You Could Save Thousands by Moving to Miami, But It’s Not All Roses—Here’s What You Need to Know

For high-income earners earning between $150,000 and $650,000 a year, moving from New York City to Miami offers an opportunity to save thousands through a lower effective tax rate and reduced cost of living, according to SmartAsset. . Study, San Francisco residents can get similar savings by relocating to Miami.

It’s not that Miami is cheap—the cost of living is 22.8% higher than the national average, and average selling price According to Redfin data, the number of homes in Miami is about 34% higher than the national average. but it’s still Cheap Compared to buying a home, renting an apartment, or even going to a restaurant or grocery store in Miami in extremely expensive cities like NYC.

But that could all change as more and more New Yorkers migrate to Miami in hopes of getting more out of their means. Miami residents began paying attention to their new neighbors from New York last year, Blaming the skyrocketing rents in the city on the increased demand created by movers. Savings are likely to be offset by rising home values ​​and rents in Miami amid limited supply. Also, homeowner insurance rates in Florida are increasing dramatically Due to climate change, premium increases have exceeded that of every other state. and a property tax increase New residents are in for a surprise for newly acquired homes.

Saving Money With Miami Relocation: Current Estimates

The difference in cost of living estimates for these two cities is most significant. Costs are 137.6% higher overall in NYC than the national average, while costs are only 22.8% higher in Miami. Living in Miami means that higher earners have an effective tax rate of between 27% and 35% depending on their income, while NYC has an effective tax rate of between 36% and 45%. This means a savings of approximately $49,000 for NYC movers earning $150,000 a year and $195,000 for movers earning $650,000 a year.

Although the difference in the cost of living between San Francisco and Miami is not that great, San Francisco residents can save a lot of money by relocating. Costs in San Francisco are 82.8% higher than the national average, 60 percentage points higher than in Miami. Meanwhile, effective tax rates have dropped from between 36% and 46% in San Francisco to as low as 27% in Miami. A person earning $150,000 in San Francisco could save a little over $36,000 a year by taking this step, while someone earning $650,000 could save a little over $153,000.

The savings are less for moving from Chicago to Miami, showing how the tax savings can be offset by an increase in the cost of living. Miami is more expensive than Chicago—the cost of living in Chicago is only 17.1% higher than average—and, notably, the average sale price of homes in Miami is about 65% higher chicago, according to Redfin. But tax savings of nearly five digits among high earners means a Chicago resident earning $650,000 could still save about $11,000 by moving to Miami.

How Will Miami Migration Affect The Real Estate Market?

Miami home values ​​have a long way to go before catching up with NYC – median home sale prices would need to increase 46% while NYC prices would remain stable, based on redfin data, And home prices would need to increase further to cancel out the tax savings available to high-income earners relocating from NYC.

While home sale prices in Miami have risen relative to the norm in the past year, rising interest rates and an uncertain economy have led to an increase in home prices. Meanwhile, New York City still has an insufficient supply of homes to meet housing demand, according to US News. housing market forecast since March. Real estate agents are still witnessing bidding wars in some areas, and overall, the market is looking stable. Rental vacancy rates are also declining year over year. Without declining prices in New York City, the cost of living in Miami would need to skyrocket suddenly for the savings movers to reap.

Still, rising prices in Florida are already making the move less attractive, a local broker told the New York Post. Whereas 10,824 New Yorkers According to data from the Florida Department of Highway Safety, the number of people driven into Miami in the first quarter of 2023 is down from 14,834 last year. Expensive Florida cities like Miami and Palm Beach saw the largest influx of new residents from NYC – the data follows statements that the city’s higher-income earners are looking for less expensive (but still luxurious) places to call home are doing.

Is Miami the Best Move?

It is likely that higher earners will continue to benefit from moving from NYC or San Francisco to Miami in the years to come. But there are other factors to consider before relocating permanently to the Sunshine State. Recently, some new Florida homeowners have noticed a increase their property taxes, causing them to regret their decision to flee to other states with higher tax rates. The tax burden of rising home values ​​primarily falls on homebuyers who live in their first home and those relocating out of state due to laws capping rates for existing homeowners.

There is another factor that is even more worrying. Just a few decades from now, scientists expect the city of Miami to be underwater. by 2060, about 60% Miami-Dade County is expected to be inundated. But you still have years to live in Miami before climate change makes the city unlivable, right?

Maybe, but if a hurricane hits your Miami property, you may need to live elsewhere while repairs are made. Needless to say, the cost of insuring your home can skyrocket. Some insurers have already started refuse to issue Homeowners insurance policies in some parts of Florida lapse after heavy damage. You can still get the policy, but it will cost you. Florida has experienced 57% increase in homeowner insurance premiums Since 2015, flood insurance rates have increased by 131%, the most of any state in the country.

The problem will get worse as more extreme weather events affect Florida’s coastal cities. Eventually, Miami will be uninsured. What could happen to the real estate market then could be catastrophic. If you get stuck with a property that cannot be insured, it can also be difficult to sell.

Bottom-line

The combined savings from the lower cost of living and reduction in the effective tax rate are substantial for high-income residents of NYC and San Francisco who choose to move to Miami. And remote work has made it possible for many high-income earners to pack up and move easily.

But as more people leave these high-priced cities and migrate to Florida, real estate in popular cities like Miami will take a hit. The potential savings could be small, especially if home values ​​decline in San Francisco and NYC. And New Yorkers looking to settle in a new state for the long term should consider the effects of climate change before relocating to coastal Florida. Still, if your job gives you the freedom to relocate, choosing an area with a lower tax rate and cost of living is a good strategy.

Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BiggerPockets.