Things to Consider

Take a moment to answer the following questions. Your answers will help to guide you through the spectrum of specific choices that you will have regarding your vacation home location, floor plan, finances, and management company.

1. How often will you use the property?
2. How often will your immediate family use the property?
3. Do you want the property to be rented to vacationers when you are not using it?
4. Do you have an available source of vacationers to which you could advertise?
5. Will you consider advertising and booking the property yourself?
6. Is your principle residence in the United States?
7. How much of a down payment can you comfortably afford?
8. How much of a monthly commitment can you comfortably afford?
9. How long do you plan to own the property?
10. Will the property eventually become your residence?
11. What amenities do you desire in the community?
12. Do you prefer a condominium or single-family residence?
13. How many bedrooms and bathrooms will the home need?

As you process the information that follows, there is the possibility that some of your answers to the previous questions will change. Let's take a look at the reasons why each of the above questions should be considered carefully.

1. How often will you use the property? The more often you plan to use your property, the more attention you will want to pay to features, colors, and materials that you personally like. But if you will be using it very little or not at all, then it would be wise to adopt a true investors mind set…buy only what is minimally necessary to get the best return. Most home buyers have to be reminded of this concept frequently All the home really needs are the features desired by renters. Tourists searching to rent accommodations for their next vacation primarily ask these basic five questions: how many bedrooms, how many bathrooms, does it have a pool, how close is it to the attractions, and how much? The management company can boost the nightly rate by selling additional features like a spa/hot tub, a television in every room, a pool heater, more square footage, a game room, a computer, an outdoor grill, etc. But even though those things are generally worth having and usually pay for themselves, overall they are not as important as the basic five (See "What about options and upgrades").
   
   
2. How often will your family use the property? If you plan to let your extended family use your property, will they pay for their share of expenses, mortgage payment, insurance, and taxes, etc. or will you foot the bill and also absorb the loss of rental income? Where will you draw the line on usage free of charge? Will you let friends also use the property, just like relatives? This could get really expensive for you once the word gets out! Many management companies will help you out with this challenge and tell you to let the friends and relatives know that you have an exclusive agreement which requires that all tenants book their stays through them, with no exceptions…"Sorry Uncle Bob, my hands are tied".
   
   
3. Do you want the property to be rented to vacationers when you are not using it? If you want to rent the home on a nightly basis when you are not using it, then it will be necessary to purchase in a community that is zoned for short-term rental. In the state of Florida, any home can be leased to a tenant for a period of time longer than six months. But, if it is to be rented for terms as little as one day up to six months, then it must be approved by the county for short-term rental. The approval comes in the form of "short-term rental zoning". The developer applies to the county for that zoning prior to the start of the project. Many unaware investors have suffered the shock of discovering that the home, or homes, that they had just purchased could not be rented on a nightly basis to vacationers. Naturally, those stunned homeowners still have the long-term rental income producing ability of the property to fall back on. However, if rented out annually, the property may not be available when the owners want to use it for their vacations (see "Orlando Area Short-Term Rental Zoning").
   
   
4. Do you have an available source of vacationers to which you could advertise? If you consider all of the people that you know, come in contact with, or have advertising access to, it is probably quite a large number. How many of those people do you think have rented accommodations near Walt Disney World? How many of them will need accommodations near Walt Disney World in the future? For every night that you can book your home yourself, your profit margin increases by the amount that you would have paid to the management company to do it for you. How much effort will it take, and how much will it cost, to post a few flyers, advertise in the church, company, or neighborhood bulletin, or create a website? A minimal amount of effort can create a respectable return and serve to supplement the efforts of your management company (see "Your involvement and usage").
   
   
5. Will you consider advertising and booking the property yourself? A few of my wiser clients have shown the forethought to purchase a lot in a subdivision, contract the home to be completed in six months or so, and enjoyed the luxury of getting a successful jump on booking the property before the payments started. After the considerations in #4, why not set a goal to eventually do all of the booking yourself? As your business grows you may need to purchase another rental property to supply the demand (see "Your Involvement and Usage").
   
   
6. Is your principle residence in the United States? If your principle residence is not in the United States, the finance options available from lenders are not quite as broad as they are for a U.S. resident. In most cases, a non-U.S. resident will be required to make an initial deposit of at least 20% to 30%, if not higher. But, that is not necessarily a disadvantage. Although U.S. residents can make down payments of much less, most management companies recommend at least a 20% to 30% initial deposit in order for the rental income to offset expenses on a monthly basis (see "Financing").
   
   
8. How much of a down payment and how much of a monthly commitment can you comfortably afford? Because your answer to question #7 is going to affect question #8, let's review the whole financial picture at once. As previously stated, your realistic goal should be to break even and have all the expenses paid by the rental income on a monthly basis. Based on your chosen management company's yearly occupancy projections, they should be able to recommend the initial amount of deposit necessary on the home in order to break even when the property is financed at the current market rates. If that recommended amount of deposit is too high, you can either search for another management organization that generates more income, or accept the monthly shortfall that you will be paying. If you can handle the projected monthly deficit, then go ahead and put less money down. Your return on investment will improve over the short run, but you run the risk of possibly experiencing a month, or more, when the shortfall is more than you can afford. The worry and pressure this causes may not be worth the gamble to you (see "investment Return").
   
   
9. How long do you plan to own the property? How long you plan to own the property should influence your selection of home upgrades and the finance program you choose. Remember - invest the minimal amount necessary to get the highest return. If you plan to sell the home in four years, before the carpet and vinyl flooring needs to be replaced, then why would you opt to pay more to upgrade to tile? If you are not sure when you will sell the home, a conservative approach cannot hurt. Assume that you are going to sell in four years or less. You can always upgrade later if you determine that you are going to keep the home for a longer period of time (see " What about options and upgrades?").
   
   
10. Will the property eventually become your residence? If you plan for the home to eventually become your residence, then it may make sense to add those extra upgrades that you want, now. Although they could be added at a later date, you might want to avoid the inconvenience and rental income loss that will occur when the home is remodeled (see "Options and Upgrades").
    
    
11. What amenities do you desire in the community? There are a wide range of amenities offered in communities, from golf courses, tennis courts, restaurants, and play grounds, to cyber cafés, exercise rooms, convenience stores, and theaters. As the demand for income producing vacation homes grows, so do the offerings in new communities. Call my office at 1-800-951-2004 to ask for more information concerning the latest community amenities.
    
    
12. Do you prefer a condominium or a single family residence? Although I believe that a single family detached residence is the better investment, many homebuyers prefer a condominium, and you can usually buy both for about the same price. It really boils down to your own preference.
    
    
14. How many bedrooms and bathrooms will the home need? From a rental perspective, a four-bedroom home is more flexible than a three; a four-bedroom home will accommodate up to 10 people, while a three bedroom will sleep up to eight. In other words, the bigger the home, the better for rental. Most management companies have told me that the demand for larger homes has been very high, especially when they have multiple master suites. And, keep in mind that many of the upkeep expenses of a larger home are the same as for a smaller one. Although the utilities are higher, the additional rental income of the larger home could well offset the increased bills, with profit to spare. Even so, my recommendation is that you purchase the size that you feel comfortable buying. You can always upgrade later if you desire.
    

     

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