Miami’s Shadow Inventory

Today’s headline in the local Miami business journal read “Judge grapples with her discovery of 15,000 unserved foreclosure cases.” I also read an article on CNBC.com titled “Rebound In Housing Hampered By Slowdown in Short Sales.” So what is the story here?

According to public records, in Miami-Dade County there were 26,731 foreclosures filed in 2007, another 56,656 foreclosures were filed in 2008, and an additional 29,833 foreclosures have been filed through May 2009. That’s over 110,000 foreclosures filed within the past two-and-a-half years! We have a HUGE shadow inventory of foreclosed properties out there that very few people in the real estate business want to acknowledge, let alone share with the general public.

I keep wondering where are all these bank owned properties? I think there is only one explanation. These thousands upon thousands of distressed properties are being held on the banks balance sheets. TALF, TARP, stimulus, mark-to-market, call it whatever you wish, but the banks are playing a simple game with the market, and apparently, the FDIC, Federal Reserve, OTS or Comptroller, have nothing to say about it.

So let’s consider some additional facts. According to the Southeast Florida Multiple Listing Service, since January 2008 there have been a total of 22,583 properties sold in Miami. Out of this number, there were only 6,624 bank owned or REO properties sold, a mere 28% of total sales.

Now in all fairness not all foreclosure filings ever end up in a foreclosure sale. There are many that are modified, some are sold in pre-foreclosure, many are caught up in legal snafu’s, a few are dismissed, many have not been served or processed, but c’mon, where are the other potential 50,000 plus bank owned properties that should be on the market?

Yes, I am in the business of selling real estate, but I also like to work and make decisions based on facts and reality. Do you know how many times I have heard the same story lately, “we have multiple offers, send us your highest and best offer?”

The banks are playing the real estate market, and so far they have clearly earned the gold medal.

The Courts South Beach

PRICE : $625,000 **BANK OWNED FORECLOSURE**

Description |  The Courts is a very successful project located in the prestigious South of Fifth Neighborhood of South Beach. The community features over eleven acres with secure parking, resort-like pools, spa, gym and security. This unit 3 bedroom 3 bathroom unit consists of 1,485 square feet, renovated kitchen and bathrooms, and is in excellent condition.  Call or email us today to view this unit -305.673.5300 or info@miamiangelproperties.com.

Address | 140 Meridian Ave #312, Miami Beach  -   map it

Property Type | Condominium
Year Built | 2002
Living Area | 1,485 SF or 138 m2
Bedrooms | 3
Bathrooms | 3
Waterfront | N

Download a full description (PDF):

140-meridian-ave-312 (Right click the link and choose “Save link as”)

Central South Beach Condo

PRICE : $224,000

Description |  A rare corner unit with 2 bedrooms, garage parking,  fully updated, and located in the heart of South Beach just steps from Flamingo Park and Lincoln Road!  Did we also mention pet friendly and low maintenance fees?  This is a place to call home.   Call or email us today to view this unit -305.673.5300 or info@miamiangelproperties.com.

Address | 1498 Jefferson Ave # 205, Miami Beach  -   map it

Property Type | Condominium
Year Built | 1965
Living Area | 859 SF or 80 m2
Bedrooms | 2
Bathrooms | 1
Waterfront | N

Download a full description (PDF):

1498_jefferson_avenue_unit_205 (Right click the link and choose “Save link as”)

Affordable Condo at Lincoln Road

PRICE : $140,000  **CLOSED SALE $135,000**

Description |  This large one bedroom, one bathroom condo is located just a few steps from Lincoln Road as well as a few blocks from the beach.  With lots of light, high ceilings and an outstanding location, this condo is a turn-key investment.   To view this property, please call us at 305.673.5300 or email info@miamiangelproperties.com.

Address | 1606 Jefferson Ave #11, Miami Beach  -   map it

Property Type | Condominium
Year Built | 1946
Living Area | 730 SF or 68 m2
Bedrooms | 1
Bathrooms | 1
Waterfront | N

Download a full description (PDF):

1606_jefferson_avenue_unit_11 (Right click the link and choose “Save link as”)

Beached in Miami Shores

A few months ago, I posted a blog titled Miami’s Boom to Bust. Since writing that post, I have walked through hundreds of distressed properties throughout Miami Beach and the surrounding areas. For a number of reasons, my recent experience of working on a property in Miami Shores is the epitome of that boom to bust cycle in Miami.

This house sits on a corner lot in a prime location in the popular suburb of Miami Shores. The property consists of a total living area of 1,658 square feet with 3 bedrooms, 2 bathrooms, a renovated kitchen and bathrooms, new roof, and features a large swimming pool and original wood floors. Originally built in 1949, this single family residence is in excellent condition and is a turnkey property.

The following is a chronological history of this single family home over the past 16 years -

05/93 – Sold for $94,000, or $57 PSF.

07/99 – Sold for $128,000, or $77 PSF, increased 35% in value over 6 years.

01/04 -  Sold for $260,000, or $157 PSF, increased 103%  in value over 5 years.

09/05 – Sold for $499,900, or $302 PSF, increased 92% in value over 18 months.

02/07 – Placed back on the market, asking $633,000.

06/09 - Available for $199,000, or $120 PSF, decreased 60% in value over 2 years.

It is very apparent from this quick analysis that our prices in Miami barreled ahead in the earlier part of this decade. Four years ago, the current owners did not think twice about paying $302 per square foot for this house. Wells Fargo provided ninety percent financing in the form of an 80/10 first and second mortgage, and within one year of ownership, the owner placed it back on the market for a $100,000 plus premium.

Now the question that everyone is asking is whether or not the $199,000 short sale price that has been approved by the bank, is the real market value in today’s market? With FHA financing up to 96.5% of the purchase price and up to six percent seller concessions, are we any closer to reality?

The above  data was provided by the Southeast Florida Multiple Listing Service and Miami-Dade County public records. This information is believed accurate but is not warranted.

Foreign Investors Q&A

There are so many questions that a real estate professional has to face when dealing with foreign investors. The following guide addresses some of the most common legal and tax questions. 

Q – What should foreign investors take into account prior to signing a real estate purchase contract?

A – One should consider the form in which title or ownership is to be held so as to take advantage of potential U.S. estate tax and gift savings. On the one hand, we have individual long-term capital gains rates, which are currently at 15 percent. On the other hand, the purchase may be structured so that the foreign investor takes title to U.S. property through one or more entities in order to avoid estate tax, but this approach may cost more in fees and potentially higher income tax rates.

There are also non-tax considerations, such as whether the property will be for personal use, rented or sold in the short term for a profit. If the foreign investor plans to seek financing is also a very important consideration. In the current lending environment, most lending institutions no longer offer foreign national financing. However, there are a few major banks that remain active in this niche that require a minimum down payment of 30 percent of the purchase price or appraised value of the property.

Q – Does a foreign investor have to pay U.S. income taxes?

A - Yes, just like U.S. citizens, non-residents are required to pay U.S. income tax only on their U.S. income source, and enjoy certain exclusions from paying U.S. income tax on their bank account interest. If the foreign investor, however, holds a green card or spends a substantial part of the year in the United States, they they will most likely be considered a resident for U.S. income tax purposes.

Foreign investors should consult with a tax specialist to determine whether certain expenses are deductible and whether the gain on sale will be taxed in more than one country.

Q – What is the Foreign Investment in Real Property Tax Act (“FIRPTA”)?

A - FIRPTA imposes an income tax on the sale of any U.S. real property interest. This includes U.S. real estate owned directly by a foreign individual, as well as shares owned by a foreign person in a U.S. corporation that owns substantial real estate. To ensure that taxes due on sale by a foreign investor, the closing agent or transferee of the U.S. property, is obligated to withhold 10 percent of the purchase price at closing and send it directly to the Internal Revenue Service, instead of paying the full amount realized to the foreign seller. The amount of the foreign seller’s final U.S. tax obligation is determined by crediting the withholding tax against the amount of the income tax indicated on the return.

Individual Capital Gain Tax Rates: If an investor is a non-resident individual and the real estate qualifies for capital gain treatment, the net capital gain will generally be subject to the current tax rate of approximately 15 percent.

Corporate Capital Gain Tax Rates: If the investor is a foreign corporation and the real estate qualifies for capital gain treatment, the net capital gain is currently subject to a possible tax rate in excess of 35 percent.

Q -  What other income tax consequences may occur under FIRPTA?

A - If a foreign investor has already purchased a property in his or her individual name, or jointly with another person, changing title may be costly. It may create income tax consequences under FIRPTA, as well as additional transfer and doc stamp taxes.

Q – Is it possible for a foreign investor to avoid recognizing a gain on sale?

A - Yes, Section 1031 of the U.S. Internal Revenue Code makes it possible for a foreign seller to avoid recognizing a gain on the sale of property by “exchanging” it for another investment property. If the exchange qualifies under the U.S. law, recognition of the gain for the foreign seller will be deferred and no FIRPTA income or withholding tax will be due on the transaction. Please note that to qualify for the 1031 exchange exemption, several requirements must be met.

In summary, there are a number of legal issues and tax consequences for the foreign investor from the purchase stage to the eventual sale of the property. Therefore, the advice of a tax professional and qualified lawyer is recommended.

If you are  foreign investor and would like to contact us in regard to the purchase or sale of Miami real estate, please send an email to info@miamiangelproperties.com.

Flippin’ Short Sales

I will never forget reading a sign that was posted on the Venetian Causeway a couple of years ago. The pitch was something along these lines – “Do You Have Excellent Credit? Need Fast Cash? Help Us Buy Real Estate. No Risk!”

Unfortunately, Miami continues to suffer from real estate fraud, and flipping a short sale has been the latest craze for several months now. Whether Medicare fraud, mortgage fraud, insurance fraud, it’s all here. Then months ago, one of my agents was personally involved in flipping a short sale deal, and after catching wind of the scheme, I had to spend days to skillfully work my way out of it. As a result, I terminated our relationship with the client and agent in the same week.

So finally some good news came across the wire this week to help us put a stop to this “flip your short sale” bonanza. According to a recent article published by Florida Association of Realtors, titled “Home short sale flips nixed,” Attorney’s Title Insurance Fund will no longer provide title insurance on deals made with closing flips of short sales.

The formula is simple – the buyer and seller work together to convince the existing mortgage holder to sell the property at a low market value. The buyer, or investor, then resells or flips the property at an inflated price to a new buyer and closes on the same day. The sale occurs simultaneously and the investor then pockets the difference.

So what is the issue? There are several, including defrauding the original mortgage holder, defrauding the new mortgage lender (if there is purchase money financing involved), the end buyer paying an inflated price over market value (memories, anyone?), collusion, professional liability, and the list goes on.

Flipping short sales is not good for anyone, it’s just more of the same. Kudos to Attorney’s Title Insurance Fund for taking a stand.

If you would like further information in regard to buying, selling or renting Miami real estate, please do not hesitate to contact us at info@miamiangelproperties.com.

Quest In Sunny Isles Beach

37th floor, Trump Tower I

Over the past two weeks I have spent considerable time walking several luxury condominium buildings in Sunny Isles Beach. The objective was to find a 2,000 square foot condo in a luxury “established” building with minimal distress, a  flow through floor plan, turnkey unit, and with awesome ocean and city views. Sounds easy enough, right? Now try and accomplish that for under $350 per square foot.

So how does one determine an established building? It’s not easy, but a good start is to look at the pipeline of distressed properties in the building, including pre-foreclosures, bank owned and those scheduled for auction. With over 1,300 condos currently available for sale in Sunny Isles Beach, I quickly narrowed it down to 125 potential candidates. The list – Ocean One, Ocean Two, Ocean Three, The Pinnacle, Sands Pointe, Oceania, and for fun, Trump Tower I and Sayan.

So why would we throw in a couple of recently completed projects, such as Trump Tower or Sayan? Simple. Developers have been selling remaining units for big discounts these past few months and we’re looking for blood on the streets! Additionally, there was the recent resale of a designer ready “D” line unit on the 12th floor in Trump Tower II at $328 per square foot.

The first thing that jumps out at you are the setback requirements between the buildings, and in particular, the new construction projects. These newer projects have significantly reduced setback requirements between each building, and if you’re not careful, that luxury penthouse in the sky may just have a view of the tower next door. Not to say that the new projects do not offer stunning views, but they are just more limited. I should add that one of the most amazing views that I have ever seen in Miami, was that from the master bathroom in the the “D” Model on the 37th floor in Trump Tower I.

We looked at some awesome units with truly spectacular views, and I should add that we accomplished the task at hand. The winner was clearly Ocean Three located at 18911 Collins Avenue. Why? The functionality and floor plans of the units we walked through, together with outstanding views of the ocean and city / bay, and to top if off a very stable project, and when all combined offered the most value for what our client was looking for.

If you would like more information or assistance with Sunny Isles Beach or Miami Beach properties, please do not hesitate to contact us at info@miamiangelproperties.com or call 305.673.5300.

Tips for Foreign Buyers

In Miami Beach, we generally deal with international buyers and foreign clients that would like to own a second home or investment property in our beautiful city. Therefore, it is common for our clients to ask us for information on immigration and visa related matters as a potential foreign owner of Miami real estate.

We must preface this comment by stating that we are not immigration specialists, attorneys nor advisers on such matters, but we did conduct some research and were pleased to determine that there may be one realistic option for real estate investors with the financial ability to obtain U.S. residency.

The program is called the Regional Center EB-5 Program, or the “investment visa” program. This government program allows foreign nationals to own property in the U.S. and travel as they please. Additionally, the investment visa program allows the individual to obtain residency or a “green card” for themselves, spouse, and any unmarried children under the age of 21 years. The government allows up to 10,000 visas per annum under the program. In 2008, however, less than 1,000 visas were issued as few international investors are knowledgeable of the program.

So what is required? To obtain the privileges of this visa, foreign nationals must invest a specified amount of money, typically $500,000 up to $1 million, in a commercial business that is located in a geographical area classified as a “regional center” by the United States government. There are currently more than 40 regional centers and each is approved is approved for different types of projects. For example, the Los Angeles regional center invests in movie studios. In Miami, we have the newly formed South Florida Investment Regional Center that looks to fund projects in Miami-Dade and Monroe counties.

As with any investment, you need to conduct your due diligence on these projects and expected rate of return. It is also important that you have a professional accountant or financial advisor, and an attorney to review your details and provide guidance in this process. According to a local immigration expert, it should take 15 to 30 months from the time of investment to the receipt of your green card.

For additional information, please read the Citizenship For Sale article in the Florida Trend magazine.

Miami Real Estate – March 2009

Summary - March 2009

For the month of March 2009 vs. February 2009, we experienced an 14% increase in the number of closed sales from a total of 206 to 235 closed sales. The inventory of properties for sale increased marginally by 10% over the previous month.  This is the third month in a row that we have seen an increase in the overall number of closed sales, and we are up an impressive 35% in the past two months alone.

While the average sale price of single family residences in Miami Beach with a price under $1 million continues to decline from $653,282 in January 2009 to $513,800 in March 2009, the average closed sale price of condominiums in Miami Beach (under $500,000) and in the Downtown/Brickell market actually increased. This is the second month in a row that we have seen prices increase in the Downtown market, and are up from $231,767 in January 2009 to $296,252 in March 2009 respectively.

This leads us to a bit of a quandry in regard to the prices of foreclosure and distressed properties. While we all hear that prices continue to drop, and in relative terms and year-over-year this is the case, the banks are playing a game of cat and mouse with their REO properties. Here is the spiel – offer the property to the public at a bargain basement price, allow multiple offers to accumulate, play it off for a few weeks, and many suckers will bid up the price to more than asking.  It’s simple enough, but works time and time again.

Another interesting change in sentiment this month is indicated in the sale of five single family residences in Miami Beach in the $1 million plus category. For the past few months, we have witnessed lackluster sales with many luxury home buyers sitting on the sidelines. With five closed sales in the luxury category, and an average closed sale price of $2.4 million, the luxury home buyer has re-emerged in Miami Beach.

Featured Sales -  Two Luxury Miami Beach Homes

28 W San Marino Dr, Miami Beach

This Bauhaus inspired house built in the 1930’s, is located on the prestigious San Marino Island in Miami Beach. With six bedrooms and six bathrooms, a total living area of 4,716 square feet, and incredible views of the Miami skyline, the property sold to Venetian Marino Investments Inc, Hubert Jean Marie Weisslinger as president and director, for $3,830,000 or $812 per square foot. This house was placed on the market in December 2008 with an asking price of $4,450,000 and was only on the market for 47 days before going under contract.

5777 Pinetree Drive, Miami Beach

The data used to generate this chart/data is gathered from the Multiple Listing Service (“MLS”) and the Miami Dade Clerk of the Courts. The data in the MLS is deemed reliable but not guaranteed. This data is for March 2009 for single family homes, unless otherwise indicated as condominiums/townhomes. The prices are the actual sales prices of all single family or condos/townhomes that closed during the month of March 2009.

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