Foreign investors with property managers charging them for managing the AirBnB? Money laundering?

Maybe. Most of them aren't foreign, but then S FL has always been a great place for money laundering.

Maybe some people are counting on the value of the property continuing to rise? So they think they will take a loss for a couple of years and then sell for a profit?

Or they plan to move in the future and want to buy now before prices go up further. Renting defrays carrying costs.

Or they are just bad at math, LOL!

Loss can benefit a corporation's interests, over time. Maybe they're in it for the tax game...and the money laundering.

Thinking about this some more, on a news show one of the hosts, in L.A., said that there are lots of foreign investors where the condos are sitting totally empty. They are just investing in the property and it is not being used when they could be rented.

Loss can benefit a corporation's interests, over time. Maybe they're in it for the tax game

Umm, what?

This comes to mind

https://www.youtube.com/watch?v=XEL65gywwHQ

Thanks, crl_. Yes, I think that's likely, but common sense should tell one that in an area where a 700 sf house cost ~$90K three years ago and now you can't touch much for under $350K, that's not sustainable, especially in the poorest part of a metro district, where the average income is about $36K. There's a limit to how long that can go on, and a limit to how many people want to vacation in an area like that. There are entire blocks of AirBnB, every single house.

Or they plan to move in the future

Yes, that would be sensible, mtn, but most of these entities are buying up many houses. Since the stock market has been more volatile, they're grabbing them up faster than ever, and I just keep thinking of the recent studies that say that in fact flipping, rather than subprime mortgages, was the biggest cause of the last housing crash.

Gsciencechick, Miami Beach has been like that for a long time now. Those ginormous new condo towers are creepily empty. We even had a development like that way up here during the last frenzy. They were so popular that you had to join a lottery to be allowed to purchase one, and the complex wound up with close to 2000 units where only 400 had been planned originally. Some neighbors of mine moved up there and they were the only people in their building the whole time they lived there, which was very long because prices dropped so much when all the investors walked away. There ought to have been a separate category for "Desperate Harbor Isles FSBO" in the local listings.

That is very odd, especially with the recent price appreciation. Now the prior prices seem too low, but the current prices seem like an inflated value, right? And it's LLCs plus private investors? Now, real estate is one of the few categories left you can take a lot of deductions. Perhaps some negative cash flow is offsetting gains elsewhere? Or providing some other tax shelter by providing backup for a company operating "principally" in real estate?

In an individual case, some people buy in advance of using a property full time. Even a little bit of income helps offset holding costs and you are able to use that loss to offset other gains. A colleageue's parents are going to buy the kids a property a few blocks away from ours, in order to provide a smooth transition of assets.

Another interesting aspect is the burden on communities when short-term rentals are not well managed. The city of Austin outlawed STRs about two years ago when we were looking at property there. It got our attention, since we were buying investment property and needed to be able to use it as a STR, so we had to be very careful about where we looked. The issue has been that investors come into a hip destination like Austin, buy a house in a residential neighborhood, and then rent it out every weekend for bachelor parties, etc. I cannot even IMAGINE living in that nightmare. To have your neighborhood turned into a party every weekend with excessive noise, cars, music in the late hours, etc. Ugh. So after trying to police it and work with investor/owners, Austin just shut it down. I've read that lots of other coummunities are watching how this unfolds in Austin and may copy it.

I understand renting out a single family home, but I don't like when this is done in a building. Both DD's live in co-ops. I dislike having strangers have a key to the front door of the building.

I do understand what you mean Best.

In my youngest which has over 90 units, I don't think this is allowed. But my oldest lives in a small building, not well managed and she ha complained about "renters" making too much noise. After all, these people are on vacation, visiting the city and are in holiday mode.

Yes, I know several people in the Orlando area who live in nice gated neighborhoods that are rendered horrible by having an AirBnB party house there. It's just swell having non-stop bachelor parties next door to you. :(

I'll be curious to see how it plays out in Austin. The area I was talking about has already had discussions about restricting short term rentals a couple of years ago. Their current city commission is unlikely to do anything like that, but I can see the time coming when it may become unavoidable.

You know, mtn, I'm beginning to think you're right about people just being bad at math.

Here's a listing for a $750K house that just popped up today:

Tremendous opportunity for this vacation rental compound. Current owners have been very successful offering the entire property to rent as a whole, sleeping up to 16 people, or also listed separately as one 4 bedroom house and two 1 bedroom apartments. Stays busy year round, a great location and proximity to everything, turn key and has over $20k in future bookings ready to transfer to new buyer.

But the house is listed as a foreclosure.

Well, related question:

Why would someone buy a house for 4.5 mio plus 53K property tax/year if the same house is for rent for 9K/month?

Unless you're from abroad and need to park your money outside your country.

Nosoccermom,

People believe that home prices always go up in the long run, and they are generally right, because of inflation and population growth. Home prices have been going up each month for 70 months now; before the crisis they had gone up 182 months in a row.

But I would say that most people at those price points do not necessarily buy a home for the economic rationale. They want the freedom to do with it as they wish, and in most cases higher end buyers are going to renovate. I would also venture to say that whoever is renting it at 9k/mo is just trying to cover some carrying costs while they wait for a sale; high end properties can take along time to sell. It is not like I would expect to rent it at that level indefinitely.

One additional reason to buy in Fla. is to shelter assets from potential creditors. Not my area of expertise but I believe they have an unlimited homestead exemption? Which would mean that you could go bankrupt or be sued but no one could take the equity in your home.

The "foreigners parking money" thing is popular but i think that is really buyers speculating on appreciation. Most foreigners park money in Treasuries, which far more liquid, with no carrying costs, and safe!

That 4.5 mio house is actually quite modest.

And homes in that area sell quuckly, for that price.

Yes, in FL a primary residence is exempt from bankruptcy seizure, but not investment property. You have to be homesteaded in the house, I believe.

I was thinking that investors might tolerate a small cash loss and larger depreciation losses to offset gains elsewhere. It seems like it wouldn't pencil out, or be worth the hassle, and I guess that confirms it. Also, I thought someone might use multiple properties in an attempt to qualify as a real estate professional, and benefit under the latest tax law changes. Once again, it seems actual cash losses would not be tolerated and you'd have to ask if there were easier, more lucrative ways to do this.

BTW, I had not realized insurance was so high in Florida. Yikes! Low rental prices, elevated home prices and high carrying costs seem to be a puzzling combination.

I have a colleague whose (non US) parents are in the process of buying property in three continents to leverage geopolitical risk and smooth inheritance for their children.

TW, I had not realized insurance was so high in Florida.

It varies quite a bit. In in the Miami-West Palm metro area it can be as high as $10K a year for a smallish older home, but upstate I have a friend who lives a very low-lying area about a mile from the ocean who pays $1200 a year.