Real estate project specialist explains the difference between buying a property and a share in a development project
South Florida has proven to be a good place to live and work. The population has grown by more than 300,000 in the last five years, with 75% of these coming from other states and countries. In the next three years, it is estimated that the region will have an average migration of 5.7%, or about 350,000 new residents.
Based on this data, Gabriel Souza, one of the partners of IBC - International Business Consulting, a consulting firm specializing in real estate business in the United States, affirms that there is a tendency to build rental apartment buildings in Miami for an income bracket equivalent to the Brazilian lower middle class.
According to Souza, there are differences between the traditional purchase of property, whether to rent for a season or for an annual period for housing, and the so-called passive model, in which the investor acquires a share of a development project, in which he or she does not have the responsibilities of maintenance, administration and still has a monthly or quarterly share, depending on the income distribution that the project offers.
He explains that in traditional renting, the owner is responsible for all the obligations of the property, except for the tenant's consumption expenses, such as electricity and cable TV, for example.
In Souza's opinion, "a property is an excellent vehicle to save money and maintain its value. However, this is pure speculation, because the acquisition of a property, as a rule, is not an investment, because the initial objective is to buy it for one's own use, as a second residence or summer house", he analyzes.
Souza also informs that a property quota for rental starts from an initial value of US$ 250 thousand to US$ 300 thousand, and half of it can be financed. As an example, he mentions a development that will be managed by IBC, the Napoli Towers, two six-story buildings, with 152 apartments divided into two distinct towers.
According to the businessman, while renting normally generates a gross income of 6% to 8% and discounting all expenses, the profitability is between 3 and 4% per year, in the passive model, the developer acquires the land, builds the project within 12 months and after the conclusion, rents the units and manages the complex for four years.
In the first year, while still under construction, the developer partner guarantees a 12% return to investors, i.e., one percent per month. After the beginning of the lease, the projection is for a 12.5% return, and from the second year on, the yield rises to 18% per year on average. "In the end, we add the return he had annually from the lease with the profit from the sale of the project as a whole, totaling a gain of approximately 29.5% per year for each of the shareholders," he estimates.
Corporate migration
For Gabriel Souza, there has been a large corporate migration to Florida as well. "Miami is already known as a second Wall Street because of the more than 140 international banks that have settled or moved to the city," he says. He further states that the Silicon Valley industry is also moving to the state due to the fact that Florida has no state tax.
In the entrepreneur's opinion, although Miami is the "darling" at the moment, there are other cities in South Florida that are also good investment opportunities, such as Homestead, Palm Beach, Broward, Weston, Boca Raton, Sarasota, Palm Coast, in short, several options that depend more on what the investor's goal is than the location itself.
*Gabriel Souza lives in Miami where he has been a real estate broker for 17 years.