The allure of short-term rental income is driving Miami’s latest real estate trend, but experts warn of potential pitfalls.

In the sun-soaked streets of Miami, a new kind of real estate gold rush is underway. Developers are betting big on short-term rental-friendly condos, rebranding them as condo-hotels to capitalize on the booming demand from investors. But as the market floods with these units, industry insiders are raising red flags about the long-term viability of such investments.

The Numbers Game

The scale of this boom is staggering. According to recent data:

• Approximately 11,000 units across 36 planned or under-construction condo developments from Miami’s Coconut Grove to Hillsboro Beach in Broward County will be available for short-term rentals.
• This represents about half of the entire new development condo pipeline in the area.

Supply and Demand: A Delicate Balance

Craig Studnicky, a veteran brokerage chief, doesn’t mince words when describing the future of this market. “It will become a bloodbath of competition,” he predicts. The influx of units is expected to put significant pressure on daily rates, potentially eroding investors’ returns.

The Oversell Dilemma

Industry experts, including Studnicky and Roman Pedan, CEO of short-term rental operator Kasa, point to a concerning trend: developers overpromising on potential rental income. This discrepancy between expectation and reality can lead to frustrated buyers and, ultimately, impact resale values.

Historical Performance Raises Concerns

Condo-hotels have a checkered past when it comes to maintaining value. Studnicky notes that of all condo resales in 2023, a mere 2% were condo-hotel units, highlighting their potential lack of appreciation.

A Buyer’s Perspective

Not all investors share these concerns. Matthew Birnholz, owner of finance company Capital Infusion, recently contracted to purchase a one-bedroom condo at Rilea Group’s Rider Residences for just under $1 million. Birnholz sees the dual benefit of personal use and rental income as appealing.

“I hope the unit appreciates in value by 35 to 40 percent by the time Rider Residences opens,” Birnholz says, echoing the optimism of many buyers in this space.

The Bottom Line

While the short-term rental condo market in Miami is booming, potential investors should approach with caution. Studnicky offers a stark comparison: “You’d be better off buying Amazon or Tesla stock.”

As with any investment, due diligence is crucial. Prospective buyers should carefully consider factors such as location, design, price, and management before jumping into Miami’s condo-hotel pool.