MiamiRealEstateKing

Miami Real Estate – 5 Years Ago and Today

In real estate on September 21, 2011 at 2:18 pm

For all the doom and gloom of an economy that refuses to get back on a growth track, be it as a result of a poor economic environment inherited from others or as the result of poor policy decisions or execution or a combination of a lot of factors, real estate is doing much better in Miami. However, the situation is fragile and on the brink.

Don’t believe it? Just take a look at the following glimpse of an era gone wild…

Below is a chart depicting our progress over the last 5 years:

I mean…can you see a time when there were over 40,000 properties for sale in Miami-Dade while maybe 1000 buyers and sellers were closing a deal? A time when inventory levels were so high that, even if no other property came up for sale, it might have taken over 6 years to get rid of existing inventories?

Now, by all indications, we have about the same number of properties for sale as we had 5 years ago in August, 2006 (just shy of 20,000 units). Also, the number of new listings in August, 2011 is down some 27% from the number of new listings that came to market on August, 2006.

In addition, last month (8/2011), Miami-Dade saw a 21.3% improvement on the number of properties for sale as compared to 8/2006. More impresive still, Miami-Dade has seen a 55% boost to the number of properties under contract (Pending Sales – a forward indicator of closings to come), in 8/2008 as compared to 8/2006.

Below is the trend for the past 3 years…

Yet, as shown in the graph below, in spite of all this progress, the last 12 months have been nothing short of bland. Yes, inventory levels in Miami-Dade have declined over 37% between Aug/2010 and Aug/2011, as have New Listings (down almost 18% in the same period).

However, inventory levels between July/2011 and Aug./2011 dropped only a dismal 2.2%, while New Listings grew almost 13% in the same period.

By the same token, we can see that there was a meager 1.4% improvement in the level of Closed Sales (Sold), between Aug./2010 and Aug./2011 while enjoying a much weaker 16.5% increase in the number of Pending Sales (properties under contract), in the same period.

Add insult to injury when we notice a 2% drop in Closed Sales between July/2011 and August/2011, coupled with a meak 7.8% increase in Pending Sales between July and August, 2011. Most certainly, not the trend we need.

So, where are the opportunities in Miami-Dade county? Are they in buying Single Family Houses, Condos or Townhomes or are they in Multi-Family housing like duplex, triplex or fourplex?

The charts below depict the trends for each of these property types. As follows:

Single Family Houses (SFH)

Condo units and Townhomes

Multi-Family (all types)

As you can see from the above charts, it seems that special attention is beginning to turn to the Multi-Family housing sector and for good reason. After all, other than financing, I feel here’s where an owner can truly leverage him/herself.

So, I wonder, is owning a duplex (2-family unit), better than owning a triplex (3-families) or a fourplex (4 families)? For the small investor or anyone looking to leverage him-herself, this form of ownership in my opinion, is well worth exploring.

One reason I advise would-be investors (especially those who intend to hold on to their properties), to consider owning multi-family instead of buying individual condo, townhouse or SFH units, is that when a tenant moves out, your vacancy level is greatly affected.

An empty house or condo means 100% vacancy. An empty unit in a duplex represents a 50% vacancy, while the other half of that duplex may be either covering debt-service or greatly contributing towards it while minimizing costs during this vacancy period.

So, let’s take a look at the charts below and see how each of these residential multi-family unit types have performed during the past 12 months.

Duplex

Triplex

Fourplex

The top performer among these is by far, the fourplex. I mean…a 900% improvement in the number of fourplex units closed (even if the actual number was 9 more buildings sold than there were in the same period in the previous year), this is a great improvement.

In general, as an investor I would much rather prefer to spread my risk. The likelyhood of having more than one tenant move out at the same time means that it is highly unlikely to have more than 2 tenants or a 50% vacancy at any time. It is more likely to have one tenant move out at any given time, reducing your vacancy to only 25% (a 75% occupancy). This leverages the investor and insulates him/her more than most other property types.

Obviously, when one owns larger buildings of say, 6, 12 or more units, the management becomes more intensive and it will start to feel more like a business. At the same time, there are economies of scale that come to play a part. So, it is no wonder that multi-family sales seem to be outpacing the rest of the the sales in Miami-Dade. They can help build capital through appreciation, generate income from rents (one condo unit may yield $300/mo or more while a fourplex may yield $800 or more every month), reduce the income loss through lower vacancy rates and more.

In my next issue, I will examine how properties in Miami Beach are doing as compared to the rest of Miami-Dade.

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Questions, Comments, Opinions? Go ahead…you are welcomed to share them.

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