5 Factors to Consider Before Buying an Investment Property in South Florida
Updated: Aug 6
It's about time you consider investing in the South Florida Real Estate market. This ever-blooming rental market in the United States has been enjoying its boundless glory days since the 2008 market collapse.
Florida has an added advantage over other states, there is no state tax or investment income tax, and it's still free to transfer property to your heirs. Amazing, right?
Let's look at 5 factors you should consider before buying a property in the South Florida real estate market.
5 Property Investment Factors to Consider in South Florida
Expected cash flow
Your investment strategy
These 5 residential investment factors may seem independent, but they are connected. We compared several factors to be considered when investing in a property. Out of 12 factors, these 5 residential investment factors carry the most weight.
Factor 1: LOCATION
This should be the first consideration when choosing a property to purchase, whether for commercial or residential investment.
How to identify the best investment locations
Having your houses located close to social amenities is very crucial especially if they are for renting. In South Florida, most tenants reside close to schools, hospitals, entertainment facilities, etc.
Waterfront properties. These are investment regions that would generate good returns. Remember South Florida is known for its warm beaches and would receive a lot of visitors during summer. Positioning your investment at the waterfront will not only ensure you get clients but also earn you more revenue.
Take advantage of the professional population. If you are interested in multi-family rentals, choosing one that is closer to offices would be a plus for you and the professionals.
Popular locations to invest in South Florida
We handpicked the above due to the housing demand and valuation and ROI. With the right investment here, you cannot go wrong.
Factor 2: WHAT IS YOUR INVESTMENT STRATEGY?
Understand exactly what you want from the market and have a plan on how to achieve it. The real estate market is simple if you take your time to go through the different investment styles. Let us take you through them.
3 Types of property investment For the Miami Real Estate Market
1. Flip investment
This is buying old houses, renovating them then selling them at a much higher price than you would profit from. There are several people looking for buyers to buy their homes with prices open for negotiation.
You can also buy a perfectly good house in the low season(winter) at a cheaper price and then sell during the peak season(summer) at a higher price.
2. Rental property investment
There is a variety of rental houses:
Single-family: these are standalone houses meant for one family. They are a good investment in the suburbs and at the edge of towns
Multi-family: they include several units in one property. This will generate more revenue, unlike single-family properties.
Vacation rental: these ones target seasonal tenants. They are mostly occupied during summer as most tourists visit South Florida for the warm weather. It has higher revenue compared to the standard monthly residential property.
AirBnb: they target clients for a much shorter period starting from a single night to as long as the client can afford. They generate much more revenue too.
The last two types of rental properties have higher income but also involve a lot of maintenance. You should find a trusted property management company there to handle your investment.
3. Commercial Property investment:
Commercial properties include offices, industrial spaces, and retail outlets. Their revenue collection protocol can be a little different from the rental properties given the agreement between the landlord and tenant.
For instance, an industrial space tenant can settle on an agreement where he pays a fixed amount of rent for a certain period of time e.g. 10 years. A shift in the market conditions does not affect such landlords since their revenue is bound by an agreement.
Factor 3: EXPECTED CASH FLOW
There are a few factors that will determine the cash flow from your investment.
Location and valuation of the property go hand in hand. Average property valuation in Miami is $590,000 while in Fort Lauderdale, it's $451,000. Property in Miami will have more revenue compared to that of Fort Lauderdale.
Property valuation approaches
Income approach: A rental property is supposed to generate between 2-4% of its value every month. If the current owner receives 4%(1,000) monthly, the estimated value of the house should be $25,000.
Cost approach: expected revenue is determined by summing the total cost incurred in the construction and repair of the property
Market comparison approach: You can use data from previous sales by comps within the same location with the same house design and size. They sell property within a set price range.
Knowing the value of your property will help you calculate the expected monthly/yearly revenue.
Factor 4: YOUR BUDGET
Purchase within your budget. Online platforms for real estate have price filters you can apply to only view the houses within your budget. You can also go the traditional way and use the help of an agent.
Factor 5: WEATHER HAZARD
It's hurricane season from June to November in South Miami. If you own a property on the shoreside, you have to hurricane-proof it by fitting strong roofs that won't be blown away, have underground emergency chambers etc.
The likelihood of shoreside properties to be hit by hurricanes has made their insurance premiums higher compared to those a little farther from the shores.
Compare insurance quotes for your house amongst different insurance firms in South Florida before deciding on one. Don't forget to hurricane-proof your property too.
A final thought on property investment in South Florida
Venturing in real estate investment is only difficult in the initial phase where hard decisions are made. If you consider all the factors we have discussed above, you'll have smooth sailing in the South Florida market.
If you are still feeling stuck you should consult professional property managers already in the market for a free consultation.
Property investment in South Florida - FAQs
Is it a good idea to invest in a property in South Florida?
Definitely. The South Florida Real Estate market is booming from the steady increase in population and conducive weather. You also won't have to pay state tax like in other states.
Does Florida tax investment income?
No, this has led to an exponential increase in investments in the state as the state government intended.
What are the pitfalls of buying property in South Florida?
Being on the wrong side of legislation.
Hurricanes mostly hit the shore while the second pitfall only you can bring to yourself.
How much down payment do I need to purchase a property in Florida?
Have 25% of the property value you intend to buy. Most sellers ask for 15 - 20% having an amount slightly higher will have you prepared.
What are indirect ways to invest in the Real Estate market?
Real Estate Investment Trusts (REITs)
Focused Mutual funds