Trulia recently released results from its Rent vs. Buy Index, which tracks whether buying a home or renting is less expensive in America's 50 largest cities, based on current market conditions. This index calculates the price-to-rent ratio using the average list price compared with the average rent of two-bedroom apartments, condos and townhomes. So I was curious- How this index specifically applies to Miami Beach condominiums, especially price reduced waterfront condominiums in such ultra-luxury buildings as The Continuum on South Beach, The Murano Grande, and Icon South Beach in the South of Fifth Neighborhood. I also decided to compare some of the more affordable waterfront condo buildings (due to the recent drastic price reductions), such as The Floridian and The Bentley Bay along Miami Beach's West Avenue.
Example #1: The Continuum on South Beach- North Tower #905 (Regular Sale)
Closed Sales Date: 06/30/10
Sales Price: $1,200,000
Rental Price: $8,000/month (2009 Actual Rent)
Price-to-Rent Ratio: $1,200,000 ÷ ($8,000 x 12) = 12.5
Example #2: The Murano Grande at Portofino #1705 (Bank Owned Sale)
Closed Sales Date: 10/08/10
Sales Price: $548,400
Average Rental Price: $4,000/month
Price-to-Rent Ratio: $548,400 ÷ ($4,500 x 12) = 9.8
Example #3: Icon South Beach #906 (Bank Owned Sale)
Closed Sales Date: 03/15/10
Sales Price: $475,000
Average Rental Price: $4,000/month (2009 Actual Rent)
Price-to-Rent Ratio: $475,000 ÷ ($4,000 x 12) = 9.8
Example #4: The Bentley Bay #1411 (Bank Owned Sale)
Closed Sales Date: 08/31/10
Sales Price: $460,350
Average Rental Price: $3,500/month (2009 Actual Rents)
Price-to-Rent Ratio: $460,350 ÷ ($3,500 x 12) = 10.9
Example #5: The Floridian (West Avenue) #2010
Closed Sales Date: 01/31/10
Sales Price: $270,000
Average Rental Price: $2,250/month (2009 Actual Rents)
Price-to-Rent Ratio: $270,000 ÷ ($2,250 x 12) = 10.0
The results for Miami Beach, South Beach waterfront condominium buildings to be exact, indicate a slightly HIGHER index (as compared to downtown Miami) due to the downward pressure on annual rental prices. Miami Beach condominiums have been competing with an oversupply of downtown Miami condominiums available for rent at bargain prices. Also of note, the lower-end condominiums with LOW index values in buildings such as the Floridian, Murano Grande, and Icon which are either bank owned or in a short sale situation make much more financial sense (from a cash flow perspective) than the ultra-luxury buildings such as the Continuum on South Beach or the higher end & premier luxury condos. This also makes sense, as the ultra-luxury condo buyer looking for a premier floorplan / view is typically less price sensitive when it comes to potential rental cost vs. purchasing scenarios.
Trulia's Rent vs. Buy Index - Interpretation Key
Price-to-Rent Ratio of 1-15: It is much less expensive to own than to rent a home in this city.
Price-to-Rent Ratio of 16-20: It is more expensive to own a home in this city. The total costs of ownership of a home in this city are greater than the costs of renting, but it might still make financial sense depending on the situation.
Price-to-Rent Ratio of 21+: The total costs of owning a home in this city are much greater than the costs of renting.
Top 10 Cities to Buy vs. Rent:
1. Arlington, TX -Price to Rental Ratio: 7
2. Fresno, CA - Price to Rental Ratio: 8
3. Miami, FL - Price to Rental Ratio: 9
4. Mesa,AZ - Price to Rental Ratio: 9
5. Phoenix, AZ - Price to Rental Ratio:10
6. Jacksonville, FL - Price to Rental Ratio:11
7. Detroit, MI - Price to Rental Ratio:11
8. Columbus, OH - Price to Rental Ratio:12
9. El Paso, TX - Price to Rental Ratio:13
10. Nashville, TN - Price to Rental Ratio:14
Methodology:
The price-to-rent ratio uses the average list price compared with the average rent on two-bedroom apartments, condos, townhomes and co-ops listed on Trulia.com. This Index considers both the total cost of home ownership against the total costs of renting (examples of costs for both home ownership and renting outlined above). Note that variations in maintenance dues among the different buildings located in Miami Beach is not taken into account in this study, strictly the sales price. Monthly maintenance dues range from a high of $1.18/S.F. at Bentley Bay to $ 0.72/S.F. for Icon South Beach.
Data Sources: Southeast Florida Multiple Listing Service
