Now that the housing bust is full upon Miami--with reported condo sales at discounts up to half of original listing price-- I have questions that seem self-evident but maybe I'm missing something.
Who would buy a Miami condo today, even at fifty cents on the dollar, when it is clear that the condo fees for maintaining the building over a long period of time will have to be born by an uncertain, small group of owners instead of pro-rated according to projected occupancy rates when the condo was financed?
It is one way of saying that these see-thru condos may stand up to a hurricane, but not the sharpest housing market contraction in nearly a century. Does anyone really think that lower Federal Reserve rates are going to bring buyers back into the condo market in Miami?
They say the early bird gets the worm, but what happens when the worms are all filled with toxics?
Let's say the condo association sues the developer for misrepresentation of costs because the monthly assessment is now skyrocketing. The developers will have found a way to limit their liability: perhaps they were bought out or foreclosed by banks or hedge funds-- who knows.
If you buy a Miami condo at auction, you are apparently willing to live in a building where weeds are growing, or mold, or units next door are half-built, where the rugs in the common areas are uncleaned and worn. If you buy a condo at auction, I suppose the great deal includes continuous bickering with condo association members and a shifting galaxy of owners.
Meanwhile, to service a building where only 10 percent of the units are occupied (a number pulled from thin air) all the municipal services have to be maintained as though the building were fully occupied. You have to keep the water pressure up, to serve high floor condos, so the pipes have to all be filled with water throughout the building, right? You have to size all the wastewater treatment facilities downstream as though all the houses and units were occupied, right?
No wonder that Mason Dixon, a conservative pollster, released its 2nd annual Sunshine State poll, showing "While 62% of Floridians would recommend that a friend or relative move to Florida, a third of Floridians say they would not encourage a move to the state. More alarmingly, the survey shows that 20% of Floridians are seriously considering leaving the state."
Remember WCI Communities, Inc. whose chairman, Al Hoffman-- finance chief for Jeb Bush's campaigns-- crowed that development in Florida was "an unstoppable force"? Its stock price is down 90 percent. WCI is a pariah.
Good time to be in the auction business, I guess, if you can find buyers.
Judging from the funereal quiet in downtown Miami after dark, and all the construction still in the pipeline, Miami still has a long way to go to catch up to reality. That would make the auction business a very tricky one, for a long time to come.
9 comments:
as I'm now in the market for a condo or modest house, these tips as I see it, are helpful. Sad to say I hadn't thought of this aspect of it. So tip is, if you can't afford a house, buy a condo in an established building. Would the maintenance costs still be rediculous? Shouldn't one buy a house instead? doesn't the condo maintenance costs make it amount to the same as an overpriced house in Miami Dade? ... I wish I knew what to do and could afford to live here in my own place.
Established building is a good plan ---
Condo maintenance adds up to what you would normally pay to keep up any house, pool cleaning, lawn care, landscaping, maintenance of outside of building. So, if you live in an average house you would pay about $500 a month or so on all of these things -- and once in a while you would have a big expense such as a roof. If you live in a condo you would pay the same but it is structured. You can let your house go to pot and not do any work described above, you can't do so with a condo. Do a guesstimate on monthly expenses on a house you can afford and look for a condo with that same range of maintenance.
Golly, I never thought of the problems enumerated. They certainly should give the buyer pause. Of course the reason I did not think of it may be because I would NEVER live in a condo with the condo commandos running things plus the thieves who work their way into high positions.
Buy a home. There you are the boss.
or buy a condo where I am president!
:)
that is a scarey thought... letting Genius be the chief condo commando.
I'm starting to think that Mensa's handle is intended to be ironic.
The idea that you're king of the castle when you own a home is laughable. Most subdivisions now have Homeowners Associations that are responsible for taking care of common area maintenance like pools, lakes, walls and guard gates (the modern moat for your castle), and even mow your front lawn in some cases. They're often vilified for making you get approval for the color you want to paint your house, where you can plant a tree or install a flagpole. The HOA is just a condo board spread out over the sprawl of single family homes - they just waste more space.
Homeowner associations usually farm the management is work out to companies that manage thousands of homes, so you have to drive to some remote office to get your paint swatch approved or have to deal with some monster corporate bureaucracy to straighten out an erroneous HOA assessment or violation notice.
Some communities have Special Taxing Districts on them to do much the same thing, but it shows up as an extra tax on your property tax bill.
Lately some builders have leveraged an obscure section of the state code to create Community Development Districts which act like little governments to issue debt to build the roads and parks for bigger subdivisions. This takes the cost of infrastructure out of the home price and tucks it neatly into your tax bill instead.
So how is this different than a condo? Homework people. Do your homework.
Hopefully, I can shed some light on this topic. You are right that there are some buildings that potential buyers or investors shouldn't touch with a ten-foot pole. For example, I wouldn't ever send a client to a building like Vue at Brickell or Club at Brickell Bay, which both have a large number of foreclosures. (Disclosure: I am a Realtor). Jade is another building that has a large number of foreclosures but the building continues to be well maintained. This is not the case when walking into Vue at Brickell or Club at Brickell Bay.
I think people who desire to take advantage of the current condo market and are looking to buy a foreclosed condo, need to educate themselves. They definitely should know the number of condos in the building that are either owned by the bank or are in the pre-foreclosure process.
If the building that they have an interest in has only one or two condos that fall into this category then I would say take advantage of the situation. However, if the number of condos that fall into this category represents 10 percent, or more, of the building then I would say to continue searching. You don't want to end up paying higher association fees because there's a high level of foreclosures in the building.
You also need to be aware of some things before buying in a new condo development. I know everyone wants to live in the latest/hottest condo development but be sure that a large percentage of people are closing on units in that development before you commit to buy. This is a big reason why I decided to provide closing rates for new condo developments on my blog. I want to allow potential buyers the ability to see if they are making the right decision. If default rates are too high then there is risk that the developer goes bankrupt. If this happens, then there's a good chance that your maintenance fees will go up or you'll be hit with a special assessment within the next year to make up for the lost revenue on empty units that the association is not collecting, but had accounted for in its budget.
Also consider that in 2008 it will get worse.In Miami salt air eats away at the Air -condition units on roofs
They need to be totally replaced within 2 years.Who is going to pay for that.I would not want to be the head
of a condo association .Things wil get worse.
Very educational piece. I would really like to talk to the person who wrote it. Do you an email address that I could write to? Would definitely pay for your expertise on the Miami condo market?
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