Miami property - take it or leave it?

Recently I made the visits to Orlando and Miami in a hope to snatch a cheap unit, however the price has soared up to 25% in Miami. The ones in Orlando is still cheap but the growth rate is not on par with Miami.


Seeing all the new developments, personally I am optimistic about the growth in Miami, but factors like tax issue, flaky realtors, the cost of flying to Miami (when things go wrong) are concerning to me.


I am especially concerned about the tax and legal issues plus cost. For those of you who have invested in US. Is it worth to go ahead with the investment for the property of 100,000~300,000 USD with the rental yield 4~5%, and growth rate 1%~6% (conservatively)? ( Sorry it's hard to be specific on each unit)


My friends who have done so are US citizens and need to fly back to US for family anyway. If you have invested in US, I'd appreciate your input.

Leave it, I reckon.


If you are going to buy in America, look for a property where you will not be car dependent. I don't think that will work well in most parts of Miami.


That's my personal view, so feel free to disagree

I have two friends who purchased in Orlando a few years ago. One purchased a single unit in a development and the other purchased five (I think) single family homes in partnership with some friends. Both are extremely happy with their investments.


I looked at it but got put off by the difficulty in managing something in a distant and unfamiliar city without being ripped off and the horrors of the US tax regime.

I am a Floridian and own rental property in Florida - I do not recommend buying into the Florida market. Florida was one of the worst hit parts of the USA and its property prices are already back to near all-time highs. Prices are up around 30% from last year alone. Rental yields are in the 5-6% range which is acceptable, but I expect rents to drop as the economy of the USA goes permanently down thesh*tter. I am working on slowly selling my properties and getting out of US real estate.


For example on how bubblicious FL (and US in general) property already is - I recently sold one property at all-time highs to a Canadian who is using a US-government subsidized 96.5% LTV mortgage. They are levered 30:1 on this property thanks to Uncle Sam. Properties in DC, CA, NY all invite massive bidding wars, with some plain properties receiving upwards of 150 bids and settling at 2x asking price. Its really getting completely stupid.


Miami prices were always a bubble and are a bubble again. Condos are empty, always will be empty, and are pushed up in price by Venezuelans and Brazilians. Miami is to VZ & BR what HK is to mainland China.


Don't fall into the hype about Miami and Orlando condos. Historically they were bubbles and they still are today.


Another thing about buying property is that you are putting a giant bullseye on your head to the local government saying "come tax me." Most US state and city governments are broke beyond belief and they are unable to tap financing anymore. They are going to start cutting services and raising taxes - these are not going to be pleasant places to live. As a foreigner you will really feel it the worst because you can't vote - first people to get taxed will be condo owners because everyone knows they are investors / foreigners. You'll be paying money out the wazzoo so us lazy Americans can keep living the good life.


Finally you need to realize that in the USA you cannot easily evict deadbeat tenants. Once the tenant is in it becomes near impossible to kick them out. They could never pay even 1 day of rent and yet you'll have to take them to court (at your own $$$$$ expense) and go through ~3-6 months of legal wrangling to get them out. Huge losses. If you are going to rent to a tenant you better be super picky and only allow the most wealthy ones in. If you are targeting middle class or worse then you are at risk.

As for the walkability thing, Americans historically place zero value towards cities that do not require cars. I would not expect that to ever change.


However there are long term cycles in which Americans prefer different parts of a city over others. For example in NYC in early 1900s everyone wanted to move out of the city to the suburbs. Then a few decades later everyone moved back to the city and the suburbs became dangerous ghettos. Then people left the city for really distant suburbs and both the NYC boroughs & Manhattan became cracktowns. In 80s people started moving back onto Manhattan and in the 00s they started moving back into the boroughs.


I think none of those trends have anything to do with walkability or transportation. Rich people move away from the riff-raff, but over a few decades the riff-raff follows them. Eventually the rich look around town and say "hey this ain't so great anymore" and they move elsewhere.

Thanks very much for your input. It seems that general consensus is to leave it then.. and if so.. (perhaps I need to create a different forum) where else can we invest the property then?!


Incidentally My friends and their family and relatives (all US citizens) bought 15 + properties in Orlando in 2011/2012 and are also extremely happy with their investments as they got them when they were dirt cheap.

Thanks for that intelligent and detail comment, Lucane.

I fully agree.


Do you happen to have an opinion on Charlotte or Asheville, NC ?


For those who are not familiar with it, Charlotte is now the no.2 financial center in the USA.

OTP,


I unfortunately do not know much about NC other than that BofA is HQ'ed there (and that BofA is an immensely lousy bank).


If I were forced to purchase property in the USA then I'd probably look at Texas or one of the Dakotas. Areas like NYC/CA/FL/AZ might jump up 2x+ in a short while, but I suspect they'll plummet to even deeper lows very soon after. A state like Texas has a much more reasonable rule of law, low taxation, long term historical growth, growing population and the strength to tell the US Federal Government to F' off. Other states do not have the economic independence that Texas does (and historically always has... for centuries).


The USA has been in a recession / depression since 2007 (the GDP is fictitious) and will not be able to pull itself out. Regulation is ungodly, the tax system is incomprehensible and the people continue to beg for more government control. These are decades' long trends that I think are impossible to reverse - the American culture has changed dramatically from what people incorrectly think it is. The country is about socialism for the poor + middle class and fascism for the rich. If you think this is a recipe for long term growth and prosperity then go invest in the USA.


As overpriced as HK property is, I'd rather purchase it at the peak rather than purchase USA property at lows (which it is certainly no longer at lows - in some cases it is back at all time highs [like two of my FL properties]). USA carries far too much political and financial risk (especially for foreign investors). Having said that, it will not at all surprise me if USA property doubles or triples in a few years (and then plummets deeply after that).


US property is a highly levered asset. Standard US mortgage is 80% LTV and thus levered 4:1. But now since Americans are broke poor the government has stepped in to offer bogus 96.5% LTV loans and thus everyone is levering up 30:1 to buy a house now. And even with investors stepping in with 30:1 leverage the housing price is still relatively low (compared to Asia... which I'm not sure its relevant to compare with). Imagine what housing prices will look like if loan standards ever go back to normal levels??


In summary, my blanket views on US property:


- Huge unseen political risk

- Huge financial risk (property in US is highly levered asset... do you like investing in highly levered assets?)

- Huge taxation risk on city, state and federal level (foreign investors will be easy scapegoats)

- Risk of future capital controls (big monetary shakeup on its way)

- The Federal government has been on a 80+ year path of increasing state control. Do you like investing in heavily regulated and state controlled markets, or do you like investing in free / opening markets?

- Rental investment income is very dangerous because there are a trillion laws that you do not know about that all strongly favor the tenant at the landlord's expense. You'll find it generally impossible to evict deadbeat tenants (and you might spend 20k USD in legal fees along the way)

- Rental market is also experiencing falling rents because every rich guy in America is buying 50 properties and trying to rent them all out. Big vacancy rates and falling rental prices. Firms like Blackstone are purchasing tens if not hundreds of thousands of middle-income properties all across America and renting them out. Gonna be hard to compete with them and their management team.


In short, as an American I am not buying any new property and I'm slowly working to offload my own property.

Thanks for your list of cautions.


I agree with nearly all of them - and have become cautious on US property too, despite my previous intentions to invest there.


What America needs now is a strong leader, who really has the interests of his countrymen at heart - that is not Obama, who is a puppet of corporate interests, with various scary socialist agendas also operating in the background.


America has not seen a leader like that since Kennedy. And look what happened to him when he took on entrenched elites. These sorts of leaders are pretty rare, and only one major country has one right now. And that is Russia.


This Point of View may be controversial to some, especially those who rely on the Mainstream Misleadia for all their news (they are spinning to you!). But if you want to understand why:


+ Look at the special report, Putin's War on Corruption, in today's SCMP, and/or


+ The videos and articles here:

xx

Don't forget also that the management fees are apparently very for US condos - much higher than we are used to in HK. Lucane, can you confirm?

Yes, condo association fees can vary greatly. Another thing to worry about is what happens to your condo association fees if your condo building becomes vacant. When bankruptcies / foreclosures occur and there is dispute over title to the individual units, those units will likely not be paying condo association fees. The condo board can then require that all remaining paying members make-up the missing condo fees. So if the association fee is X this year, it can go much higher than X if another wave of foreclosures occurs. Not saying it will happen, but be aware of this. Also any major structural maintenance will be paid for by the condo owners on a pro-rata basis.


Another thing is that banks generally won't lend to condos that are less than 50% occupied (because of fear of crippling condo association fees on the remaining few tenants). Since many of these condo prices are juiced by major leverage, prices will plummet in buildings that lose 50%+ occupancy.


I don't want to make it sound like condos are garbage or something, but there are many considerations that you must take into account.

R, says:


"Don't forget also that the management fees are apparently very for US condos "


Also look into the Real Estate taxes - in someplace like NY or NJ, they can come to maybe 1/3 of the Rent you receive.

I forgot to mention that the landlord must also pay sales tax in Florida on his rent. FL state sales tax is 6% but most cities tack on an additional city sales tax, so the overall sales tax can reach 7.5%. Essentially your first month of rent belongs to the state. Also real estate agents in the US charge 7% and it is generally non-negotiable except for removing 50bps. The price is basically industry fixed and is protected by the realtors association. In some states like NY it is legally mandated that you hire a lawyer for all property transactions, so that can eat up a few more percent.


There are many unseen dangers with the US government. I will use two personal stories to illustrate:


Years ago I had a vacant commercial property and was not paying sales / income tax on it (no revenue). Neighboring commercial property asked if they could park their vehicles in my parking lot, I said no problem. About one month later I received a formal letter from the city government stating that it sees that my property is active again and is looking for missing income taxes.


More recently I leased out a commercial property and they did renovations to prepare for their new retail store. Many months later I received a new letter from the county tax assessor stating that I must pay taxes on the value added of the property my tenant placed inside my building. The county tax man wanted a detailed list of all shelving, cabinets, fixtures, etc that my tenant added and wanted ME to pay tax on it! Of course to make matters worse the letter was dated months earlier, the tax due date was only weeks away, and to top it all off the county tax assessor's website was inaccessible from Hong Kong (I had to use a US based VPN to access the website to download the forms to file the taxes).


The city and county governments actually hire goons to drive around all day looking for property activity. Whenever they notice a change in any activity they will send out threatening letters demanding taxes. Sometimes these letters are not even legally binding - they use clever legal wording to make it appear that you must pay / disclose information to them, but sometimes you actually do not have to. Only with a lawyer in the family am I able to avoid paying some of these requests. If you don't have a competent lawyer friend to work for you for free, you will be either paying for one or paying the taxes (that you legally might not even have to pay). Of course hiring a good lawyer is at least 5k USD so most everyone just pays the taxes. It's like being perpetually shaken down by the mafia.


The biggest danger with US property is all of the unknowns involved pertaining to the corrupt government. The absurdity of the government is nearly fully hidden from the mass populace and is instead burdened by business owners / investors / large property owners. Only expect things to get much, much worse.

L., your:

"The absurdity of the government is nearly fully hidden from the mass populace and is instead burdened by business owners / investors / large property owners. Only expect things to get much, much worse."

= =


Good point.

The Democrats now have enough votes to keep soaking the small business owners, while Big Business buys congress and extracts favors. Being a businessman in America is a very thankless task.

OTP,


It is not simply a thankless task - it actively is a vilified task. It is not a complete lack of respect for business but a culture in which the majority of the people think that business is evil and must be managed by the state. This is not a new trend in the USA but rather one that has been building for generations. I see a less than zero chance of it reversing itself - cultures do not do 180's.


The US bluntly is a duel system of socialism and fascism, as you hinted at. The lower & middle income belong in the socialist economy (free school, free welfare, free medicare, free social security, free food stamps, free unemployment for years, free housing subsidies, free healthcare subsidies, innumerable tax exemptions, etc) and the uber elite are all in a fascist system (farm subsidies, oil subsidies, bank bailouts). If you are a businessman with a net worth in the 1-50 million USD range, you are going to shoulder the burdens of an entire nation of spiteful freeloaders and crony-capitalists.


This is why small-time landlords in the US get screwed over. The entire legal system is designed to protect the tenant (no matter how big of a deadbeat they are) and the taxation system is designed to extract all value of your property for the good of the state (they even declare that rental income is "unearned" income - as if you don't deserve it). The anti-discrimination laws can also trip you up big time because there are innumerable questions that you cannot ask and innumerable tenant qualifications you cannot declare in an ad.


These are long term trends the USA has been undergoing for generations. However it is only now that the US is truly struggling to finance its massive government - the coffers are long since drained and the foreign creditors are going away. Bernanke can't save the local & state governments since he is so busy trying to keep the Federal government from exploding - these governments are going to get grabby like we've never seen before.


I'll state again that buying property in the US (or Europe) is like putting a giant bullseye on your head saying "tax the hell out of me."

Lucane01 - A very well writte post.


One thing I am really looking forward to is dropping out of the US tax system when I retire.

L, your last part:

"I'll state again that buying property in the US (or Europe) is like putting a giant bullseye on your head saying "tax the hell out of me."


US Property, for an OWNER OCCUPIER, is a different matter.


And things are Not so bad in the UK... at least for the time being.


Where else to look, if outside HK?

OTP,


You are correct - the owner occupier rarely gets touched.


I also want to clarify that for FL the sales tax is only on commercial property rental, not for residential (another exemption designed to disguise the burden of the state from the common folk).


Does anyone have any knowledge of property or property rights in Africa? Most of the continent is a basketcase but a few countries have prospects.