Posted by David Krulac on January 23, 2006 at 09:21:49:
I was familar with some investment groups that invested in Houston Condo in the late 1970s and 1980s. They invested with 50% down and 50% mortgages. Seemingly a pretty safe investment. However the market tanked so badly that the prices dropped MORE than 50% and the investment group faced with high vacancy rates, no buyers on the horizon and NEGATIVE equity in the project decided to walk away, losing of course their entire 50% equity and all the other money spent trying to keep things afloat.
Those who ingore history are detined to repeat it.
I have been looking at some units in the Miami South beach area. I have noticed that you can get some in existing hotels for around 150 - 200K. I had some questions about them.
I would be looking to rent to vacationers. Can these deals come with property managment that handles this? If so what is the average fee?
Does the property managment also handle the day to day cleaning of the unit or do you have to hire someone else?
Is there a way to find out the average vacancy rate of the unit from the management company? I don’t want to buy something that can not be filled on a regilar basis.
I have also seen some condos for sale about twice the price, are these a better investment for this idea or is it better to stay with the hotel units?
Vacation rentals are called “nightly rentals” eventhough those renting them may stay a week or two.
I own several nightly rental condos (not in Florida but that is irrelevent) and the vacation rental management companies typically take 40% off the top (it can be 50% in come areas) for nightly rentals. They charge 25% for monthly, and 10% for 12month lease.
Yes 40% is a large chunk, but the nightly rental rate is so much higher than the monthly that it can work. However, the real bugaboo in the process is the additional cost to you of the condo fees. These fees can break your profit.
As for Miami, if you are trying to buy pre-con as a speculator, listen to Robert. He really knows about what he speaks.
BTW, Robert I really loved your book. Just read it this week. Wow!
Does it bother you that the median priced home in Miami has fallen by 6.1% in the last 5 months while the inventory of homes on the market has increased by 82% during that same period of time?
I have read where 70% of the Miami condo buyers are speculators? Big number!
Any concern that there’s a train wreck on the way?
In addition to what you said I would also ask…does it matter to you that there are over 60,000 condos in the pipeline for the Miami area with a population of only 400,000…does it matter to you that there is a group there now with over 20,000,000 in the bank sitting and waiting for the collapse of the market and they will bargain basement buy.
My dad has been a real estate appraiser for ~25 years and he belives that there might be a slight fall, but not a train crash. Historically the price will stablize not drastically crash. With the rates still pretty low. It seems like an alright idea? Any more thoughts?
Was “death row” a Miami real estate crash? Assuming it was when did it happen and how bad was it? I live in Maryland and I have not seen anything that drastic in the last 25years. I am intrested
Posted by John Vosilla on January 22, 2006 at 23:52:42:
Robert not as sure on the 1970’s but apparently there was a downturn in 1973-74 and in 1980-81 in condos. Oversupply at least in the first period and much higher interest rates the second time out as Volcker took over… Not sure of percentages but heard of incredible discounting on units by developers. Now the late 1980’s to about 1992 I lived through it and 40%+ condo price decline occurred.
Most astounding condo bust that never recovered is in Houston that I’m aware of. Anyone can check MLS in Houston and see condos still selling for $10-20k that retailed in the $50k range before the oil bust. It happens time after time and will happen again as you well know…
