Last year I did a lot of rentals. Now many of my rental customers are coming back to me and inquiring about buying. Everyone knows that there are definitely good deals out there and most are wondering if now is a good time to buy?
Last month on Miami Beach just based on sales data in the MLS, 83 condos were sold. Closing prices were from $37,000 all the way up to $7.6 million. People are buying.
What you need to know in advance…
Buying a Miami Beach condo in this market is not like buying in last year’s market or the years prior. There are many issues to consider and many new regulations that have been recently passed.
To me one of the most important issues to consider in today’s market is the financial stability of the building.
When talking to first time buyers, I realize that this is an issue that they may not have even considered. The buying process is typically very intimidating and I know most of my buyers are more concerned about their own qualification process, rather than the qualification of the property they are interested in purchasing.
From working with most of my rental customers, I can tell you this. I know that most of you have pretty decent credit and have a good savings plan. This is good. So from here, the most important thing to do before we begin to look at properties, is to speak with a lender and find out what price point you can qualify for and how much money you will need to put down.
Once we determine what your lender will allow you to borrow, we then need to consider the financial requirements that the lender is going to expect the building to meet.
Why is this important?
Lenders want to make sure that they are lending money to a person who can pay it back and they want to make sure that the building that they lend money in is financially stable. They want to ensure the stability of the building because they know that now more than ever, everything that happens in the building is like a domino effect.
For instance…
One of the rules for Fannie Mae is that no more than 15 percent of unit owners can be 30 days or more past due on association fees. So for instance in my building we have 60 units total. No more than 9 units can be 30 days or more past due.
My story…
I live in an older building on South Beach, 60 units total. Some of my neighbors have no mortgages, some of us have pretty hefty ones. Those who purchased in here 30 years ago make comments to me like, “Oh, this market doesn’t effect me because I have so much equity in my property, I am not worried. I don’t care if Joe Schmoe doesn’t pay his bills. He will foreclose and we will get our money back.”
First of all, the banks are taking FOREVER to foreclose so in the mean time someone has to pay. The management company, the landscaping company, the pool company, fpl to run the elevators, the trash, sewer and water company all want their bills paid. Someone has to pay, if they don’t who will? If we want to continue living the same standards of what we bought into, the rest of the unit owners have to pay. And in the end after all is said and done, we may never recover totally from all of the bad debt.
What if they want to sell? If more than 9 unit owners are in the rears and a buyer is qualified through a Fannie Mae backed loan they will not be able to obtain financing.
That’s the domino effect.
But it’s not all bad. Some buildings are in pretty decent financial shape and yes, it is a good time to buy. Research and do a little homework. (have your Realtor do some homework too)…
- Talk to your lender and know your financial situation.
- Find out their anticipated qualifications for the building.
- Do your home work and make sure you spend time looking in financially stable buildings.
- Run the worst case scenarios and make sure you can still pay the bills in the end.
more about the new regulations…
I am not going to go into every detail on the new rules from Fannie Mae, you can read about it here on the Florida Association of Realtor’s website, just know that if you are getting financing from a source that will be regulated by Fannie Mae you need to make sure that you know the regulations.
Some people are irritated by these rules and are concerned that it will put more of a burden on our market. They are right, it will. However on the positive side, it will definitely start making buyers more aware of the financial domino effect that buildings can have on them individually and more buyers will demand up front to really know and understand the financials of the building and make sure that they can afford to live in a specific building or not. This goes for cash buyers and other loans too.
the reality…
Miami Beach is a very different market from the rest of Miami. Miami Beach is not Brickell, Downtown or Midtown. Miami Beach is one of the most desired places to live in the United States. If you want to live in Miami Beach, most likely you are going to be living in a condo. Make sure you buy in one that is financially responsible.
