MIAMI (ad)VICE

TO MICHELLE

Nice to hear from someone "on the ground", especially someone in the real estate industry.

I find it most interesting to hear that, in your experience, up to 50% of sales in the better Miami areas are to foreigners.  It serves to remind us, when trying to predict the future of Miami's property market, that a short Atlantic flight away are hundreds of millions of Europeans stuck with awful Christmas weather, just when Miami enjoys its best weather:  mild sunny winters.

But Miami doesn't need to rely on Europeans and Canadians to drive it's property market.  Once the US economy recovers, all those unfortunate Americans stuck in freezing northern climes will once again also be looking to buy southern coastal holiday homes.

That's looking at the top-end of the market only.  Millions of Americans will continue their immigration to the sunbelt to escape harsh northern weather, and they'll all need to either rent or buy.

TO REINVESTOR

Thanks for your post, and for the warning.  The article was very interesting, pointing out that more than 57% of all households in Miami are spending more than 30% of monthly income on servicing their mortgages.  The warning is that a large percentage of these households will go into foreclosure as a result of having to spend too much of their income paying off their mortgages.

Although the article was written recently, it covers 2009 data, and therefore explains clearly why so many foreclosed properties hit the market this year, and will continue to do so.

However, I see such information not so much as a warning than as an invitation to buy.

If Miami were not suffering so many foreclosures, and if the economy was in a much healthier shape (as it is in Texas and Kansas) then I woudn't be considering going there.  I'm not even considering Los Angeles (despite high foreclosure rates) simply because the property prices there are already creeping up.

I want to choose a city that is in very dire straits, and will continue to be for at least another year, since that's how long it'll take me to get my portfolio going.

Also, my tactic is not to choose a city that's doing well, or already in recovery.  More important (I believe) is to find a city that was booming before, and is out for the count now.  If it boomed before, it should do so again.

Here is an interesting graph showing Miami's unemployment rate for the past 20 years:
http://www.deptofnumbers.com/unemployment/florida/miami/

You can see that before the recession, Miami's unemployment was 3%, a lot below the current 12.8%!

Compare this graph to that of Detroit's:
http://www.deptofnumbers.com/unemployment/michigan/detroit/

Detroit's unemployment before the Global F. C. was about 8%.

TO COSTA

I also looked extensively into the Tampa market, for 2 reasons: firstly because Tampa statistics are included in the Case-Shiller top 20 cities monthly reports, and secondly because I lived in Tampa back in 1988 as an 18 year old undergraduate student of the University of South Florida.

Tampa is certainly a viable option.  It's difficult to say exactly why my roving eye moved on from there, and finally settled on Miami (basically, I spent about a week researching Detroit on Trulia.com, then got worried about the future of that city, and spent the following week looking at Tampa, but then finally decided on Miami). 

I think the reason for settling on Miami was because that city is more famous, is the state capital, has more tourism potential, and also because it has more natural beauty than Tampa. 

Tampa, however, has cheaper property, similarly high foreclosure rates, and as you mentioned, less crime. 

Let me know what areas you're looking at, and I'll tell you if I ever visited there (I used to live in Temple Terrace, which is a very beautiful suburb, but foreclosures might be hard to find there).

TO GIBBO

I'm not an Aussie, but sure wish I was one, since your currency and economy are powering along.

I'm using Chinese RMB to buy property, which is an undervalued currency (by about 40%), and is linked to the US$.  So when the dollar goes down, our already undervalued RMB goes down as well.  Very annoying.

If I were to leave all my RMB in China, I'll definitely earn at least 40% return over the coming 10 years as the currency rises.  However, I believe that 40% return isn't anything like what I could get in the US property market.

Here's an example of what US$100K would do if left in China invested in the already very expensive property market:

$100K buys $300K of property (33% downpayment), which might increase 20% over the next 5 years = $360K
Your monthly mortgage payments will be $1,300 but you'll only get $570 in rent, so you'll lose $730 every month
Which is a total loss of $44,000 over 5 years
If you sell for $360K, then pay back the $200K you borrowed, minus the $44K you lost, you're left with $116K
That's only a 16% return.
But if the RMB increases 20% (which is probably the maximum the government will allow) you'll have $139K
Ie. a total return of 39% in 5 years (not bad, but not stellar)

The same $100K invested in the US for 5 years would also buy you $300K of property (33% downpayment)
Which I believe will at least double in price in 5 years (I believe US property prices will more more than double in the next 10years, but anyone who buys discounted REO houses can definitely see a doubling of price in just 5 years)
So the $300K will increase to $600K
Your rental return will pay your mortgage, HEO fees and property taxes, and you might even have a bit of profit left over.
If you sell for $600K, then pay back the $200K you borrowed, you're left with $400K
That's a 400% return on your investment.

I KNOW ANYONE READING THIS IS THINKING THE ABOVE IS ALL JUST HYPOTHETICAL

And it may well be.
Anything could happen.  Al-Qaeda might take over Washington DC and impose Sharia Law.  The Chinese might invade and install a puppet communist government and outlaw private property ownership.  Global warming might cause sea levels to rise so high that Florida disappears.

But I'm banking on the status quo, that America pulls itself together and returns to the path that made it the richest country on the planet for the past century.

Also, I'd like to mention that the profit predictions I calculated above are exactly the same I made here in China 6 years ago when I saw my Shanghai apartment price begin to rise.

Unlike all my neighbours, who suddenly felt much richer and started taking more overseas vacations, I sold my apartment (just 8 months after buying it) and bought 2 more, and so on and so on and so on…

TO JAMES

Thanks for bringing up this worrying issue of property taxes.  I also find US property taxes to be extortionate, especially considering that here in China there are NO property taxes and NO rates!

But I doubt that property taxes will ultimately affect the upward potential of property prices, simply because everybody is equally subjected to them.  It's a bit like HOA fees for condos and townhouses.  People don't shun these kinds of properties just because of HOA fees.

One way that property taxes might affect home prices is if one region or city is taxing more highly than others.  I found this to be the case in Detroit, and that's why I stopped considering buying property there.

I think one needs to always keep property prices in mind when buying.  For example, my instinct tells me to buy older, badly cared for properties that are in nice areas.  The lower purchasing price should mean lower property taxes.  Then fix up the property, rent it out, and when it eventually sells for a high price the buyer will be the one paying high property taxes.

Hi, hope your all having/have had a great weekend

I'm exhausted after surfing today.  Hainan is getting the weirdest weather.  If you've followed my previous posts you'll know we suffered the worst floods in 50 years about 2 weeks ago.  Now it's HAPPENING AGAIN!  Hopefully we won't lose power/internet and get cut off from the outside world like last time.  The only upside is the swell is huge, coming in from the northeast like steam trains.  I'm seriously beginning to wonder if the earth's weather isn't changing due to global warming.

It was nice to get out of the house today, and away from my computer screen.  I've been putting in way too many hours applying for mortgages in Miami, and following (and trying to decipher the consequences of) the Foreclosure Fiasco (otherwise known as the Foreclosure Moratorium).

If you haven't been following the Foreclosure Fiasco, it is simply that all the big banks have been caught rushing through the paperwork on foreclosures for the past few years, in a process now referred to as robo-signing.

Actually, when I first started looking into the US market about 3 months ago I was already reading random reports of lawyers claiming that some or other bank had no right to kick some or other  homeowner out of his house because actually THE BANK TRYING TO KICK THEM OUT DIDN'T EVEN OWN THE MORTGAGE, even though that was the bank that the homeowner applied for his mortgage through.

What happened at the height of the bubble in 2004/2005 was this: banks lent so much money to buyers at such a high speed that they would have had no more money to lend out if they didn't come up with a plan.  And that plan came knocking on their doors in the form of Wall Street, which promised to buy their mortgages off them.  Wall Street then sliced the mortgages up into little slivers and glued these slivers together (called re-packaging) and sold these toxic securities to unsuspecting investors (including the government of Iceland, which is why that country went bankrupt in 2008).  The banks then took the money they got from Wall Street and lent it to new homebuyers, and then sold these new mortgages on Wall Street etc. etc.

5 years down the road, the result is that the bank who gave Mr X his mortgage isn't actually the owner of that mortgage anymore.  The problem is, the bank doesn't even know who now owns the mortgage, since little slivers of Mr X's mortgage were sold to different people/institutions/governments.  The banks have been "banking" on the fact that all the Mr Xs don't realise this fact, and have been kicking all the Mr Xs out of their homes by faking signatures of the people who supposedly own the mortgages.

Unfortunately for the banks, some savvy lawyers started seeing through the trick a while back, and have been successfully suing banks for fraud on behalf of their clients (the homeowners who haven't been paying their mortgages).   This has been happening for months in a happy equilibrium, because the homeowners tend to win the case and keep their homes because the banks just want to settle quickly and quietly, happy to just pay off one Mr X so long as the other million Mr X's don't cotton on to the fraud being committed by the banks.

But inevitably, the problem started to snowball about a month ago, as the stories being told by these savvy lenders started being covered more and more by the media.  Now the problem has got so big that all the big banks have stopped foreclosing on homes, and have stopped trying to sell homes that have already gone through the foreclosure courts.  The banks are too scared to sell these homes for fear of being sued by all the Mr X's who're now watching CNN and phoning their lawyers to see if there isn't a quick buck to be made by suing the bank that foreclosed on them.

I must post this now because my 2 year old son needs attention.