Miami Condo Fiasco

Comment from Chris
Time: November 10, 2007, 11:52 am

I guess the only concern I would have is the assumption you can sell the unit for $400,000 dollars in 2014.

I think you need to think about what kind of buyer is looking to live in a 860 sq foot, 1 bed, 1 bath.

Its a single person in their 20’s, and they won’t be able to afford that amount.

In the end the price will reflect what people can afford based on income since the bubble has burst and the psycology has changed people no longer pay outrageous prices betting on turning a profit. Even after the market recovers, I think we will see about 200 dollars a sq foot, maybe even 250 in a prime location.

assuming the 250 a square foot in 2014 you will be able to sell the place for $215,000 dollars.

Add on 6% real estate commision you will bring in only 200,000.

You will lose $130,000 dollars in this scenario.

The choice you have to make really depends on how far you think prices will drop and how much they will recover by 2014. I do think that selling it for 400,000 is very unrealistic.

How much money would someone need to make in 2014 to qualify for a 400,000 dollar mortgage + taxes + association fee’s
__________________________________________________

Term of the Loan: 30 years | Interest Rate: 7 % | Loan Amount: $ 400000

1. Housing ratio of 28 %

Required Monthly Income: $ 12,182.87

2. Debt ratio of 36 %

Required Monthly Income: $ 10,586.67

Monthly Mortgage Payments: $ 2,661.20

TOTAL YEARLY INCOME REQUIRED: $127,000 a year to meet the 36% D/I Ratio.

I just can’t see someone who makes that kind of money wanting to live in 860 sq foot condo. Do you disagree?

Comment from admin
Time: November 10, 2007, 1:14 pm

All valid points.

Comment from Bob Kelly
Time: November 11, 2007, 1:30 am

What is included in “Expenses” of $4,800? You need to add homeowner’s/landlord’s insurance, if it is not covered already.

You’ve built in very large rent increases: 7-12% per year. Rents are rising that fast in Seattle currently - I’ve no idea about Miami, of course. I would plan on 2% increases over the long term.

You haven’t calculated the tax benefit, which will be considerable. Calculate that as follows:

+$14,400 (rent)
-$15,689 (interest)
-$5,000 (property tax)
-$4,800 (expenses?)
-$11,636 (depreciation: $320,000 / 27.5)
======
$22,725

This amount comes off your gross adjusted income. If your gross adjusted income is below $100,000, you can take up to $25,000 in passive real estate losses. So the value of the $22,725 loss depends on your tax bracket. Let’s say…25%? Then your out-of-pocket loss is reduced by $5,681 per year.

I would not make this investment if you are going to have large out-of-pocket losses each year. It makes no sense to spend tens of thousands to protect the $70,000. You should rather put those tens of thousands towards a better investment. I would only go forward if you could reduce the purchase price enough to bring the out-of-pocket loss to near zero.

Comment from miamicrash
Time: November 15, 2007, 5:20 am

Hey buddy,

Long time no check blog. If you ever try that commentor’s suggestion of telling the Related Group to lower the price, let me know if it works!

But there may be a more realistic option. I cant do this because Im not such an enterprising creative person. But, heres the idea:

The collapsing dollar is fast making US investments great deals. Dont you think a British person (whose 1 pound coin = 2 dollars 10 cents) would love to own a great piece of Miami? I mean these units are actually very nice, and situated in a very nice place. Anyway, I think you shoudl somehow advertise it in the UK, I think you are a bright guy and I think if anyone could make this work, you could. Give it a shot and please let me know if theres any luck!!!

-Miamicrash

Comment from Esteban Len
Time: November 16, 2007, 3:02 pm

I passed by yesterday night with a group of 10 friends going to blue martini at mary brickell village and saw PLAZA at Brickell. We saw a light on top of one of the 2 towers, it looked amazing!!! it is looking to be one of the hottest spots to live in Brickell. 5 of the 10 persons are planning to go and rent in this building, some of them to buy 1 beds at 250’s.

Once more people pass by and see the building fully openning, and the lights on top from yards away.. units will go fast !!.

I recommend everyone to rent their units in that building and hold them, the good is still to come very soon!

dwntwn.com

in 2009 everything will start to stable.

Comment from Chris
Time: November 30, 2007, 8:42 am

I miss the website and the posts.

Will you be writing again?

Comment from nick
Time: December 8, 2007, 9:49 am

You didn’t include the time value of money. That 70,000 initial deposit you could have put in a riskfree CD yielding 5%. Its not just the 70k you lost but the money you could have earned. Thats going to be roughly another 30k!

Comment from Toby
Time: January 3, 2008, 4:48 pm

Hire an attorney. Surely there will be some out or negotiated settlement. You should be able to get most of your deposit back. Chalk the rest up as tuition to the School of Hard Knocks. Don’t throw good money after bad.

PS I agree that rental rates are unlikely to eclipse the rate of inflation.

Comment from russ
Time: January 7, 2008, 3:26 pm

Thanks for blogging:

your plan is foolish for hte reasons stated. The unit won’t sell for 400k, but may rent for $1200… geta grip. walk away.

Comment from Chris
Time: January 29, 2008, 9:27 am

Zach!

Please update your site and let us know what happened!!!!!

Comment from INTHESAMEBOAT
Time: April 24, 2008, 3:04 pm

what happend to the updates? did you close onthe property?

Comment from W.C. Varones
Time: May 13, 2008, 10:10 am

Don’t do it. Walk away.

Comment from W.C. Varones
Time: May 13, 2008, 10:27 am

Hope is not a plan.

Comment from One Ford Road
Time: June 30, 2008, 11:11 am

I agree. Walk away. Buying would be a foolish decision.

Amanda <3