If you’re considering buying an investment property in Miami, this is the best time to do it. Since 2015, the property prices have increased by forty percent, and these are expected to grow at 10% annually from 2019 onwards.
Various factors can be attributed to this rise including a growing economy, investors pushed by Brexit, South American investors, baby-boomers retirees, and the growing Latino population.
But first things first – why should real estate investors consider capitalizing on Miami investment properties?
One of the reasons why investors should consider investing in Miami real estate is that Miami offers a high return on investment. This is because the city is situated in a beautiful location and has a strong economy.
Miami rental properties are also predicted to do well in the Miami housing market. This can mainly be attributed to millennials who are more likely to rent than buy a home.
In addition to this, the Miami real estate market is moving to a buyer’s market. This shift is the result of sales slightly slowing down, property listings staying up for a bit longer, and inventories slowly going up.
Choosing to buy a rental property in Miami is only half the battle of real estate investing. After making the decision, you’ll need to understand what it is you’re getting into with your estate investment.
5 Tips for Buying a Rental Property in Miami
Tip #1: Understand Your Risks
Like any other form of investment, investing in real estate can be risky. Before buying your new Miami investment properties, consider the following.
First, know that you could incur excess repair costs when you encounter a bad tenant. Examples of excessive property damage include a broken toilet seat and a smashed bathroom mirror.
Second, you could incur legal costs when you need to evict a tenant. Being a great landlord doesn’t mean that you are immune from having to carry out an eviction process.
Last, your property could sit empty between tenants, lowering your overall return.
If you’re new to real estate investment, please consider hiring a qualified property management company.
Having a property manager is especially useful at the start of your Miami investment journey, or if you already have an existing portfolio of investment properties. They can handle rent collections, leased terminations, lease negotiations, property inspections, and evictions.
Tip #2: Calculate Your Investment Property ROI
It’s an investor’s goal to make money. As such, before you buy a real estate investment in Miami calculate your potential investment’s profitability first.
When buying a home or apartment to rent it’s important to determine the investment’s profitability. Basically, you need to know your real estate investment’s potential income as well as expenses.
For example, suppose you bought the property for $110,000 and the potential annual income adds up to $9,600. The property expenses such as property management, maintenance, property insurance, and taxes add up to $2,000.
Based on the capitalization rate calculation, your rental property’s ROI is 6.9%. ($7,600/$110,000) x 100%).
Looking at the result, is the 6.9% a good rate of return on the property? The answer is –it depends.
It depends on various factors like investment risks, location, and size of the rental property. That’s why it pays to hire a qualified local real estate agent.
Tip #3: Find the Right Miami Neighborhood
When it comes to real estate investments, location is everything.
Whether you buy a property closer to the beach or the everglades, it will have an impact on the type of tenant you will attract and the amount of rent you will be able to charge.
Investing in the right neighborhood can create a big difference in the amount of income your real estate investment will be able to bring in.
The following are some of the best neighborhoods in Miami to invest in 2018.
Biscayne Island offers arresting views of the Biscayne Bay and Downtown Miami. The residential development started in the 1940s, now hosting mostly apartment buildings.
- Traditional Cap Rate: 6.2%
- Traditional Cash on Cash (CoC) Return: 3.3%
- Traditional Rental Monthly Income: $5,600
- Median Property Price: $1,375,000
This neighborhood is the fastest growing one. Close to Downtown, Brickell is Miami’s and South Florida’s key financial district.
- Traditional Cap Rate: 6.4%
- Traditional CoC Return: 3.2%
- Traditional Rental Monthly Income: $2,700
- Median property Price: $499,000
Flagami is home mostly to middle-class Hispanics. The residential market features single-family homes, duplexes, and apartments.
- Traditional Cap Rate: 7.6%
- Traditional CoC Return: 3.6%
- Traditional Rental Monthly Income: $1,400
- Median Property Price: $240,000
Douglas Park offers the highest CoC return and cap rate. The neighborhood is located around a beautiful park.
- Traditional Cap Rate: 7.7%
- Traditional Cash on Cash Return: 4.6%
- Traditional Rental Monthly Income: $4,200
- Median Property Price: $608,000
Tip #4: Buy with Your Head, not with Your Heart
Most investors want to ‘fall in love’ with a real estate investment before purchasing it. That’s not always the best idea.
This means putting your emotions aside and thinking rationally and logically about the purchase. Make sure you do your due diligence and look at all the data before committing yourself to new property.
Tip #5: Find the Right Tenant
Once you become a property owner, the next step is to find a good occupant. Having the right tenant will not only give you a good financial return but will give you peace of mind; knowing your property is being cared for.
To make this possible, you need a good screening process. This process includes checking your prospective tenant’s background, criminal records, credit, and rental history. If you aren’t familiar with the leasing process, it’s advisable to hire a good property manager.
Aside from helping you screen your tenants, a good property manager can help you set the right rent amount. This will also help you attract and select the right tenant.
He or she can also help you maintain your property at tiptop condition at all times. These invaluable services will help you increase your investments in the long term.
There you have it. 5 tried-and-tested tips for buying investment property in Miami. There are a lot of armchair property experts out there, but successful property investing requires a commitment to research, learning, patience, and planning. And by finishing this article, you are officially on the right track!