at the numbers before you buy and make sure your ratio of income to expenses looks acceptable to you. If you are looking to save some money you can always consider renting the unit out yourself if that is something that your contract allows. This would allow you to forgo the high monthly maintenance and hotel rental program fees that are associated with running a resort-style facility.

Flexibility

The flexibility in many hotel condo arrangements can make it an attractive option in a variety of situations. One of the most popular options is to use the property as a vacation home while still profiting from its short-term rental while you aren’t using it. Many hotel condos allow you to rent the unit out on your own if you wish, so you could forgo participating in the rental program and save yourself those fees. You would, of course, have to be more involved in the rentals in this scenario, but it is still often a possibility.

Make sure that you diligently research both your hotel management company and your individual arrangement to understand the rules regarding your ability to short-term rent independently. Find out exactly what you would be missing out on if you forgo the rental program. Try to project – would you make more rental income (even after the fees) by capitalizing on the brand name, sophisticated reservation technology, and operational expertise of the hotel management company? If so, is the extra money worth the added time investment from you which will be necessary to handle the rental portion yourself? You have to evaluate what is right for your situation. Another option is to just use your hotel condo as a vacation home and not rent it out at all. This property is not a timeshare, so you retain true ownership of real estate.

Low Time Investment

By far one of the biggest benefits of hotel condo ownership, if you should chose to participate in the associated rental program, is the worry-free role you are left in as the owner. The on-site management company and operator of the rental program take care of everything associated with the upkeep and rental of your property. As the owner, you never have to deal with tenants, maintenance, scheduling, payment or any of those things which can so easily become a headache for independent short term property renters. They also provide all of the services hotel guests are accustomed to, such as housekeeping, room service, concierge, etc. Hotel condos can truly offer hassle-free vacation home ownership. It’s an investment that you can personally benefit from while not having to invest a lot of time into it otherwise.

If you are thinking about purchasing a hotel condo, the best time to buy is in the early stages of pre-construction. This is when prices are at their lowest, and you still have the best selection of units. As demand increases, selection decreases and prices increase. Many hotel condos sell out before the construction is even complete. If you have questions about hotel condos, in terms of buying, selling, or just in general, reach out to one of our knowledgeable agents. You should make sure you really understand this unique real estate product before making a move.

0 What Is A 1031 Exchange?

Posted on May 31, 2017 by Sean Greco

What Is A 1031 Exchange?

A 1031 exchange (also called a Starker or like-kind exchange) is the exchange of one business or investment for another. Most exchanges of this nature are taxable as sales, but if this section of the United States Internal Revenue Code applies, the tax on the capital gains can be deferred into the replacement entity. In other words, there would be no tax or limited tax due at the time of the exchange.

In effect, you can change the form of your investment without realizing capital gains. This means that your investment can continue to grow, tax-deferred. The most common application of a 1031 exchange is for real estate, but it can apply to other investment and business assets as well. As long as the money continues to be re-invested in a like-kind entity, the capital gains taxes can be deferred.

The simplest version of a 1031 exchange is a simultaneous exchange of investment assets. In 1979, the decision in the benchmark case Starker V United States expanded the coverage to include non-simultaneous real estate exchanges as well. This allows you to dispose of property and then subsequently acquire one or more like-kind replacement properties. The benefits of a 1031 exchange apply to these deferred exchanges so long as replacement property is identified within 45 days of closing, and acquired within 180 days of closing.

1031 Exchange Example:

To understand the power of a 1031 exchange, consider the following example:

An investor has a property that is going to bring in a $100,000 capital gain. When that property sells, say it incurs a combined tax liability of approximately $35,000. This is due to depreciation recapture, net investment income tax, federal capital gain tax, and state capital gain tax. This means that only $65,000 in net equity remains to reinvest in another property.

If the same investor chose to exchange investments rather than cashing out, they would benefit from the 1031 exchange which would make the capital gain tax deferrable. They would then be able to reinvest the entire gross equity of $100,000 in the replacement investment property.

1031 Exchange Rules and Requirements:

There are certain requirements in place that you must meet to be eligible for a 1031 Exchange:

Both the relinquished and replacement properties must be held primarily for investment or business purposes.

Personal residences cannot be exchanged. There are restrictions in place that determine eligibleity for personal property.

The properties exchanged must be of “like-kind”.

Like-kind is a key term here. It means that properties must be of the same nature and character, even if they differ in quality. Personal properties of a like class are like-kind properties. As an example, a truck and a car would not be considered like class. Personal property used predominantly in the United States and personal property used predominantly elsewhere are also not like-kind properties.

Real properties are generally of like-kind, regardless of whether the properties are improved or unimproved. A broad definition of real estate applies and includes land, commercial property, and residential property. However, just like with personal property, a real property within the United States and a real property outside the United States would not be like-kind.

Deferred exchanges must follow additional regulations:

If the exchange is going to be deferred, (that is the relinquished property is being sold before the replacement property is obtained), there are certain timing and process regulations that must be met in order for the transactions to qualify as a 1031 Exchange. The taxpayer must:

- Identify the property you are relinquishing for exchange before closing on its sale.
- Identify the replacement property within 45 days of closing.
- Acquire the replacement property within 180 days of closing.
- Use a qualified intermediary to facilitate the transaction. The intermediary must hold all the profits from the sale of the relinquished property, and then disburse those profits after closing on the replacement property.
- Properties must be “mutually dependent parts of an integrated transaction.” This is distinguished from the case of a taxpayer selling a property and using the proceeds to purchase another property, as this would be a taxable transaction.

Multiple properties can be identified as replacement properties in certain situations:

There are separate rules in place for this circumstance as well. These Regulations establish 3 different sets of rules that may be used to identify qualified replacement properties:

- 3 Property Rule – Up to 3 like-kind properties can be identified as replacement property without regard to the market values. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.
- 200% Rule – Any number of like-kind properties can be identified as replacement property so long as the aggregate value of the replacement properties does not exceed 200% of the value of the relinquished property. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.
- The 95% Rule – Any number of like-kind properties can be identified as replacement properties, but at least 95% of the properties identified must be purchased or the entire exchange is invalid.

1031 Exchange Exclusions:

Certain types of property exchanges are not eligible for Section 1031 treatment:

Dealers: If a property is being held for resale or as inventory by a dealer, it is not eligible for Section 1031 treatment. However, if a taxpayer is a dealer and also an investor, he or she can use Section 1031 on qualifying properties.
Primary Residences: Primary residences are not eligible for Section 1031 treatment because they are not investment or business properties.
Vacation homes: A vacation home can qualify as a 1031 Exchange, but only in certain circumstances. There are a series of rules and a safe harbor around this. Essentially, you cannot use your 1031 replacement as a primary residence for a number of years. For two years you have to rent the home out for at least 14 days and the amount of time you spend in the home also cannot exceed the greater of 14 days or 10% of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.

The IRS also outlines these additional exclusions:

Inventory or stock in trade
Stocks, bonds, or notes
Other securities or debt
Partnership interests
Certificates of trust

In Summary…

1031 Exchanges can provide huge benefits to taxpayers when understood and applied correctly. There is no limit to how many times you can do a 1031 exchange. This means the tax deferral can continue to roll over again and again. This allows you to avoid capital gain tax until you actually sell for cash many years later. At that point, hopefully, you will only have to pay one tax at a long term capital gain rate (currently 15%). If you have questions about how a 1031 exchange works or if you are wondering if your property may be eligible, reach out to one of our knowledgeable agents today.