Second Home Buyers in Miami Feeling Property Tax Squeeze
Soaring property tax bills are making it increasingly burdensome to buy or keep a second home in Florida, raising questions about the future of a real estate niche that’s long been a mainstay of the state’s economy.
As the state Legislature grapples with how to lower property taxes, second-home owners in the nation’s largest vacation-home market are feeling particularly acute pain. That’s because snowbirds, and those who rent out second homes for extra income, don’t qualify for Florida’s homestead exemption, a designation that caps increases in property tax assessments.
Prospective buyers used to focus only on whether they were getting a good price for a vacation home or whether Florida mortgage loan terms were favorable. The big issues now: property taxes and insurance.
”A few years ago, people wouldn’t ask about taxes,” said Carlos Justo, principal of Sol Sotheby’s International Realty in Miami. “Now the tax issue is the single-biggest factor why a lot of transactions don’t happen.”
Justo said one Venezuelan client who has owned a Miami Beach home for nearly a decade has listed it for sale after growing weary of the escalating property taxes.
Coldwell Banker, the largest real estate brokerage firm in Miami-Dade, has tracked a 20 percent drop in second-home purchases in 2006, following a 10 percent decline in 2005.
”I just lost a sale because of taxes,” says Jennifer Macia, an Esslinger Wooten Maxwell Realtor who specializes in waterfront properties.
Spanish clients who plan to spend part of the year in Miami were close to buying a waterfront home on Key Biscayne, she said, but they balked when they saw the $260,000 property tax bill.
”It was a $14 million property, and had it not been for the taxes, I would have had a deal,” Macia said.
OTHER OPTIONS: High taxes coupled with scarce and costly hurricane insurance also have complicated the South Florida housing market’s efforts to compete with less expensive second-home markets from the Carolinas to Panama, real estate agents say.
That’s worrisome because second homes - along with residential investment properties - make up a multibillion-dollar chunk of South Florida’s housing sector. Roughly one-third of the homes in Miami-Dade and about 40 percent of those in Broward aren’t covered by the homestead exemption and cap on assessment increases, available only to permanent residents.
As the top vacation-home market, Florida lures buyers from around the nation and the world, including Europe, South America and Canada, with properties running the gamut from modest mobile homes to vast waterfront estates.
”It’s a huge market,” said developer Edgardo Defortuna of Fortune International in Miami. “Second-home buyers definitely need to be included in any changes in Tallahassee, because they are the ones paying the most. They have been impacted the most by high taxes the last four or five years.”
The tax disparity for second-home owners stems from the Save Our Homes provision, enacted in 1995 to shield homeowners from skyrocketing property taxes. The measure caps property-assessment increases on primary residences at three percent a year, protecting longtime homeowners from the bite of big tax increases.
As home values have climbed, the tax burden has increasingly shifted to those who don’t enjoy the cap. That means foreigners who don’t have permanent U.S. residency, owners of rental homes and owners of second homes.
DRAG ON SALES: With construction under way on thousands of new South Florida condos targeted at wealthy foreign buyers and other part-time residents, the spiraling tax burden is an added drag on an already sluggish real estate market.
”If the tax increases go on unchecked, ultimately it will cut into our ability to market to people outside the state of Florida, no question,” said Philip J. Spiegelman, chairman of Miami-based International Sales Group, which markets new luxury condominiums for developers.
LEGAL CHALLENGE: Some second-home owners/Florida mortgage holders have done more than complain about the tax inequities: Four Alabama residents who own vacation homes in the Florida Panhandle are challenging the legality of the lopsided tax law in court.
In a suit seeking class-action status that was filed in Leon County Circuit Court in February, the second-home owners claim that the Save Our Homes law - by saddling out-of-staters with a disproportionate tax burden compared to Floridians with homestead status - violates U.S. constitutional guarantees of unfettered commerce, interstate travel rights and equal protection.
”No one can argue that Florida isn’t part of interstate commerce,” says William M. Slaughter, a partner with Haskell, Slaughter, Young & Gallion in Birmingham. Slaughter says he has been tracking the inequity in Florida property taxes for several years and joined with several other attorneys and Alabamans with second homes in Florida to challenge the law. ”No state has more out-of-state participants in the market than Florida,” he said.
Though some second-home owners hope potential property tax reform will help them out, it’s far from clear whether they will be included in any legislative relief, said Jose Cancela, co-chair of Floridians for Property Tax Reform.
”Homesteaded properties will probably end up having the priority. That is where the majority of the relief will be,” Cancela said. ”The reason: They are the voters.” But some second-home owners are voters, too.
SOURCE: The Miami Herald
May 8th, 2007 at 11:45 am
By By to My Retirement Castle:
In 2000 I used all my savings to buy a pre-construction condo in South Beach. I have been renting the unit so far to pay off the mortgage.
I am now ready to take it over to retire but I can no longer occupy it! Last year the real estate tax was up from $11,500 to $17,000.
May 27th, 2007 at 12:52 pm
I bought a tiny cottage in South Beach in a crime-ridden neighborhood years ago. My activism helped bring streetlights and tear down a burned out house where crack smokers congregated. My husband and I transferred out of state, and planned to return. That dream is over. The tax bill of my 1,000 sq. foot house rose from $6,000 to over $12,000 in just a few years, though the street is not zoned for high-density development. A hulking wreck of a halted building strews debris over the street during hurricanes. Other buildings have spent years in constructions around us. This limits the ability to charge rents that would cover the tax hike. Not to mention hurricane insurance! So wave goodbye to snowbirds, past and present. Florida excels at killing the goose that lays the golden eggs–and why? So local bureacracies can grow at the expense of the state’s economy.
October 16th, 2007 at 1:24 am
MY mom and dad died and left me there house that they paid 35 k for in 1967. I had a condo at the time they passed and rented it out because i did not want the memories but I was s till too attached to sale for I was told by them to hold on and always own land for you and the families future. Well I cant sell cause there is no more market and the price I would probablly get after taxes would not be enough to even get another condo. furthermore the taxes are close to 8k a year for a house that the city of north miami no longer cleans the streets sign or roads in a proffesional manner and crime is high. the politicians who we the americans gave to are now having a field day with billions of dollars in tax revenue and where is it going? Straight in there corrupt pockets!
November 13th, 2007 at 3:34 pm
Everyone looses in the end
OK this is what happens when you own and rent out a rental property to your family and friends that can’t afford to buy a house yet.
First someone buys the property, lets say you buy it before the property has increased, maybe back in the year 1997. maybe you were break even with your cash flow on the property. So this owner bought low. And now after all the major increases in taxes (because they don’t have a cap raises to what the appraiser says that it’s worth 100%) you are then 3,000 dollars negitive a month. So then you have to increase rents, which the market can’t bare, so then the owner can’t afford to fix up the property because of the negitive cash flow. So basically the tax increases are causing rents to go up and substandard living for renters, because the owners can’t afford to fix them up. And it’s going to keep getting worse if you don’t change the tax rate for rental property. If you don’t open up the market to investors more and more property is going to go on the market and really lower your properties worth. Plus if you want to move and you can’t sell you home and want to rent it out. Your property taxes will increase to 100% of what the property is worth. So basically your stuck in your home forever, because you won’t be able to sell it, no one wants to buy into this crazy tax structure.