A new wave of real estate investors buying single-family homes to flip them at a higher price or add them to the rental market are contributing to South Florida’s housing affordability crisis, according to a new study by realtor.com.
According to the study, the Miami metro area (comprised of Miami-Dade, Broward and Palm Beach) ranked third on a list of the top 10 cities in the U.S. with the highest percentage of home sales used for investment purposes.
The study shows 17% of homes sold in South Florida during the second quarter of 2019 were bought by investors, up 1.3% over the same period last year.
The national rate of investor sales was 7.7% — the highest rate of speculation since 2013.
The study defines investment sales as ones with a corporate or non-individual’s name on the deed. Flips are defined as homes that were sold and then resold at a higher price within a 12-month period.
The average flipper made a profit of $62,700 (not including the money they spent on improvements to the property) according to ATTOM Data Solutions. That translates to profits between 20% and 33% of the home’s value after repairs.
Two other Florida cities made the list: Tampa, which clocked in at number four with 16.2% of sales to investors, and Orlando, which ranked eighth with 15.1% of sales.
St. Louis took the top spot on the list with 18.8% of home sales going to investors. Birmingham was second with 17.3%. Other metros on the list were Memphis (16.1%), Las Vegas (15.7%), Phoenix (15.1%), Columbus (13.8%) and Philadelphia (13.6%).
George Ratiu, senior economist for realtor.com, said there are important nuances to consider when looking at the kinds of investors active in each of the top ten markets.
“For some investors, it’s a play for value, such as St. Louis, where the median home sales price is $189,900,” he said. “Miami is a different play. Miami has diversified economically; trade is playing a larger role now that the Port of Miami has become a major east coast port. There’s strong international interest in the city. So for Miami it’s about rent growth, because not only can you flip a property, but if that fails you can also rent it out.”
Ratiu said that despite the growing interest by investors, the housing market is not poised for another implosion like the one in 2008, when rampant speculation led to a national crisis.
“Banks are being much more diligent during the financing process than they were in 2005,” he said. “Applicants are required to have much higher credit ratings and FICO scores now. And the silver lining is that mom-and-pop investors are now able to invest in more modest properties and they tend to be more responsible landlords than corporations.”
Still, Ratiu said that the uptick of investment sales in South Florida makes it more difficult for first-time buyers to compete. According to the Miami Association of Realtors, median home sales prices jumped 2.8% in August — the 93rd consecutive month of increases — to the current $370,000.
“Usually, investors who are active in the entry-level price range of the market pay with cash and are looking for a quick flip,” he said. “That has a negative impact on Miami’s overall affordability.”