Florida’s average rental price has skyrocketed in recent years and locals are blaming New York’s new residents as the main culprit. A new survey released by Realtor.com revealed that rent in the Miami area has risen nearly 60% since March 2020, the biggest increase of any US metro area. But are New Yorkers to blame?
Main reason: Florida’s tax friendly environment
The reasons for New Yorkers to invade the “Sunshine State” are several. However, according to Florida Governor Ron DeSantis, the main factor is the fiscal environment.
Northern states, such as New York and Illinois, practice predatory tax policy, while Florida is a friendlier state in this area, including exemption from State Tax.
According to DeSantis, these northern states will not be able to review their tax policies anytime soon, which will make the exodus continue.
Florida welcomes 849 new residents PER DAY!
In the most critical period of the pandemic, the state of Florida received more than 1000 (one thousand) new residents daily.
While Florida welcomed about 210,000 new residents in 2021, New York’s population shrank by 400,000, according to the new US census.
Official state projections further estimate that the state of Florida will receive, on average, 849 new residents per year through 2026.
New Yorkers are among the top new residents. But other US states are also losing residents to Florida.
High real estate purchase prices stimulate rent
All this flow of new residents are looking for housing, which sets up a very high demand in a real estate market already unbalanced by the pandemic.
Inventory levels are the lowest in history. High demand combined with very low supply have driven the average property price in Florida soaring. In 2021, in the Orlando area, the average property price rose more than 20%.
High prices make real estate unaffordable. Rent is often the only option
Prices, for many Florida residents, have become prohibitive for purchase, which drives demand for the more affordable rental option.
In addition, many foreign residents, despite having greater purchase potential, also prefer to rent at first. “It is natural that an outsider, who does not know the region, prefers to rent first in order to understand the market, the neighborhoods and the types of residence. In a second moment, they would make the purchase”, explains Heloisa Arazi, broker and owner of AMG International Realty.
“Miami, in particular, is a very different metropolitan area from the ones we know in the north of the country. Here there are many canals, lakes and oceanfront options. It is important to understand the lifestyle and where to buy”, adds Heloisa.
With so much demand for rentals, there would be no other consequence than the skyrocketing prices.
From a financial point of view, rent is not a good option compared to buying
Despite being a more affordable option, rent is not worth it from a financial point of view. The option of financing the property, even with higher interest, is even more advantageous.
“Even with higher interest rates, the monthly rent ends up being higher than the financing installment.”, explains Heloisa. “In addition to being a high expense, the rent can always be readjusted by the owner, who will follow the market appreciation. Bank interest, after contracting the financing, has its readjustment limited.” guide.
In fact, when financing a property in Florida, the buyer can choose to make simple or floating interest contracts. When opting for fixed interest, the rates are a little higher, but they bring greater security to the buyer. When opting for floating interest, interest can rise throughout the contract, but within a band, that is, it is a rise limited by the contract.
New York is not the only culprit
But it’s not fair to put the blame solely on New York. As we’ve already mentioned, other US states are also losing their residents to Florida. In addition to northern states, California also plays a big role in this influx of new residents.
The state of California, which is home to Silicon Valley, is losing professional companies and technology professionals to cities like Miami and others in the Orlando area, such as Lake Nona, for example.
Large corporations across the US are moving to migrate their divisions (partially or fully) to Florida in search of the state’s most business-friendly environment. The Disney group is the most recent example.
“When a large corporation decides to migrate its operations to Florida, the impact on the real estate market is frightening, as there are thousands of employees looking for housing in a short period of time”, warns Carlos Barros. “The pressure on prices at that specific moment is enormous”, he explains. “Another point is that many of these employees bring their families, whose members may or may not live in the same house, multiplying the demand factor”, he adds.
Opportunity for investors
Domestic and international investors are eyeing the Florida real estate market and acting as major players. It is a unique moment in Florida’s history where the imbalance caused by the pandemic brings promising opportunities.
With rent at very high prices and no indicators of decline, it makes sense to finance the purchase of the property and rent. With the rent income, it is possible to meet the financing installment. “Rental will follow the real estate valuation in Florida, which is super promising and shows no signs of slowing down, even in the long term. Interest rates, despite being higher, do not tend to grow as much as the appreciation of the property, which makes the leverage strategy through banks interesting”, guides Barros.
In fact, even with the recent rise in interest rates, the real estate market continues to appreciate, since the imbalance between supply and demand for real estate is very high. There are no signs that new properties will enter the market anytime soon, as a development can take up to 6 years to be delivered.
Investors have already realized this opportunity and invaded the Florida real estate market, becoming today one of the biggest competitors of local residents and the so-called First-Time-Homebuyers.
Data shows that more than 20% of properties sold in Central Florida last year went to investors.
The presence of investors is so great that Florida recently set a new record. It is the US state with the highest number of idle properties.
Many of the investors do not opt for financing and pay in CASH (cash), which makes competition for the same property uneven, as most Residents and First-Time-Homebuyers opt for financing. Homeowners tend to prefer spot offers.
Data collected by Floridarealtors.org shows that from the beginning of the year to March, there were 2,770 cash sales in the Orlando, Kissimmee and Sanford metropolitan areas, which represents a 30% increase over last year.
Expected return on rent in Florida is one of the highest in the world
Florida today offers one of the highest rental rates of return in the world.
Not only domestic residents are migrating to Florida, but foreigners as well. With the end of border lockdowns and the rise of digital nomads, the US is being sought after by people all over the world.
The impact can also be felt in the Vacation Homes sector, which reached occupancy records in late 2021, especially in the Orlando area. The city of Orlando welcomed nearly 60 million visitors in 2021, even with closed borders to other countries. This number is expected to advance in 2022, beating the record of 75 million seen in 2018, before the pandemic.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida. If you want to know more about opportunities in the Florida real estate market, contact me right now and chat with me by WhatsApp: +1 305 318 698 (Heloisa Arazi).