Nothing Good Lasts Forever

Like everything else in life, this too will come to a miserable end. These prices cannot be sustained because eventually those who get their rental will fall behind and withhold on the rent, leaving the landlord holding the bag. When the rent is missed, which is becoming a near inevitability, and funds go out to eviction attorneys, the banks will come a calling. And then the foreclosure crisis starts all over again.

Most investors share the rationale that they will simply cash in on the high rents for as long as they can and then just dump the property before the market crashes. But that is a plan for monkeys, because nobody knows when that is going to happen.

What are the Options?

We can correct this before it is too late, but everyone needs to be onboard with the plan. Rents must be lowered to a more reasonable amount that landlords know the tenant can afford based on their income. The days of 10 percent-plus returns on your investments are over. Landlords have to stop thinking of South Florida rental real estate as a safe investment based only on that fact. Your only recourse is to invest in real estate with the hope of a return in terms of appreciation, but that takes time, and unfortunately, most investors down here are not only inexperienced, they’re impatient. Instant gratification only works with donuts and ice cream, not real estate and stocks. So, if you’re an investor and you’re hedging your bets on the appreciation of an overpriced property, you’re heading for a big fall. That is what’s happening in the Miami condo market as I write this blog.

An investor’s safest bet is a single-family home in the gated suburbs that’s purchased and will rent for a reasonable price until the home appreciates enough for you to sell at a profit, which typically takes at least five years. The quick flip is not only dangerous, but usually an ill-conceived project taken on by a novice who watches way too much HGTV. Remember, all it takes is a couple of down months to ruin the average investor who has to cover all the expenses involved in a rental property. Those include mortgage payments, HOA dues, taxes, insurance, repairs and every day maintenance like grass cutting.

A healthy rental market is not one that is driven by quick contracts and high turnover, but rather one driven by renters who remain in a property for long periods of time, paying the rent until the property has appreciated enough to sell. The idea here is quality, not quantity. Hopefully, by then you will have made enough money on the sale to cover your capital gains tax – and everybody pays that to Uncle Sam, even foreign buyers. I cannot say when and if any of this is going to change, but I wish that there was some semblance of normalcy in the rental market so that I could confidently take a client out to see a home without worrying about whether he even has a shot at it.

Morris Massre is a Realtor with Berkshire Hathaway HomeServices Florida Realty. He can be contacted at:
Phone: 954-214-6014
Email: agentsunstate@gmail.com
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