Luxury Real Estate Investors and the Recovery

“What Do Luxury Real Estate Investors Seek In the Recovery” is no easy question to answer. From Brickell to Miami Beach to Bal Harbour and beyond, to paraphrase a common refrain, “The beauty of an investment is in the eyes of the beholder (or investor).”

The real questions should be, “What do real estate investors hope to achieve in a real estate recovery?” and “How is that different from what condo / hotel investors are looking for?”

At Pordes Residential Sales & Marketing, we’re witnessing a robust real estate recovery. Inventories are falling as buyers and investors from across South Florida, New York and even Latin America and Europe return to the market in earnest.

What we’re seeing mostly is people interested in two distinct types of properties with two distinct purposes: Condominiums for strictly investment use, and condominium / hotels for personal use part of the time – and as an investment vehicle when not for personal or even business use.

In both cases, buyers who’ve tired of ill-performing investments want properties that will at least cover ongoing expenses. That’s the case with most condominium investors / buyers. They’re generally looking at condominiums that they can rent out to at least cover such carry costs as maintenance and taxes, and possibly insurance premiums. Given the market’s recovery, these investors should be able to earn roughly 5% to 7% return on their money.

Honestly, if most don’t have to come out of pocket for any costs, they’ll be pleased with the return.

Condominium / hotel buyers are a different lot. They want to enjoy their property. But when they’re not staying on property, they want the “hotel” component to earn favorable returns.

This is where the two investment properties – condominiums and condo / hotels – are remarkably different. Where investment condominiums often are rented seasonally or annually by an agent, broker or even the owner, condo / hotels are best managed as a traditional “hotel.” This means the owner’s returns are dependent upon average daily room rates (ADRs) and the nature of the rental management agreement (RMA) in place at the condo / hotel property.

In our opinion, condo / hotels are not designed or best utilized as commercial investments. They’re better when used as second homes or vacation getaways; the turnkey nature of the management rental component ensures that income from the property covers at least part of the owner’s ongoing expenses.

Moreover, a good RMA provides peace of mind to the owner that the management company handles all the details, from finding guests, handling security deposits and rental fees, and ensuring the process is hassle-free.

Regardless your investment intentions, now is a good time to purchase South Florida real estate. The bottom long-since passed, though we’re still at 30% to 60% off the height of the market. Buying right can ensure the investment is sound, now – and in the future.