A home-turned-rental is a better bet in Miami than in 7 other US cities. Here’s why
A new study supports what many local real estate investors have long claimed: buying a home in Miami brings better returns than in many other U.S. cities.
The study by Betterment, a money management adviser, looked at single-family homes used as rental properties in 13 cities. Miami-Dade ranked No. 5 — behind Las Vegas and Tampa but ahead of New York and San Francisco.
To determine its rankings, Betterment looked at the annual rate of appreciation of a median-priced home, the annual property tax rate and the median rent for a three-bedroom house to determine the internal rate of return. The data was pulled from a variety of sources, including the US Census.
In Miami-Dade, the IRR was about 10% based on a median home value of $331,600, annual appreciation of 4% and rent of $1,148. The calculation assumes a property tax rate of 1.1%.
“That’s a good rate of return,” said Nick Holeman, Betterment’s senior financial planner. “You’re looking at a return as high as buying a stock.”
Although annual appreciation is greater in San Diego (4.9%), Los Angeles (5%) and San Francisco (5.5%), Miami brings higher returns when rent and taxes are factored in. The cities with the highest IRR were Las Vegas (13.29%), Denver (12.5%), Charlotte (12%), Tampa (11.5%) and Portland (11%).
At 3.1%, New York had a lower appreciation rate than Miami. Of the 13 cities on the list, New York — a city with few single-family homes — had an IRR of only .66%, making it the lowest in the study.
“The report shows that owning a home in Miami is a better investment than in these other high-cost cities like New York,” said Holeman.
And the home price appreciation will likely remain as is for at least the next 10 years, he said, making Miami real estate a secure bet in the near future.
The study looked only at married couples with a household income of $106,300. It focused on three-bedroom, detached single-family homes — by far the most common purchase.
Data cover the years 1987 to 2019. Sources included the Federal Reserve Bank of St. Louis, the United States Census Bureau, National Association of Realtors, Federal Housing Finance Agency and the S&P Dow Jones Indices for cities.
