South Florida Condos 'Uninvestable' With Cap Rates Below 1% At Start Of Winter Buying Season
In this issue of the Miami Condo Market Intelligence Report™, we gauge the investment prospects for the Winter Buying Season and reveal why the South Florida condo market is "Uninvestable."
Volume 2025, Issue 44 (Subscribe here)
For this week’s Miami Condo Market Intelligence Report™ newsletter, we analyze the current capitalization rates (cap rates) in a pair of South Florida bellwether markets to gauge the investment prospects for buyers who are planning to come to town to target Overall and Vintage condos during the 2025-26 Winter Buying Season.
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The tricounty South Florida region of Miami-Dade, Broward and Palm Beach is a diverse region of more than 6.1 million people - 42 percent are foreign born - that has a wide variety of condo product types.
Given the region’s size, variety of condo inventory and market complexities, we decided the best way to analyze the Overall condo market was to examine the situation in Greater Downtown Miami as it represents mostly new product type given that most of its inventory has been built since 2002.
Conversely, we decided to gauge the Vintage condo market for units at least 30 years old by evaluating the world famous barrier island city of Miami Beach, which is saddled by a large proportion of older units that were built several decades ago.
The Overall and the Vintage condo markets have been impacted in varying degrees both financially and administratively by the legislative response to the Surfside condo collapse in June 2021.
As a result, cash-strapped condo owners are struggling with rising maintenance fees, hefty special assessments and pricey insurance at a time when resale supply is growing, sales transactions are slowing and prices have begun to drop.
Not surprisingly, an increasing number of owners are looking to exit as the 2026 condo association budgets are being unveiled.
This process - something we correctly predicted in June 2024 - we call the 2025 Florida Condo Association Financial Crisis.
Our latest analysis shows that these would-be sellers had better start planning to cut their prices if the buyers being targeted for these units are investors, who look for annual returns rather speculators who bet on future price appreciation while subsidizing renters to lease their units.
With the start of the Winter Buying Season, we wanted to evaluate whether the South Florida condo market makes financial sense right now for investors who will be visiting - and condo shopping - during the next six months.
We also wanted to reassess whether the tremendous surge in condo pricing experienced between 2021 and 2023 when work-from-home buyers flooded into South Florida is holding or if it represents a symbol of a past era dominated by buyers who experienced “irrational exuberance.”
In addition to the 1% Rule of real estate investing we use to evaluate condo units, we decided to expand our analysis to incorporate a cap rate approach that is quite common with many sophisticated investors.
We did not, however, want to get bogged down with too many numbers that spook readers.
Instead, we wanted to create a “cheat sheet,“ of sorts, to quickly evaluate whether condo units were worthy of further due diligence.
As part of this approach, we also decided to create a roadmap to decipher what cap rates actually mean for South Florida investors searching for condos.
This road map - which we call the Miami Condo Investability Barometer™ - is meant to provide a quick and consistent way to evaluate South Florida condo markets and individual units.
The Miami Condo Investability Barometer™ is comprised of five classifications based on the following cap rates:
Uninvestable (0.00%-1.99%)
Unattractive (2.00%-3.99%)
Investable (4.00%-5.99%)
Attractive (6.00%-7.99%)
Pound The Table (8.00%-Higher)
The methodology for calculating a cap rate for the Miami Condo Investability Barometer™ is as follows:
Gross annual rent minus annual maintenance fees minus annual property taxes equals annual net operating income or annual net rental income.
Then, the net operating income is divided into the purchase price to produce a cap rate.
Please note, our calculation is simple and does not account for vacancies, repairs, individual unit insurance, private management fees, commissions or debt service.
This “back of the napkin” approach is meant to assist investors in deciding whether prospective condo units warrant further examination.
Based on the new Miami Condo Investability Barometer™, our research found that the South Florida Winter Buying Season may be open for business, but the financial ledger is sure to deliver a sobering reality check for most investors visiting the tricounty region for the temperate weather, numerous events and Carnival-like atmosphere between November and April.