As an investor, you have been eyeing real estate investments in South Florida. You are considering a single-family property or maybe a fourplex to maximize your profits.
However, as housing prices continue to climb, is a rental property in the Sunshine State still worth the high price tag?
At Royal Empire Realty, we believe the short answer is “yes!” But we also believe in educating our clients. We want to help you make the best decision for your budget and goals.
Here is what you need to know about renting in South Florida before you make your investment decision.
Renting in South Florida has increased 57%
Over the last year, the cost of renting in South Florida has seen the highest increase in the country. In the Miami, Fort Lauderdale and West Palm metro area, rent has skyrocketed more than 57% between March 2022 and March 2021.
The overall median rent for South Florida is now $2,988 a month. That means that the South Florida rental market is in company with the most expensive places to rent in the country. It ranks fourth behind the Californian cities of San Jose and Santa Clara at $3,075; San Diego at $3,016 and Los Angeles at $3,000 a month.
Renting in South Florida is now more expensive than the average rent of the New York City, Newark and Jersey City metro area.
A year ago, the average cost of two-bedroom homes across Miami, Fort Lauderdale and West Palm was $2,188. Today, that same type of home would cost $3,415.
It is more than just a numbers game. For the families looking for a suitable housing option, the South Florida rental market feels desperate.
For every available rental option, renters are offering to pay hundreds more than the requested monthly price and pay several months in advance. Homes are being rented out before they are even available for a tour.
Families already living in a rented home are equally on edge. While their rent may have been reasonable less than a year ago, now they are waiting to find out how much it may increase when their lease renews this year.
Low inventory is driving up housing prices
Why has renting in South Florida gotten so expensive so fast? The main reason is a sheer supply and demand equation. Whether you are buying or renting, housing is limited in South Florida. And the frenzied demand for housing in 2021 only got worse as the year wore on.
South Florida became a popular place to relocate during the pandemic as remote work opened relocation options in warmer climates. Local employment also has grown at a healthy rate, compared to other markets.
Furthermore, construction in the Miami metro area has waned behind the demand for a number of years. That trend may be improving, according to the National Association of Realtors. In December, single-family construction permits increased by 4.8% over a year ago and is 19% above the long-term average.
However, increasing inventory is a slow correction process. I have said it before, but Royal Empire Realty projects a slow stabilization in the housing market. In the meantime, inventory will continue to boost home prices.
Younger families priced out of home ownership
The prices on South Florida homes are expected to continue to increase through this year, albeit at a more steady rate of 6%.
That may not be enough for younger families looking to buy their first home. Millennials, in particular, represent a relatively large group of potential new homeowners. They now face a second housing crisis in their adult lives.
Ironically, just as they are financially recovering from the first housing crisis, their sheer numbers are increasing strain on housing and driving up prices. Even families with savings enough for a down payment under normal circumstances are still on the sidelines of the housing market. They are still renting, at increasingly higher prices.
It might be that some Millennials are not even interested in owning their own homes.
However, according to a recent Redfin survey, the reason nearly a third of renters nationwide are not buying a new home is because they cannot afford it. Thirty percent are struggling to save for a downpayment.
South Florida certainly falls within that trend, if we are not leading the pack.
Income does not match housing increases
As you might expect, the runaway South Florida rental market is creating a crisis in the affordability of housing overall. In February, South Florida had the highest rent share than any other metropolitan area in the country.
That means the average South Florida family is paying 59.5% of their household income on rent. Affordable rent should come at just 30% of the average household income. South Florida families are paying twice as much.
By comparison, that is 14 percentage points higher than the average household in Los Angeles, California – the second least affordable housing market – spends on rent. The South Florida rental market is far above the rest of the unaffordable metropolitan areas across the country.
Luxury rental properties on the rise
Part of the tightening in South Florida’s affordable housing options is due to a specific market trend. In February, the area added a substantial amount of luxury rental units, according to Realtor.com.
This goes in hand with the influx of out-of-state buyers looking for a higher-end lifestyle to match the improved climate. The luxury rental market is a hot market for investors with enough capital to participate.
Rental properties are solid investments
Right now, the South Florida rental market is extremely favorable for investors. Even with the increase in interest rates projected to cool the market, prices will continue to rise. The demand for housing options means that rental prices will continue to remain profitable.
South Florida offers a wide range of different investment properties in a variety of neighborhoods. Royal Empire Realty are your local investment experts. We understand the diversity South Florida has to offer. We can help you find the rental property that meets your investment goals.
Browse through our South Florida communities and the available properties. Then give us a call. The market is moving fast, and you will need passionate Realtors to help you secure your next investment.