Customers & Prospective customers ALWAYS ask me if now is a good time to buy or sell. The old adage goes:
The truth is most of the wealthiest people in history had a regular pattern of real estate acquisition. I advise my customers to hold real estate as long as possible and they should only consider a sale of real estate if the subject property no longer suits their portfolio goals, unless of course, they need to raise cash and reduce debt quickly due to some form of financial duress.
This article was originally written in 2017 but never finished and published. I have updated very little of the content because both my opinion and the underlying fundamentals have largely remained unchanged; in fact, recent circumstances have resulted in further supporting my original forecasts and conclusions and I identify the areas where these updates to the content exist.
ALL CONTENT HEREIN IS MY OPINION, and I encourage feedback both positive and negative. I am not selling securities, bonds or any other financial instruments as I am not licensed for those type of transactions. I am a real estate broker and derive my livelihood from aiding people in buying, selling, leasing, and managing real estate. I also am paid to do both real estate & business consulting, Commercial Real Estate Broker Price Opinions, and aid businesses in their expansion or contraction via short-term management engagements.
IF the Federal Reserve actually does move forward on the path of “Quantitative Tightening”, I expect the market will worsen (the bubble will deflate or pop), however, there are underlying facts & fundamentals which will cushion this blow, at least here on the beaches and in Downtown Miami. I am a proponent of this policy as I am a fiscal conservative and think it is a small step in the right direction after decades of very poor monetary & fiscal policies; it is time to unwind this madness! Clearly this never happened. The Federal Reserve attempted to raise rates during the Trump Administration and the market reacted very poorly resulting in the Federal Reserve quickly reversing course because sensible monetary policy is NOT politically popular. They saw they were about to prick the proverbial “bubble”, panicked, and reversed course. Then COVID-19 happened and the Fed has since gone on a money printing spree and, it appears, will be buying every type of asset under the Sun, such as corporate bonds, not just Treasuries.
- Built-in Demand: First, the Miami Beaches remain, internationally, one of the most desired places in the world to both visit and live. Prior to the COVID-19 Pandemic, Miami was the second fastest “emerging major city” in the United States. Post-pandemic, I would not be surprised if it was now the fastest emerging major city given the sheer volume of people fleeing the communism of the North and the West and the governors-who-must-not-be-named! This fact alone means that any substantial correction/worsening of the market downtrend will bring Buyers in growing numbers as asset values decrease (deflation). Already, numerous billionaires are standing ready to purchase any and all defaulted notes for virtually every real estate asset class. The deals & steals smaller investors were able to get in the prior mortgage crisis and decade long foreclosure & short sale markets will be far more difficult to obtain, at least in the Miami Real Estate market, should a similar downturn occur because of these huge players in the market who have already called their banking relationships and told them to bring any defaults to them. It is difficult to state, given how distorted the economy is, whether or not the deflationary forces at work might not be countered by looming inflationary forces on the horizon; let’s face it, the Federal Reserve has printed A LOT of money (they are both printing money and doing “Quantitative Easing”, a shell game of assets between the Federal Reserve and the member banks, all of which is a debasement of our currency, and thus our purchasing power, AND an abuse of our Reserve Currency Status in the World). To put this in perspective, the US Government & Federal Reserve minted/printed a combined 865 Billion Dollars in physical currency in the first 200 years of this nation’s history. In just the past 10 years the Federal Reserve has printed nearly 4+ Trillion Dollars in physical currency! (and far more since this article was written. As of December 2020, 35% of all dollars ever printed were printed between February 2020 and December 2020. ) This number has only been further exacerbated by the events of 2020 and the Federal Reserve has all but stated it will not seek to raise interest rates for at least another two years and they are actively looking to overshoot their 2% inflation target in order to get an average of 2% inflation when evaluated against the prior 4+ years. Furthermore, consider the radical drop in prices between 2008 & 2010. By 2011 the market had stabilized and then took off like a rocket ship. Wow…the world did not end! What a surprise! Even in the doomsday Dollar scenario the world will not end either. Savers will get crushed and asset holders AND Sellers who reinvest their profits back into real estate will get commensurately wealthier; and this brings us to our next bullet point.
- Real Estate is an inflation hedge: Let’s say the worst happens, the USA has a sovereign debt crisis, the Federal Reserve begins printing money to pay debts with debased currency and inflation goes hyperbolic. In terms of Dollars, your real estate assets will go up accordingly. I am not saying this will be painless, probably far from it, as everyone’s cost of living for things like food and other services will go up even faster. However, one thing is for certain in this situation, you would NOT want to be holding Dollars, you would rather be in physical assets like real estate, gold, and other precious metals; heck, commodities in general and the companies that produce them will be great assets to hold. In such a case, long-term leases would also be at an advantage because their leases are explicitly written in specific dollar amounts with a set, usually small, percentage increase every so often, typically annually. Miami Beach Real Estate remains an excellent choice and has, historically, shown tremendous resilience and continues to experience record-setting demand.
- Market History: They say “Past performance is not an indicator of future performance.”, and every investment firm and professional says this to shield their asses from litigation; but if it were really true in a general sense, as in an overall market sense, then market technicians and other data-dependent traders & business people would be out of business because no one would be investing if the charts looked like a roulette table’s results. Let’s just say, it is a pretty damn good indicator, but not perfect. In addition, I do not know a single Behavior Analyst who would agree with that statement. The markets are almost entirely ruled by human behavior, perceptions and ultimately, emotions (and we programmed this behavior into the “black boxes” and other “artificially intelligent” systems that perform automated trades). Time and again prices of real estate and stocks go up far more slowly than they go down. This is because Greed climbs a wall of worry as Buyers bid assets higher while remaining cognizant of any and every news story and downtick, however temporary, in the market. Fear simply causes everyone scramble to sell in a panic causing the inevitable market overshoot to the downside thus creating the buying opportunities that only the savvy, cool-headed & forward thinking investors usually get to enjoy. Warren Buffet once said, “Be fearful when others are greedy, and be greedy when others are fearful.” Bottom Line: In the past 10, 20, 30, 40, 50, 60, 70, 80, 90 and 100 years, the TREND in Southeast Florida, has been UP! Accept it. Has the prior couple of decades been wrought with government meddling? Yes. Has the current market been artificially inflated with cheap money & money printing (again)? Yes. Will there be additional corrections and problems, greater in some areas and less in others? Yes. If the government FINALLY stopped meddling in the free market and simply let the cards fall where they may, once the dust settled, would the uptrend resume? Yes, and see bullets 1, 2 and 4 & 5 for those reasons reasons.
- Population: People will always need a place to live, and the population in the United States, barring something terrible, is unlikely to be any less tomorrow than it was today. The more people you have, the more housing you need, and you can bet that many if not most of them who ever visit Florida are going to want to live here and will Buy Miami Real Estate as a result! It has been an ongoing dream of many to live on the beach, or at least in the nice weather of Florida. Miami-Dade County & Broward County are built out to the Everglades; there is no more land. Population growth drives both demand and scarcity, two very important components of building value/equity in an asset, and ultimately making a profit on the sale of such an asset (or on the ever increasing rent you receive from leasing such an asset).
- Debt is the New Asset: At some point in the future the Federal Reserve will lose control of interest rates. This is my opinion, and I am as certain of this as I am certain that the Sun will rise in the East tomorrow morning. Consider the massive deluge of people who refinanced their existing homes or bought new homes, second homes, investment properties, etc, all with 2+ and 3+ percent interest rates. This fact has already helped drive the Southeast Florida markets higher AND will continue to support the current price levels. There is no incentive to sell a property you are effectively being paid to own when you look at the REAL interest rate versus inflation. All of this money was borrowed at ridiculously low rates and is being paid back, over a very long period of time, with less valuable currency; the Dollar depreciates every time we print more money. Not only is there little to no incentive to sell, as owning and holding makes more financial sense, the vast majority of the market comfortably owns their property(s) and if they were going to part with their virtually free property, no one is going to want to take once cent less than what their mortgage is at the very least.
But after all of this, I still have not truly answered the question. All I have done is supported the supposition that the world will keep spinning regardless of market volatility and that fundamentals of Miami Real Estate Investment are stronger than most. My father once said to me “Chris, it is NEVER a good time to Buy a House, Have a Baby or Start a Business; you just have to do it!”.
In my view that is very sound advice but I would rather phrase it a different way, “It is always a good time to Buy Miami Beach Real Estate so long as you buy real estate right”, and, “It is ABSOLUTELY a good time to Sell Miami Real Estate right now because I have Buyers who are willing to OVERPAY for your property AND interest rates remain at record lows.”
To know the difference between buying or selling real estate correctly or incorrectly, you hire someone like me today, get an honest opinion, sit on my mailing list for years if necessary waiting for real estate opportunity that matches your investment criteria, and then Buy a property (like some customers of mine have). Your future referrals to me are far more valuable than any commission I can collect from completing a sale with you at an inopportune time in the market so there is no need to be in a hurry, but you should focus on building a professional relationship with someone who knows what they are doing and then follow their advice when the time comes. That is how you truly get into the game, you engage a broker early and get advice from them until your opportunity arrives.
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