When looking at investment property in South Florida there are different considerations than in other markets because of the unique nature of real estate in Florida. For example, it’s not uncommon for an inexpensive condo in Palm Beach County to come along with massive fees from the HOA. Assessments are another hitch when considering condo investments.
As a quick example, consider Boca West in Boca Raton, Florida. While you can buy a condo in this gated golf course community for as little as $19,500, there is a membership fee of $70,000 added on! The savvy investor is thinking, so what, now the condo is still just $89,500. While this is true, the membership fee is just the beginning. There are additional monthly fees and memberships in many of these condos that can add up to, literally, thousands of dollars per month. We’ve seen HOA fees in luxury condos regularly exceed $5k/mo. Boca West is an especially infamous example.
Not all inexpensive condos in Florida come with big fees, however. It’s still possible to get a good value in the condo market, but you have to really shop around. With artificially low interest rates from the Fed, investors are searching for yield wherever they can find it, and saturating the real estate market. Which leads us the possibility of investment in mid-market properties that rent for high prices. For example, a community in Boca Raton called Millpond is in high demand and currently has every single house for sale under contract in prices ranging from the $400s to $700s. Millpond attracts families looking for single family homes in a safe neighborhood. Because the community is not gated, the HOA fees are pretty low, about $175/mo which includes community maintenance and cable. Millpond’s board negotiated a seven year deal that includes HD and other benefits in the cost. So you spend, for example, $500k on a Millpond house and can now rent it for as much as $4k/mo.
The return on a property at this level is going to be more highly weighted towards equity appreciation and less to income, though even with a low money down mortgage the property should be close to positive cash flow initially. The biggest risk on an investment like this is that it is outperformed by lesser cost condos and single family homes. Boca is expensive, though, and a community like Millpond (or similar communities of Timbercreek and Lakewood Oaks nearby) is considered almost a starter community.
In sum, when considering investment real estate in a hot market like Palm Beach / Broward, there are more considerations than just price point. You want to consider fees, location, potential for appreciation, and finally cash flow. After all, cash flow is the principal reason for investing in real estate at the end of the day. If you’d like to know more about any of the communities mentioned, contact Drew Nichols, the broker at Palmetto Park Realty in downtown Boca Raton, Florida.