Renting Vs Buying: How To Live Beyond Your Means!

The debate over renting versus owning isn’t dead. According to the WSJ, you can buy a 2 bedroom condo in Miami with a  wrap-around  balcony and stunning, jaw-dropping views for $400,000 (and this is after the market has already correctedly significantly). Apparently they come fully loaded too!

“You’ll have at least one private pool in the building, along with saunas and fitness centers and all sorts of other conveniences. Of course, you have a 24-hour concierge and valet parking. Many have private cinemas, bars, restaurants, spas and the like. They’re like cruise liners on dry land.”

But these facilities cost money. About $1,100 every month or $13,200 a year!

Assuming you put down 20%, and finance the remaining 80% at 6% interest rate, that’s going to cost you $19,000 per year. Then you still have 2.25% property tax which is another $9,000. Add everything up and your annual costs are $41,200.

And how much can you rent it out for?

Only $2000/month (that’s only $24,000/year). And the rents are dropping too! Even if you pay cash for the condo, your annual profit is $1,800 on a $400,000 investment! Even a bank CD pays more than that!

For speculators who bought at the top of the boom, real estate is turning out to be a lousy investment. But atleast renters can live well on only $2,000 a month!

Miami Condos Half-Price

Well I lost money trying to short WCI Communities (WCI) and Countrywide (CFC) by being too early. However, I was right on the money and both stocks are less than 50% from where I tried to short them.

Apparently, even the Miami condo market is down 50% from the peak too. Check out this interesting video.

I’ve heard that water-front lots in Florida that used to sell for $80,000 are now going for only $18,000! When the market turns, land gets marked down significantly more than houses. Thats why the builders are taking significant write-downs on their land inventory and are getting rid of a lot of it, or not exercising their options to purchase land at inflated peak prices.

At some point, Miami condos are going to be selling for much less than the price to build them (replacement value). That’ll be a good time to buy them. What do you think? Would you buy a condo/house if it was 50% off?