Profit vs. Loss | How is the Current Pre-Construction Market Cycle in Miami Doing for Investors?
Buying preconstruction is a necessity for some as everyone wants what’s new. After going through the residential market turbulence of 2006 to 2009 and helping the speculators come up for air, I am jaded and far too conservative to push and promote the “buy now before prices go up” lingo. For quite some time, I have wondered how the investors/speculators trying to sell today are doing during this new Miami market cycle.
Given past experiences, developers are safeguarded with new language in their developer contracts basically taking an arm rather than a hand and so, the success stories for most developers today is on par with perfection. The preconstruction real estate agents have also done phenomenally and once the 15-day recision period ends upon their clients signing the developer contracts, they simply sit back and patiently wait while 5% (to 10% & jet skis) comes in to their brokerage over the 2 to 3 years leading up to the TCO and final key delivery. I have no qualms with preconstruction and to each his/her own. What I have a problem with are over-promising and under-delivering and now, it is time to deliver on those promises.
Miami Buyers today are getting incredible value and I believe this window of opportunity to own deeply discounted residential real estate in Miami will continue for at least another 18 months.
Ultra-luxury real estate sold this year in new developments were priced as low as $585 per square foot (Grove at Grand Bay) with the median SP$/PSF (sale price values per square foot) at $1,628 psf and a 9% median discount off the list price. The record high SP$/PSF was the penthouse at 321 Ocean Drive trading at $3,819 psf as we see below – this penthouse sold at 51% from its original list price of $53M and 26% off its final list price! In my business practice, I’m seeing a 10-15% discount off the list prices in many new sales today.
I am far more bullish on residential real estate as a long-term investment but Miami investors don’t play that game. Investors trade real estate here like NY trades stocks. If you’re an investor/speculator buying new construction, I trust your plans include using and enjoying the property rather than having the idea/intent or even more, the need to flip. With many, personal reasons and life changes make selling a requirement so if so, I am here for you to consult and strategize.
While some have success stories as we see below, MANY others, like you, are sitting on the market today, trying to sell. Studying new construction (built after 2012), there are 497 condos in Miami-Dade County priced over $2M. In the last 6 months, 42 have sold which equates to ~7 condos each month. 7 average sales divided into 497 options means most sellers will need to wait 71 months or almost SIX years to see results. As a side note, this inventory absorption rate is a volatile figure with better indicators as to market trends & valuations but looking at a 6-month span of sales, it paints a crystal clear picture to demonstrate the state of the luxury residential condo market when it comes to new construction resales in Miami.
Reviewing 2018 construction resales vs. the original purchase prices paid through the developer, here are the findings researching resales over $2M. What is not calculated below and an unknown was the money spent by each owner on capital improvements from decorator ready or units that were delivered raw needing flooring, baseboards, lighting, window treatments, closets, and more.
As a final note, much of these profits below are likely to have been in the red when determining (gross vs. net profit) what was spent on interior (furniture, decor, & finishes) improvements.
(in alphabetical order)
321 Ocean Drive (Miami Beach)
- Penthouse (full floor)
- Original Purchase Price – $20M (2015)
- Sale Price – $26M
- $6M gross profit
Chateau Beach (Sunny Isles Beach)
- Original Purchase Price – $1.7M (2015)
- Sale Price – $1.950M
- $250,000 gross profit
FENDI Chateau (Sunny Isles Beach)
- Original Purchase Price – $6.856M (2016)
- Sale Price – $7.979M
- $1.123M gross profit
- Original Purchase Price – $4.822M (2016)
- Sale Price – $5.5M
- $678,000 gross profit
Grove at Grand Bay (Coconut Grove)
- Original Purchase Price – $2.9M (2016)
- Sale Price – $2.4M
- $500,000 loss
Mansions at Acqualina (Sunny Isles Beach)
- Original Purchase Price – $6.006M (2015)
- Sale Price – $6.130M
- $124,000 gross profit
Marea (Miami Beach)
- Original Purchase Price – $3.540M (2015)
- Sale Price – $3.320M
- $220,000 loss
Oceana (Bal Harbour)
- Original Purchase Price – $7.556M (2016)
- Sale Price – $8.6M
- $1.044M gross profit
- Original Purchase Price – $3.775M (2016)
- Sale Price – $4.275M
- $500,000 gross profit
Oceana (Key Biscayne)
- Original Purchase Price – $4.272M (2014)
- Sale Price – $5.950M
- $1.678M gross profit
- Original Purchase Price – $2.822M (2014)
- Sale Price – $3.370M
- $548,000 gross profit
- Original Purchase Price – $4.148M (2014)
- Sale Price – $4.7M
- $552,000 gross profit
- Original Purchase Price – $1.750M (2014)
- Sale Price – $1.9M
- $150,000 gross profit
ONE Ocean (Miami Beach)
- Original Purchase Price – $7.072M (2016)
- Sale Price – $6.5M
- $572,000 loss
- Original Purchase Price – $2.5M (2016)
- Sale Price – $3.1M
- $600,000 gross profit
Porsche Design Tower (Sunny Isles Beach)
- Original Purchase Price – $5.9M (2016)
- Sale Price – $4M
- $1.9M loss
Surf Club Four Seasons (Surfside)
- Original Purchase Price – $6.150M (2017)
- Sale Price – $6.121M
- $29,000 loss
- Original Purchase Price – $7.5M (2017)
- Sale Price – $7M
- $500,000 loss
- Original Purchase Price – $3.953M (2018)
- Sale Price – $5.4M
- $1.447M gross profit
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