Analysis: Miami-Dade County Condo Prices Overvalued By 181%
Miami-Dade County condo prices in the 2024 Summer Buying Season traded at a rich premium based on the "1% Rule" commonly used by investors.
Miami-Dade County condo prices have spiked since 2021, making it increasingly challenging for profit-driven investors who want to purchase units in popular neighborhoods such as Coconut Grove, Greater Downtown Miami and South Beach.
Rising property values from strong demand, skyrocketing insurance prices following the Surfside condo collapse and stubbornly high interest rates from a series of hikes by the Federal Reserve brought the South Florida housing market to a standstill in the second half of 2023.
Industry watchers are at odds as to the direction of the South Florida housing market going into 2025.
Bullish investors are predicting housing demand will reignite once interest rates fall to a more management level. Bearish investors contend that home prices are too high and likely to collapse in the months ahead.
Added to this, unit owners are increasingly experiencing the headwinds - spiking special assessments and falling prices from sellers trying to unload their properties - from the looming 2025 Florida Condo Association Financial Cliff.
To better understand whether the statistics support the bulls or the bears, we have run the numbers for the 2024 Summer Buying Season that extends from May through October. We have collected the key statistics on condos, luxury condos, distressed condos and rentals in the tricounty South Florida region of Miami-Dade, Broward and Palm Beach.
Based on the research, Miami-Dade County condos traded for an average price of about $773,912 per unit in the 2024 Summer Buying Season.
Under the “1% Rule” of real estate, a Miami-Dade County condo should generate about $7,739 per month in rent.
In reality, Miami-Dade County rental units were leased out at a median price of about $2,750 monthly during the 2024 Summer Buying Season.
This means, condo prices are overinflated by at least 181 percent.
As a result, Miami-Dade County condo prices must go down or rents need to go up to make up for the difference required to comply with the “1% Rule.”
All of our statistics have been published in a series of reports posted on this website during the last 45 days.
Now, we have combined the previously compiled condo and rental statistics to create a chart going back to 2010 to evaluate how the 2024 Summer Buying Season compares to previous years.
It is important to understand our approach.
Firstly, investors have the goal of purchasing condos that provide an annual return and may even sell at a higher price in the future. Alternatively, speculators purchase condos in hopes of reselling their units at a substantial premium in the future. Annual returns, however, are desired but not a necessity for speculators.
Secondly, we are evaluating the South Florida condo markets based on the “1% Rule” of real estate investing.
The Investopedia website explains that the rule “is used to determine if the monthly rent earned from a piece of investment property will exceed that property's monthly mortgage payment. The goal of the rule is to ensure that the rent will be greater than or - at worst - equal to the mortgage payment, so the investor at least breaks even on the property.”
For example, a $100,000 condo should generate about $1,000 in monthly rent.
Investopedia goes on to state that the “1% Rule” can “help an investor gauge the risk and potential gain that might be achieved by investing in a property.”
The “1% Rule” is clearly a “back of the napkin” approach that is not foolproof but it can save investors the time needed to conduct a complete evaluation of a prospective property.
Thirdly, rental statistics are unreliable in Florida. Unlike in real estate sales, landlords do not have to record any documentation with a local government. Therefore, there is no paper trail available for the public to verify the terms of the lease.
Additionally, most corporate landlords - such as Real Estate Investment Trusts (REIT)- do not list their apartments for rent with Realtors who can then input the properties into the Multiple Listing Service database.
Instead, these corporate landlords usually handle the marketing and leasing internally, in part, to save on paying commissions. As a result, obtaining rental statistics from corporate landlords can be almost impossible. When corporate landlord rental statistics are available, they are generally nothing more than a survey response.
For all of these reasons and more, we would tell you that rental statistics should always be doubted.
All this being said, here is a pared-down chart evaluating South Florida condo market based on the “1% Rule.”
Keep in mind when reviewing the chart, the goal of an investor for this report is to buy a condo at a price that will generate one percent of the purchase price each month. Ideally, the “Overinflated” columns for price per unit and price per square foot (highlighted in yellow) in this chart should be zero percent, meaning the monthly rent satisfies the “1% Rule.”