Holiday Home Or Investment Property – What’s Right For You?

For investors looking for positive cash flow, the rental market, particularly in South Florida is seeing strong growth. Rents increased 2.9% year on year to 2012 in Florida as a whole, 5.6% in Miami Fort Lauderdale Metro and 3.8% in Orlando Metro area. On the other hand, if you plan to use the property as a holiday home and regular cash flow is not an issue, then a holiday home will be the perfect choice for you.

Each type has its advantages and disadvantages, especially in the US where land is divided into long-term ‘residential’ zones and short-term ‘holiday’ zones. Before you invest your money, make sure that you’ve found the right property type!

 

Holiday Home

A holiday home investor will crave the excitement Florida has to offer, the beaches, Disneyland and the fantastic climate. The chances are you will make a good return on your investment by renting the property and this is why historically, people are so attracted by the idea of a property in America’s Sunshine State.

Thanks to the great USA real estate downturn, property is now so cheap you can pick up villas in Florida with a pool for less than half the price of a two bedroom apartment in Bolton, UK. However, before we dive into the pool let’s take a closer look at some of the pros and cons, which one unfortunate investor failed to do fully before taking the plunge.

As the story of one UK investor tells us… “I bought a villa in Florida three years ago. I chose a location I knew attracted a fair amount of tourism. I figured that I could enjoy the twin benefits of a rental income in peak season and a place to spend my vacations and get away from the cold grey winter days back in the UK.”

So far so good, however he didn’t consider all the associated costs that he failed to cover due to longer void periods than he would otherwise have had with a Florida tenanted property. If we look beyond the obvious attractions and take off the rose tinted specs, we find there are costs associated with running this particular holiday home that this investor didn’t foresee at the time. Consider the following:

  1. Council Tax
  2. Community Fees
  3. Property Booking Fees
  4. Property Management Fees
  5. Property Cleaning
  6. Building Insurance
  7. Contents Insurance
  8. Furniture
  9. Pool Cleaning
  10. Electric Bills
  11. Water Bills
  12. Telephone Bills
  13. Internet Bills
  14. Lawn Cutting
  15. Annual Hotel Licence

As you can see owning a holiday home in Florida can be an expensive business and you will need deep pockets, even if the property appears to be a bargain. That said, depending on the area and the season, you might also see the benefit of $700 to $1,200 a week for a four-bedroom detached property in Florida.

You will need to rent the property for more than 30 weeks a year in Florida to make a potential return. Outside of peak season it will be more challenging to find regular tenants without you or your management company putting in some hard work on advertising your property and even more work dealing with the needs of multiple tenants during the main holiday season.

However, if you are looking for a lifestyle investment, then a holiday home is the right choice for you, but you must be prepared to accept the higher running cost that comes with such an investment.

 

Investment Property

The most profitable way to make money from Florida property is to choose properties that already have the tenants in place. Like any good investment this will require a degree of sacrifice, you won’t be able to spend your holidays in it, but it will turn the notion of a “holiday home” on its head.

A tenanted property in Florida will fund your holiday and more importantly pay for itself with steady cash flow. Your tenanted property is then your “holiday property” for a few reasons:

  • It will reduce your associated property costs by more than half.
  • It will produce a constant and steady flow of income.
  • You can use the savings and profit to spend on holidays.

A famous economist named Paul Samuelson once said, “Investing should be more like watching paint dry or watching grass grow, if you want excitement take $800 and go to Las Vegas.” 

Before you fly west, the exciting thing about Florida tenanted property is that there are now opportunities to earn a profit of up to $8,000 per annum based on net yields of between 7-10%. This is after you have paid out the following:

  1. Council Tax
  2. Community Fees
  3. Property Management Fees
  4. Building Insurance
  5. Contents Insurance

Now doesn’t that sound more exciting than watching paint dry? Also imagine those extra holidays you could have with that sort of rental profit. So, instead of taking a bet on a holiday rental, I would recommend a more relaxed route to property wealth generation, where the tenant pays your mortgage and costs – allowing you time off to enjoy your holidays. To increase your rental property value read tips on how to build a good fence by Fence Master.

If you have any questions or comments, please put them in the comments section below and we will get back to you! In the meantime, have a look at the properties we have for sale in Florida.

 

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