For high earners earning between $150,000 and $650,000 a year, a move from New York to Miami offers the potential to save thousands of dollars through a lower effective tax rate and a lower cost of home. life, according to a SmartAsset. study. Residents of San Francisco can realize similar savings by moving to Miami.
It’s not that Miami is cheap: the cost of living is 22.8% higher than the national average, and the median sale price for homes in Miami is about 34% higher than the national median, according to data from Redfin. But it’s still cheaper to buy a house, rent an apartment, or even go to a restaurant or grocery store in Miami than in notoriously expensive cities like NYC.
But all of that could change as more New Yorkers migrate to Miami in hopes of making the most of their income. Miami residents started taking notice of their new New York neighbors last year, blame skyrocketing rents in the city on the increased demand created by movers. The potential for savings is likely to decline as Miami home values and rents rise amid tight supply. Additionally, home insurance rates in Florida are greatly increasing due to climate change, premium increases outpacing all other states. And one skyrocketing property taxes for newly acquired homes takes new residents by surprise.
Saving Money Moving to Miami: Current Estimates
The difference in cost of living estimates for these two cities is the most significant. Costs in New York are overall 137.6% higher than the national average, while costs in Miami are only 22.8% higher. Reside in Miami means an effective tax rate of between 27% and 35% for high earners, depending on their income, compared to an effective tax rate of between 36% and 45% in New York. That means savings of nearly $49,000 for New York movers earning $150,000 a year and up to $195,000 for movers with an annual salary of $650,000.
While the difference in cost of living between San Francisco and Miami isn’t as pronounced, residents of San Francisco can still save a pretty penny by moving. Costs in San Francisco are 82.8% higher than the national average, 60 percentage points higher than in Miami. Meanwhile, effective tax rates are dropping from a range of 36% to 46% in San Francisco to 27% in Miami. A $150,000 earner in San Francisco can save just over $36,000 a year by moving, while a $650,000 earner can save just over $153,000.
The savings for a move from Chicago to Miami are less significant, 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 median selling price of homes in Miami is about 65% higher than of Chicago, according to Redfin. But nearly five-point tax savings on high-income earners means a Chicago resident earning $650,000 could still save nearly $11,000 by moving to Miami.
How will the migration from Miami affect the real estate market?
Miami home values have a long way to go before catching up with NYC – the median home sale price is expected to rise 46% as NYC prices stagnate, based on Redfin data. And house prices would have to rise more than that to negate the tax savings available to high earners moving from New York.
While Miami home sales prices have risen relative to the norm over the past year, home price increases have been tempered by rising interest rates and an uncertain economy. Meanwhile, housing supply in New York is still insufficient to meet housing demand, according to a US News housing market forecast from March. Realtors are still seeing bidding wars in certain areas and overall the market seems to be holding up. Housing vacancy rates are also down year over year. Without a drop in prices in New York, the cost of living in Miami would suddenly have to skyrocket to dissolve any savings movers can make.
Still, rising prices in Florida are already making the move less attractive, a local broker told the New York Post. While 10,824 New Yorkers moved to Miami in the first quarter of 2023, that number is down from 14,834 the previous year, according to data from the Florida Department of Highway Safety. Expensive cities in Florida, like Miami and Palm Beach, have seen the biggest influx of new New York residents – the data follows the narrative that the city’s high earners are looking for cheaper (but still luxurious) places to hang out. feel at home.
Is Miami the best shot?
High earners are likely to continue to reap the rewards of a move from New York or San Francisco to Miami for years to come. But there are other factors to consider before settling permanently in the Sunshine State. Recently, some new Florida homeowners have seen a increase in their property taxes, making them regret their decision to flee other states with higher tax rates. The tax burden of rising home values falls primarily on first-time home buyers and people moving out of state due to a law that caps rates for existing homeowners. .
There is another factor that is even more concerning. In just a few decades, scientists expect downtown Miami to be under water. By 2060, almost 60% of Miami-Dade County should be overwhelmed. But you still have years to live in Miami before climate change makes the city uninhabitable, right?
Maybe, but if a hurricane hits your property in Miami, you may have to live elsewhere while the repairs are being made. Not to mention that the cost of insuring your home could skyrocket. Some insurers have already started refuse to issue home insurance policies in parts of Florida after massive losses. You can still get a policy, but it will cost you. Florida experienced a 57% increase in home insurance premiums since 2015, the highest of any state in the country, as well as a 131% increase in flood insurance rates.
The problem will only get worse as more and more weather events affect Florida’s coastal cities. Eventually, Miami will become uninsurable. What could happen with the real estate market could then be catastrophic. If you’re stuck with a property that can’t be insured, it may also be difficult to sell.
The combined savings from the lower cost of living and lower effective tax rate are substantial for high-income residents of New York and San Francisco who choose to relocate to Miami. And remote work has made it easy for many high earners to pack up and move.
But as more and more people leave these expensive cities and migrate to Florida, real estate in popular cities like Miami will be affected. Potential savings could decline, especially if home values in San Francisco and New York decline. And New Yorkers looking to settle in a new state long-term should consider the effects of climate change before moving to coastal Florida. Still, if your job gives you the freedom to relocate, choosing an area with a lower tax rate and lower cost of living is a good strategy.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.