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Hi Fellow Readers

Sorry for not posting for so long.  Have been wrapped up in my own life (ie. properties) here in Miami.

I've been living in Miami since January of last year.  It's been quite an experience so far.  We (myself, wife, and two toddlers) all have 6-month tourist visas, so we've had to leave the country twice so far (took short 2-week vacations).  Coming back through US immigration was quite stressful, but surprisingly uneventful: both times we were asked our reason for coming and for how long we intended to stay, and both times I said six months because of wanting to buy distressed properties.  The immigration officials thought that was a good idea, and stamped our passports accordingly.

Having been here for over a year now, I can say I've learnt a hell of a lot about this country, this city, its people, its problems, and even about myself.  However, this is not a forum about philosophy or politics, so I shall stick to property.

I waited half a year to finally get my hands on My Dream Property: a small house with big waterfrontage on the northern end of the island where Miami Beach is.  That long wait nearly drove us nuts, but it turned out the wait was worthwhile.  I took possession of the house on August 1, and was extremely busy thereafter.  I ploughed my way thru a hell of a long learning curve, incorporating foundations, sea walls, sewerage systems, roofing, landscaping, plumbing, tiling, flooring etc. etc.  I soon learnt that this country is nothing like China (where I would never get involved in renovations beyond signing contracts with companies).  Because of ridiculously high labor costs (compared to China), I had to buy a pick up truck, a hell of a lot of tools (including such electrical tools as a hammer drill, circular saw, cement mixer, pressure washer, tile cutter, makita, and jack hammer).  Admittedly, I didn't HAVE to learn how to do things on my own, but I figured it would be best if I did, considering my long-term goal of buying more than a dozen single-family homes.  Also, I surmised that only by getting personally involved in the renovations could I ascertain how hard a particular job was, and how much I ought to be paying should I decide to outsource.

I spent about 3 months making my Dream House habitable, while keeping an eye out for other properties.  I made several bids on other REOs during that time, but wasn't prepared to go higher than the highest bidder (each time I used the listing agent, so I knew what the highest bid was).  Finally I saw a property that I figured I could get for just 20% of its highest ever price ($700K), and just under half of its current value.  The reason the property was so cheap was largely because it had been uninhabited for several years (just like my Dream House) and was therefore in serious need of repair.

I've now been working on this property all day for two months (along with my faithful assistant Victor, from Cuba, whom I pay $90 in cash at the end of each day), and only now am I starting to see the light at the end of the tunnel.

I have also got an offer pending for a large (but not waterfront) home in Miami Beach (I offered $320K).  I expect to close next week.

Lessons:
1. Renovating in Miami is either very expensive (if you pay others) or very troublesome (if you do it yourself).  For this reason I have only purchased two homes in the past 15 months. 

2. REOs are currently very scarce (they have been since October 2010).  I'm no longer convinced that a tsunami of REOs is waiting out there, soon to hit the market.  The best bargains were back in 2010 when the banks were panic selling.  Right now they've already written off their losses (the REOs have been cleared off their books), so they're in no rush to offload cheap REOs.  I believe the market has bottomed, though I'm not sure it will head up soon or just continue to scrape along the bottom.

3. Dealing with Miami building department inspectors is enough to give you a heart attack.  Do NOT buy a house with any violations pending.  The inspectors will be circling like vultures.  This is the mistake I made on House No.2.

4. Building up a nice inventory of single-family homes takes a hell of a long time. This is why Warren Buffett said he'd love to buy several hundred thousand of them, if he just knew how to find them, and how to manage them.

5. Rental returns are very decent if you pay cash for your property (between 6% and 12%).  However, if you get a mortgage your lender will force you to buy all sorts of insurance (flood, wind, fire etc.) which can cut down your rental return by several percentage points.

My current plan is to just buy with cash.  This is probably a stupid idea, considering how low current prices are.  But my motives are purely egotistical.  I despise being at the mercy of US banks, which by extension puts me at the mercy of US insurance companies.  Therefore, I shall be returning to China at the end of April to sell a few properties, and then come back to Miami after the sweltering summer heat (ie. October) to buy a few more houses (cash only).

Hope this helps
Steve

I'm back in Shanghai, as of two weeks ago.  My reasons for returning were two-fold: my six-month US visa was up, and I want to sell some Chinese property and move the money into the Miami real estate market.

First some observations about Chinese property:
I can sell my small 2 bedroom Shanghai apartments in the Middle Ring for close to $500,000.  Shanghai is divided into 3 zones: the Inner Ring (downtown), Middle Ring (somewhat removed), and Outer Ring (the far-flung suburbs).  My friends in New York just sold their apartment (a spacious 3 bedroom, 2 bathroom) in a trendy neighborhood for $470,000.  Conclusion: Shanghai property is way higher than its New York counterparts. 
Prices of everything in China are shooting up.  People are much much wealthier on average than just a few years ago.  It seems that the reduction in the US middle class is the gain in the Chinese middle class.
I'm no longer of the opinion that the Renminbi is undervalued.  It's not going to rise any further.
Expect some serious inflation across the globe in the next decade.  The Chinese working class's average salary increased 22% last year.  Soon nobody is going to do factory work at low wages.  Everything that's Made In China must get more expensive.
Your average Shanghainese person is loaded with cash (as they are in Beijing, Tianjin, Guangzhou, Shenzhen, Fuzhou, Xiamen, Dalian, Wuhan, Chongqing, Changdu, and Nanning, to name just a few of China's monster cities).  If you're living anywhere that Chinese like to visit, expect property prices to keep their value, if not rise further.

Now on to Miami.
In the week before I left I was able to close on a third property (single-family home).   That means I now own 3 houses in Miami, none with a mortgage, so I can't advise on the ability of foreigners to get loans.

All three houses have been extremely easy to rent out.  I probably didn't ask enough, because each house went under contract within the first 48 hours of going on the MLS.

Here are the stats:
House 1: bought for $331K (2 bed/2 bath).  Spent about $50K to renovate.  Rented out for for $2,600 a month. 
House 2: bought for $120K (3/2).  Spent about $30K to renovate.  Rented out for $2K a month.

House 3: bought for $320 K (4/3). Doesn't need any renovations.  Rented out for $2,800. 
The property tax for all of the above houses is the same: about $500 a month ($6,000 a year).  I plan to get a lawyer to try to bring down the tax for House 2, because it's too high for the value.

Here are the rent returns after property tax has been paid:
H 1: 6.6%
H 2: 12%
H 3: 8.6%

The reason House 1 has a lower return is because it has a beautiful waterfront, which pushed up the buying price (the house is small and only has 2 bedrooms).  Renters won't pay a much higher premium for looking at the bay, but once I've added a bedroom I intend to sell the property for much more than $1 million, because buyers will appreciate waterfrontage more than renters will.

House 2 has a fantastic rent return because I took a huge chance on the house.  It had a lot of violations on it, which put off most buyers.  I had to do the entire renovation project under the nose of the city building inspectors, which was very stressful.  But in the end everything worked out perfectly, and the renovation costs and fines came in far under budget.  During the process I bitched and moaned (and got both angry and depressed at times) but now I have only good things to say about the Miami Building Department.  They aren't out to screw people.  They just want to make sure houses are as safe as possible, lest another super-hurricane hits (there was one about 18 years ago).

House 3 is an average house in a good area (Miami Beach) near to great schools.  It's the house that took the least effort (practically none).  It isn't in my nature to make such boring purchases, but my time was running out and I wanted to have the money invested instead of sitting around until I return to Miami.  Although House 3 is a solid investment and has a pretty good rent return, it is the house (in my opinion) that will increase in value the least.  I'm sure I will not sell Houses 1 and 2 for anything less than 3 times what I paid (including the renovations), but I will be happy to just double my money on House 3.

I should add that Houses 1 and 2 were REOs (foreclosures) bought from Bank of America, whereas House 3 was just a regular sale, bought from a divorcee who wanted to move on.  Another reason I went for the House 3 is because REOs were getting almost non-existent in the past year, at least in the few areas I was interested to buy in.

If you're in a rush, and don't have the time to wait for and renovate an REO, then you should consider that you will most likely end up buying a property with the same stats as House 3 (that's if you're buying in that price range). 

My plans for the future: spend 2 months in Shanghai selling a few condos, then fly to Sichuan province and drive up into Tibet for 3 months, by which time the hideous summer heat in both Miami and China will have passed, and then I'll return to Miami (with wife and kids) to buy a few more houses.  When the money has all been spent I might think about taking out mortgages on the Miami houses, so as to get cash to make further purchases.  The problem with mortgages are that the banks will charge a premium when lending to foreigners, and they'll demand that you purchase 3 kinds of insurance: Homeowners, Flood, and Wind, which come to a total of about $600 a month if you buy near Miami Beach.  After paying your property tax, your insurance and your mortgage (from the rent) you will be lucky to break even.   But then again, you'll own a lot more properties, so if the price doubles you'll make a hell of a lot more profit in the long run.