From the beaches, to the bikinis, to the nightlife… and yes – the real estate market – this Oceanside paradise is the essence of the word HOT!  Everything about it screams YES! to many eager real estate investors.  But to the discerning eye, it appears a storm may be brewing below the surface, and you need to know about it.  I’m Bryan Ellis.  This is Episode #212.

My friends, it’s Monday, and that means it’s time for MARKET MONDAY, a new and weekly feature here on SDI Radio where we take a real estate market, consider what’s being reported about it, what the data is REALLY saying, and give you a basis to consider action… or avoidance!

And with today’s Monday Market Analysis is my business partner – and also, much to my delight, my wife – Carole Ellis, host of the Real Estate Investing today podcast, a contributor to the Huffington Post and editor of the 700,000-subscriber-strong Bryan Ellis Investing Letter.

Carole, what do you have for us today?

Bryan, you said it right.  Today’s market, Miami, Florida – the magic city – is blazing hot, and it’s real estate market has followed suit, and things could get even better as a result of foreign capital looking for safe havens in light of Britain’s recent exit from the European Union.

There’s plenty in favor of Miami real estate, as it has posted 8.6 percent appreciation in the past 12 months, and it’s showing huge construction activity during a period of time in this country when new construction is in hot demand but hard to find.  Plus, it’s MIAMI… it’s just cool to own property in a place like that.

But all may not be as it seems in this most glamorous of locales.

Here’s my gut sense of things:  It looks like the boom may have already happened and could be headed for the exits.  I base this on three indicators that are readily available, but seem to be overlooked by the press and the economists.

• FIRST: Miami’s hot housing numbers have been heavily bolstered by LUXURY housing… and that segment is showing serious signs of weakness. Before the housing crash, the Miami luxury market was booming, and it recovered relatively quickly compared to other U.S. markets thanks to Russian, Chinese, and South American investors.  But since then, the U.S. dollar has strengthened substantially, essentially making U.S. real estate more expensive to foreign investors.  A great example is Russian capital, which funded a whopping 20% of the luxury condo purchases in Miami in 2013… but plunged to 6.6% last year… a stunning decline of two thirds!  Simultaneously, transaction volume FELL by 20%... all ominous signs.  Could the demand for a safe haven created by Brexit revive this market sector?  Sure… but for how long? 

• SECOND: The “Boom Premise” is based on a myth. When investors (foreign and native) started buying in Miami, the premise was that Miami property was a good investment because luxury buyers (specifically monied retiring baby boomers) were quote “moving back to the city” to live in areas with rich entertainment, good healthcare options, and high walkability. Unfortunately, most of the buyers have been extremely eager INVESTORS and *not* baby-boomers. And when investors start outbidding each other in a rabid attempt to get into a market at any cost, it’s not usually a good sign for the strength of the market.

• THIRD: Developers are not taking the hint. Although dozens of projects in Miami have been postponed or canceled since the end of last year, new construction in the area is still outpacing last year. Developers have sunk more than $4 billion into construction since January of this year, and with comparable west coast markets like San Francisco and L.A. posting a serious DEARTH of new construction, many investors are tempted to think that any new construction in a hot market is a sign of health and growth potential. However, the new construction in Miami is not, for the most part, affordable, lower-end housing but high-end housing, which further bloats an already-overbuilt sector.

So does that mean that you should cross Miami off your list completely? Not necessarily, but I believe you should view Miami as a hot-right-now market, and not an opportunity just waiting to happen.  Despite this tepid endorsement, I do see two points of opportunity in this market:

• First, look into lower-end housing in Miami, where home prices have jumped 13 PERCENT in the last 12 months. For these properties, demand is growing along from a population of buyers who have been renting and now want to own and feel they have the wherewithal to do so. 
• Second, remember that the Miami-Dade area has the dubious distinction of being home to more underwater properties than every other market in America, excluding only Las Vegas. So if you’ve got the skills to work directly with banks.. or even with some underwater home owners… then Miami presents a large amount of opportunity.

My bottom line on Miami:  It’s an interesting market, and there is some opportunity scattered throughout it.  But be cautious… and let the core of every investment decision you make in Miami and elsewhere be this:  Always respect your own capital!

Well said, Carole!

Here’s what I hear in that report, my friends:  if you have a particular interest in Miami, then there are some reasons to dig deeper and look closer into specific segments showing promise… but what I do NOT hear is any reason to think that Miami should be counted on for profitability if you’re buying at retail and merely hoping for continued appreciation.

In every real estate investment decision, caution should be central.  But in some markets with histories of astounding volatility – and Miami is certainly one of those – caution should rule the day.  Ask yourself these 3 questions:

Is it SIMPLE?

Is It SAFE?

Is it STRONG?

It’s got to be ALL-3 to make the grade as an SDI-Strong investment… it’s got to be ALL 3 to be worthy of YOUR capital, my friends.

Folks, happy Independence Day and God Bless America!  Enjoy the day with your family and friends, and remember:

Invest wisely today, and live well forever!

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