renting v's buying a home/unit (Miami, Miami Beach: short sales, foreclosures, rentals)

[ozcroboy]

im new to the structures of u.s home ownership so doing my home work in advance. what are the pros and cons to home ownership in the usa? what costs are involved in owning a home in the u.s? what would u pay yearly for insurance taxes etc and what needs to be paid yearly? ruff guess a 400k property in miami beach area. on another note what could u rent out the same home for per mth. ive invested in property in aust and being a landlord is quite profitably just wondering if its the same in the usa? i kno u guys have nowhere near the capital growth we do as generally our house prices double every 7-10yrs ova the last 40 yrs.

[r_k]

Right now property values in Miami Beach are high relative to what you can expect as a return in rent, i.e. it is a renter's market. In Miami Beach you're probably looking at a condo if your range is $400k. If you paid all cash, your ongoing expenses would be mainly property taxes (~$8 to $10k per year), HOA fees ($5 to $8k per year), and utilities and homeowner's insurance. Everything depends on location, and the exact property within location, so if you're not familiar with the area I highly recommend you spend some time renting and studying, before buying. There is a lot of variability in quality and prices on the beach. At the same time, the market is down right now compared to 3 years ago, anywhere from 10 to 40%. Unclear whether the bottom has been reached or not. Short Sales and Foreclosures may offer an opportunity but a lot of homework is needed. With a condo esp you're dependent on your fellow owners, so delinquencies can be costly for you. Just my .02 summary. Good luck.

[ozcroboy]

yer will be renting for bout 6-12 mths b4 i jump in. im not new to this in oz. been doin it since i was 19 just need to kno the local requirements b4 i even decide if its worth it in the usa. ive seen 3 bedroom houses in surfside for 400k ova the net. not keen on the HOA fee which i assume is our body corparate to look afta grounds building and facilties?? not sure about there but houses seem to elevate in prices a lot more than units in aust. is this the case in the usa? whats a typical insurance worth a yr? does the insurance cover flooding or tornado damage?

[bale002]

Originally Posted by ozcroboy

Not sure about there, but houses seem to elevate in price a lot more than units in Aust. Is this the case in the US? What's a typical insurance worth a year? Does the insurance cover flooding or tornado damage?

Yes, generally speaking SFHs appreciate in value at a faster pace than condos, but that may not be the case in places like Miami Beach and Brickell where condos are prevalent. Having said that, the US market is volatile, big gains (and losses) come in waves of speculative bubble, every 20 years or so.

Roughly speaking, for both property taxes and insurance on a SFH, calculate 2% of purchase price per year. Property taxes may be a bit less depending on municipality, market value assessment, and any homestead exemption. Insurance rates may be a bit less for newer construction (post 2005 is best) or anti-hurricane upgrades for older construction, but maybe not right on the beach. Flood insurance is extra, not sure about tornado.

Then of course condo fees or in some cases HOA fees for a SFH. Condo fees usually include insurance for the roof and outer walls (plus all common areas). The closer to the shore and the more amenities, the higher the condo fees. It is also a good idea to have casualty and liability insurance for the unit, and, depending on how a new Florida law is interpreted, it may be mandatory.

Generally speaking, if you have to borrow money, then cash flow will probably be negative (you'd probably be better off with a REIT or joining a "vulture" fund). If all cash, generally speaking, your yield would be around 2%-3%, while waiting for any capital gains.

Unless there is a severe double-dip recession, prices in prime areas like Miami Beach and Brickell are probably forming a bottom. One can only guess as to the timing of any future capital gains, so be sure of solvency in the meantime.

Good Luck!

[ozcroboy]

it will be a cash purchase as ive sold property in oz. what does HOA stand for? mite be an option to buy either a house or condo in 2-3 bedroom and lease the spare rooms out in live in one room...in that respect at least the rentals will pay for the taxes, HOA etc so in theory i live rent free. do u need to pay taxes on rental income or is that part of the 2% taxes charged in the yearly fee?

[ozcroboy]

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if u paid 350k for this and rented the two spare rooms out being 3 bedroom. what would u think would be resonable rent per month on each room. via craigslist id guess 800 a month per room??? that wuld more than cover the taxes n body corp fees wouldnt it?

[bale002]

Originally Posted by ozcroboy

it will be a cash purchase as ive sold property in oz. what does HOA stand for? mite be an option to buy either a house or condo in 2-3 bedroom and lease the spare rooms out in live in one room...in that respect at least the rentals will pay for the taxes, HOA etc so in theory i live rent free. do u need to pay taxes on rental income or is that part of the 2% taxes charged in the yearly fee?

HOA stands for Home Owners Association, common in Florida in subdivisions of single family homes (SFH), though not common in the older neighborhoods of Miami.

Its counterpart is the condo association.

In principle, you have to pay federal income tax on rental income, it is distinct from property taxes which are paid to the county and municipal governments.

In your example, let's assume $350,000 * 0.02 = $7,000 per year property tax or $583 per month. Let's also assume $800 per month condo fee, so total around $1,380 per month. But figure another $100 for unit insurance, so total aroound $1,480. So if you rent two rooms at $800 = $1,600 per month that should cover it.

That's a whopping 0.4% yield on a $350,000 investment. Then possibly income taxes, though with deductions, it would probably come to zero, but almost certainly extraordinary maintenance expenses from time to time.

You'd be better off with a money market investment, unless of course you expect significant capital gains over your investment horizon.

Good Luck!

[ozcroboy]

geez u pay a lot more in fees n taxes than we do here which is od considering u.s population. even tho the above is about breaking even it means i dont have to pay rent elsewhere so i also save approx 800 a month in share accom. sounds like thats all it is worth i guess and not an investment.

thanx for breaking it down that was as thats sort of what i was afta so i kno what im up 4. lot to learn in so little time

[soflobound]

Originally Posted by ozcroboy

geez u pay a lot more in fees n taxes than we do here which is od considering u.s population. even tho the above is about breaking even it means i dont have to pay rent elsewhere so i also save approx 800 a month in share accom. sounds like thats all it is worth i guess and not an investment.

thanx for breaking it down that was as thats sort of what i was afta so i kno what im up 4. lot to learn in so little time

Do a google search for "New York Times Rent vs Buy Calculator". Use the values the posters above gave you and give your best estimates for other things like income tax rate. It's the most comprehensive calculator I've seen for comparing the two (although it doesn't account for renting rooms out to others and the inherent tax liability).

As far as the high property taxes and insurance, keep in mind that Florida has no state income tax and there are of course a lot of hurricanes. I used to live in Miami and now live in Hawaii. The property tax here is very low (0.35%) and you don't need hurricane insurance, but Hawaii has a state income tax that eats up 6-8% of my gross income. They're going to get ya one way or the other.

[ozcroboy]

swt thanx. will check it out.