Author Topic: Miami Real Estate and FIRE  (Read 748 times)

elbg

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Miami Real Estate and FIRE
« on: January 24, 2019, 10:47:42 AM »
Looking for some advice or thoughts here.  I'm 32 and live in Miami.  I'm terrified that climate change will eventually destroy the city and, along with it, property values.  I'm trying to come up with the safest way to buy a long-term house without having it come back to bite me (or worse).

Right now, I have a wife and a toddler.  We'll probably have another kid and stop there.  We currently own a decent-sized house in an on-the-cusp-of-gentrifying neighborhood (houses 20 blocks south are twice as expensive, houses 10 blocks south are 30% more expensive, etc.).  Relative to our income, we bought our house for a very modest 445K with only about 25K down.  That is consistent with my general strategy of putting as little down as possible, so if I get washed out it minimizes the pain. 

But, we can't stay in our current house forever -- we will need a larger house in the next 2-4 years.  And I'm stuck as to what to do.  Do I renovate our existing house (potentially by taking out another line of credit on the home)?  Do I bite the bullet and buy a nicer, more expensive house and just come to grips that I may eat my down payment should things go south?  Is it feasible to hedge against the Miami real estate market?

I'm not sure anyone here will have the answer, but I'm keenly interested in your thoughts. 

Jon Bon

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Re: Miami Real Estate and FIRE
« Reply #1 on: January 24, 2019, 11:03:40 AM »
We need a bit of a case study here my friend. Based on the very little information you have shared 400k for a small house you will soon grow out of does not sound like a winner. Maybe you make 500k a year so it does not matter, but we can't give advice without numbers.

Are you committed to the area? Family/Friends/Job etc? Sounds like you dont think Miami has a great long term outlook. If your going to move maybe move somewhere about 20 feet higher? Florida is a big state and the US is a big country.  I am not gonna facepunch you for the comment about 'cant fit in the house' but others probably will.

I don't see Miami being 'destroyed' but a Katrina/NOLA style event is definitely possible. I was there right after, houses were um, available for a discount back then.





Boofinator

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Re: Miami Real Estate and FIRE
« Reply #2 on: January 24, 2019, 11:15:49 AM »
I grew up in Miami. There are topological contours in the city, and I would suggest looking into purchasing in locations that are on higher ground. Served my family well after Andrew (whether by luck or planning I don't know), when our house and street were dry while the next street over (and many others) were being patrolled by boats. (For what it's worth, we were in Cutler Ridge.) Here's a map that gives some idea of the topography:  https://pubs.usgs.gov/sim/3047/downloads/SIM3047.pdf

elbg

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Re: Miami Real Estate and FIRE
« Reply #3 on: January 24, 2019, 11:35:41 AM »
We need a bit of a case study here my friend. Based on the very little information you have shared 400k for a small house you will soon grow out of does not sound like a winner. Maybe you make 500k a year so it does not matter, but we can't give advice without numbers.

Are you committed to the area? Family/Friends/Job etc? Sounds like you dont think Miami has a great long term outlook. If your going to move maybe move somewhere about 20 feet higher? Florida is a big state and the US is a big country.  I am not gonna facepunch you for the comment about 'cant fit in the house' but others probably will.

I don't see Miami being 'destroyed' but a Katrina/NOLA style event is definitely possible. I was there right after, houses were um, available for a discount back then.

Here's some more info:
160K in 401k, maxing out each year, wife has 3% match.
Income is 500K right now just about, but will only last another year or two until it likely drops to the 250-300K range when I leave the private sector.
Have about 150K in savings/stocks right now -- will likely add another 150K next year and then another after that, if I stay at my current private sector job.
Committed to the area -- came here to raise a family, in-laws are here and they help a lot with the kid. Moving anywhere else is largely impractical.

As for Miami, there's really two concerns I have:  1) wiped out by the big one; or 2) reality of climate change sets in and insurance goes through the roof, property values dive, etc.  So even if my house is "safe" for a long time, the fear is that we reach a tipping point and everyone stops looking at Miami as a going concern.

I apologize that my questions are a bit amorphous.  I'm basically trying to figure out how to best allocate my resources to hedge against losing a lot of equity in my house.  And I'm not really familiar with construction/HELOC loans, buying and renovating properties, and so on.  So I'm trying to figure out the financial considerations of, say, putting 50-80K of work into my current house vs. getting a HELOC to do that work vs. buying a new house (at the right intersection of down payment vs. mortgage payments, etc.) and so on.  It's been very difficult for me to get a handle on things, as my scattered thoughts might betray.
 

waltworks

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Re: Miami Real Estate and FIRE
« Reply #4 on: January 24, 2019, 11:50:21 AM »
At your crazy high income and crazy low savings, your best bet is to just sock away money. If you're that concerned about owning in Miami, just rent.

-W

elbg

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Re: Miami Real Estate and FIRE
« Reply #5 on: January 24, 2019, 12:01:10 PM »
At your crazy high income and crazy low savings, your best bet is to just sock away money. If you're that concerned about owning in Miami, just rent.

-W

Not an unreasonable position, but renting an equivalent house is functionally twice our monthly house payments, so I don't see it as terribly viable. 

waltworks

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Re: Miami Real Estate and FIRE
« Reply #6 on: January 24, 2019, 12:20:48 PM »
Not an unreasonable position, but renting an equivalent house is functionally twice our monthly house payments, so I don't see it as terribly viable.

Hey, you're the one who wants to live in Miami but also is afraid your house will get flooded. TANSTAAFL.

Do a case study - but be ready for some major facepunching over that spending.

-W

LifeHappens

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Re: Miami Real Estate and FIRE
« Reply #7 on: January 24, 2019, 12:23:48 PM »
Florida homeowner here. I totally understand your anxiety. All of us who accept climate change is not only real, but already starting to affect the state, are essentially trying to "time the market" on our real estate.

It sounds like you're committed to staying in Miami for a while and definitely going to be purchasing a different house. If that remains true, I echo the advice to study elevation maps and choose the highest ground that is reasonable for your family. I recently moved from very low lying ground to a location on a slight ridge. 14 feet of elevation may not seem like a lot to the rest of the country, but in Florida it can be the difference between being flooded out by a storm and coming out with no damage.

TVRodriguez

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Re: Miami Real Estate and FIRE
« Reply #8 on: January 24, 2019, 01:02:52 PM »
I'm also in Miami.  I can relate to the climate-change-real-estate-value issue.  I've checked our elevation and we're at a high point in our neighborhood from what I can determine (although that's not saying much, tbh).  We're also in a small older one level Florida home that has a few feet of crawl space (or as I like to think of it, additional elevation!).  We fit 3 kids and 2 adults into our 1300 sq ft home and don't plan to upgrade ever.  But I like a small house.  YMMV.

elbg

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Re: Miami Real Estate and FIRE
« Reply #9 on: January 24, 2019, 01:27:57 PM »
To my Miami brethren:  the higher elevation points are well taken, but what about the long-term idea of the entire housing market just crashing if/when the realization sets in the Miami is going to be underwater?  That's my real fear.  Granted, my preoccupation with that scenario may be less logical than worrying about a more short-term calamity.

LifeHappens

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Re: Miami Real Estate and FIRE
« Reply #10 on: January 24, 2019, 01:37:32 PM »
I understand your fear of the whole market collapsing. Like I said, we're all trying to "time the market" on that real estate collapse, because it will happen some day.

You can approach this in a few ways:
1) Sell now and move to a different state. You've already ruled this out, so that's a no-go.
2) Rent perpetually. Again, you've ruled this out.
3) Stay in your current house. Pretty much ruled that out too.
4) Buy a bigger house in a "safe" area. This seems to be the only option you are truly considering.
5) Say YOLO and buy that beach house. Stupid, but lots of people do it.

If Option 4 is what you're going to do, you have to be willing to live with some risk. Another Andrew could come along or the high tide line could find your neighborhood before your kids are grown and you're ready to sell. If you absolutely can't live with that risk then don't buy the bigger house.

TVRodriguez

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Re: Miami Real Estate and FIRE
« Reply #11 on: January 24, 2019, 02:57:50 PM »
To my Miami brethren:  the higher elevation points are well taken, but what about the long-term idea of the entire housing market just crashing if/when the realization sets in the Miami is going to be underwater?  That's my real fear.  Granted, my preoccupation with that scenario may be less logical than worrying about a more short-term calamity.

I am definitely concerned for the future for this area.  Heck, even the county property appraiser's office is dropping the market value of properties on the beach.  I can't seem to convince my husband to leave, though, and you know what?  It's kind of nice here a lot of the time, so I'm going to bury my head in the sand for a bit longer.  And if/when the market crashes, it crashes.  It will suck, but I think we would be some of the lucky ones with means to flee and resettle elsewhere.

Boofinator

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Re: Miami Real Estate and FIRE
« Reply #12 on: January 24, 2019, 03:16:12 PM »
To my Miami brethren:  the higher elevation points are well taken, but what about the long-term idea of the entire housing market just crashing if/when the realization sets in the Miami is going to be underwater?  That's my real fear.  Granted, my preoccupation with that scenario may be less logical than worrying about a more short-term calamity.

I don't think this would happen, because you are assuming a short-term calamity on the order of total destruction from a long-term event. What is more likely to happen will be shocks, but nothing that is unmanageable, at least with the predicted level of sea rise this century. These shocks will be costly, and will drive a natural slow-scale migration from the city at some point which may depress housing markets but will not cause a collapse (unless your home in inhabitable). The examples of cities adapting to shocks are too numerous to list, but here's a partial one:

1) Miami, destroyed by two of the most destructive hurricanes of the twentieth century, is now one of the trendiest places to live.
2) New Orleans mostly sits below sea level, which was clearly evident post-Katrina. People have moved back and the Corps of Engineers continues to improve the defenses. (Granted, I'm sure property values dropped in the aftermath (especially in the flooded areas), but they seem to have bounced back.)
3) The whole country of the Netherlands, rather than fighting sea level rise, decided to push the sea out. So far it has worked out for them.
4) How many desert southwest cities have adapted to population surges and droughts that attack water supplies from both directions?

Bottom line, if you feel it is a big enough issue, go ahead and leave Miami. If you'd prefer to stay for intrinsic reasons (understandably), don't worry too much about it, as at that point it will be out of your circle of influence.

elbg

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Re: Miami Real Estate and FIRE
« Reply #13 on: January 25, 2019, 06:25:01 AM »
Thanks, everyone.  Good points -- especially the one about me assuming a "short-term calamity on the order of total destruction from a long-term event." 

Have any of you given any thought to putting a second mortgage on your house or something to that effect, to minimize the equity in your house? 
« Last Edit: January 25, 2019, 06:33:35 AM by elbg »

waltworks

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Re: Miami Real Estate and FIRE
« Reply #14 on: January 25, 2019, 07:14:10 AM »
Florida is not a non-recourse state. So if you decide not to pay the mortgage (because the house gets totaled for whatever reason) the lender would just obtain a deficiency judgement and come after you anyway. I don't know of any way to defend against that other than just being broke, which you aren't/won't be.

So really the minimal downpayment and LOC idea isn't useful (we'll set aside the ethical question) regardless unless you live in a non-recourse state.

-W

elbg

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Re: Miami Real Estate and FIRE
« Reply #15 on: January 25, 2019, 09:33:36 AM »
Florida is not a non-recourse state. So if you decide not to pay the mortgage (because the house gets totaled for whatever reason) the lender would just obtain a deficiency judgement and come after you anyway. I don't know of any way to defend against that other than just being broke, which you aren't/won't be.

So really the minimal downpayment and LOC idea isn't useful (we'll set aside the ethical question) regardless unless you live in a non-recourse state.

-W

Absolutely valid points, but there are still a bunch of ways to plan for that possibility.  But it's mostly one of last resort as a way to minimize the pain of getting walloped. 

waltworks

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Re: Miami Real Estate and FIRE
« Reply #16 on: January 25, 2019, 11:50:51 AM »
It's sort of tough to feel much sympathy for the $500k/year guy (with negligible savings) who wants to figure out ways to bail on his house if it floods and walk away from the mortgage/LOC...

-W

elbg

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Re: Miami Real Estate and FIRE
« Reply #17 on: January 25, 2019, 11:56:47 AM »
It's sort of tough to feel much sympathy for the $500k/year guy (with negligible savings) who wants to figure out ways to bail on his house if it floods and walk away from the mortgage/LOC...

-W

Thanks -- to be clear, I've noticed your numerous potshots throughout this thread on unsolicited topics (have I asked for any sympathy? is it possible that I paid off a lot of student loans, which kept me from accumulating savings? did I just get a new job or a pay raise, when I previously wasn't making $500,000? was someone close to me seriously ill and I had to care for them and pay for their medical treatment?), but have chosen not to respond.  I hope they bring you happiness.

To everyone else who posted in this thread and somehow resisted the urge to snipe at me -- thank you for your restraint.  I understand how difficult it must have been for you to hold back.
« Last Edit: January 25, 2019, 12:00:09 PM by elbg »

waltworks

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Re: Miami Real Estate and FIRE
« Reply #18 on: January 25, 2019, 01:31:35 PM »
Glad to help. Save up dough and you can stop worrying about the house issue.

-W

TVRodriguez

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Re: Miami Real Estate and FIRE
« Reply #19 on: January 25, 2019, 03:14:50 PM »
Thanks, everyone.  Good points -- especially the one about me assuming a "short-term calamity on the order of total destruction from a long-term event." 

Have any of you given any thought to putting a second mortgage on your house or something to that effect, to minimize the equity in your house?

Nope.  In fact, we went the opposite way and paid off the mortgage.  We like to keep things simple.

Mr. Green

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Re: Miami Real Estate and FIRE
« Reply #20 on: January 25, 2019, 04:44:26 PM »
I live in coastal North Carolina so climate change is a concern here as well. Coastal, moderate climate areas are very desireable place to live and always will be. The people with money will fight tooth and nail to keep their property as long as possible. However, as seas rise and storms become more intense building standards will tighten and insurance will continue going up. My solution is to only consider property on high ground and also own something as small as possible to keep insurance costs low, and then if they get unreasonable, it's easy to simply drop insurance altogether.