Moving to Florida-Florida Real Estate Network-Living plus Relocating

One of the best real estate deals nowadays is to own rental property. Is that really possible? Yes, however, it must be a certain type of property. The property should be a vacation property able to support short term

rentals throughout the year. In order to be effective at turning a second home into a vacation home, there are a series of considerations and steps that you will need to be aware of  and undertake. These will be described in more detail below.

Legal Considerations

Most of what is stated below will deal with Florida and local laws. However, most vacation homes in other states will have similar rules that are applicable. The author’s previous experience has been with short term rentals, for the most part.

Florida basically permits an individual or corporation to rent a dwelling, whether a condominium or home. In some cases, the local county where the property is located, will insist on an inspection of the property, however for the most part, this isn’t the case. In the case of condominiums, often the condo association will handle some of those issues.

The major interest the state and county has is whether or not the owner of the property is collecting and paying sales tax on the rentals and remitting it on a regular basis. One other consideration: before trying to rent your property out, make sure that the local ordinances support short term rentals. One further consideration is that it might be advisable to set the property up as a corporation for both tax and legal protections. Consult an accountant or attorney for advice in this regard.

Sales Tax

Sales tax on short term rentals are applicable to hotel rooms, rental homes and condominiums for stays of less than 180 days. With declining local tax revenues throughout the country, states like Florida, are now more vigilant in their efforts to collect sales occupancy taxes. In Florida, sales taxes on short term stays are especially important because the “occupancy” sales tax is typically double the regular sales tax rate.

For instance, if a county has a sales tax rate of 6% or so, one expects that the occupancy sales tax would be approximately 12%. Obviously on a week long stay with rentals of $900 or so, the sales tax collected for the state would be approximately $90. This will add up over the course of a year and is an extremely attractive source of revenue for the state. Therefore, a prospective owner must collect and pay the taxes or face strong legal action by the state.

Licensing – Any type of business activity must be licensed in the county where the business activity occurs. This is an occupational license. The fee for one may be anywhere from $75 and up. Sometimes in the case of a condominium, the condo association’s license is all that is required. Second, you may have to apply for a state license for your rental property. This will of course, entail another fee. This is renewable every year. In certain case, the state may insist upon an inspection of the property before granting a license.

Rental contracts – In line with the above, it’s important to have a well written, short term rental contract that protects you as the property owner. It is worth one’s time, expense and avoidance of future problems to have an attorney craft such a document

Safety Considerations – Most of the safety precaution are common sense, but it’s important that the property conform to the letter of the law. Additionally, there are some safety considerations that will be applicable. A short term rental home must have a fire extinguisher and a working dead bolt lock for all entry doors. Typically, the home must also have a fire alarm and an emergency light that automatically illuminates, if power is lost. The home must be easily accessible or easy to exit in cases of an emergency. If the home is a condominium on an upper floor and there is a balcony attached to the property, there must also be a restraining fence to prevent someone from accidentally falling.

Billing/Payment – Renting out a vacation property is a bit different from most other types of rental arrangements and business activities.

• • It is such a short term transaction that it is important for the owner to obtain all payments well in advance of the rental period. If someone decides to rent your property and fails to pay in a timely manner and then cancels right before they were due to arrive, you’ll not usually be able to replace the rental.

• • If they pay by check and the check doesn’t clear and the renter has already left, you might have a difficult time forcing him to make good on the rental and is certainly not worth the hassle. Therefore, insist on payment either by check (long in advance of the rental) or Paypal. Even funds transfer is open to abuse. Although in some cases, if the renter is arriving from another country, you may not have a choice.

Insurance – It is always vital to carry good insurance to protect against damage, weather disasters and liability in the case of accident.

Rental Season Profitability – In most case, if a vacation rental can accommodate virtually all seasons, such as the Keys, Tampa Bay area or South Florida, the total yearly rentals generated will be significantly greater on average, than properties that may only be rentable within a single season, such as a ski area or more northern lake properties. Typically, properties that have a year round rental attraction can usually show a profit within the first few years of ownership. This may be a major consideration when you are planning to purchase such a property.

Rentals Policy – When you are setting up a rental property, you will need to decide if you are interested in longer term seasonal versus shorter term vacation rentals. Most that wish to rent their property should avoid the spring break situation, for obvious reasons. Longer term rentals, one to three months, tend to be less profitable because rents will always be lower than a short term weekly rental. Also, short term renters usually spend minimal time at a property, while longer term renters will normally consider your second home to be their second home when they rent. The advantage is that because weekly renters are spending more time outside there will almost always be less wear and tear on the inside of your property.

Furniture, Equipment & Flooring – In order to make a vacation property attractive, the furniture should be of a reasonably high quality to accommodate years of rental abuse. In the case of sofas, the material should be treated with a stain resistance compound. Further, the appliances should be relatively new and modern and not prone to break down or malfunction. In most cases, avoid whenever possible, carpeting. It is a magnet for dirt and stains. Instead, install a good ceramic or porcelain tile which is worth the expense to avoid future headaches. Wood floors are attractive, but expensive and will require more maintenance.

Maintenance and Repairs – Typically, the short term renter pays for the exit cleaning. Therefore, it will be of paramount importance to locate cleaning people to come in and change the linens and perform the basic cleaning after guests have departed. In line with the above, a potential vacation home owner will need to have a working relationship with local maintenance people that can unblock a sink, repair damage or fix any appliances, when necessary.

Real Estate/Property Management,  Advertising, Web pages, Etc.

Once a property has been set for short term vacation rentals, you might decide to have a real estate agency handle the rentals. This will certainly relieve you of the day to day worries that a vacation property might generate. On the flip side, real estate agencies usually demand a hefty per cent of the rentals and 15%-20% is not out of the question. Also, because they are handling other vacation properties as well, you have built in competition.

You might consider handling the rentals directly. If you wish to attempt that, list your property online and also develop a simple, straight forward web page. Vrbo.com, cyberrentals.com, gulfcoastrentals.com and rentflorida.com are a few places to list your property. There are many others. The cost is typically $100 or less per year. At the same time, you can also have your own web site linked from any of the above sites and vice versa. Nowadays, the internet is the best approach and value for a vacation property owner. Print advertising is very expensive and not nearly as effective as it once had been.

For the most part, vacation rentals can be extremely profitable and easy to handle for the average vacation property owner. You can decide how often and how much you wish to rent your vacation home. At the present time, it still receives favorable tax treatment from the IRS, particularly if you organize the home as a corporation. All in all, if the proper precautions are taken, it is an effective approach to personal property management.

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Buying a home, whether for investment or actually planning to live there is challenging in today’s real estate market. And with current economic conditions, you may be hesitant to take the plunge, always thinking in the back of your mind, “Maybe the price will drop further!”

Well, sometimes it does and sometimes it doesn’t. One general way to guard against the unthinkable price drop is by purchasing a home that has already taken a deep plunge due to its condition. Maybe the prospective investment home could be described as “shabby” and maybe there are a few “rocks” under the surface, yet to be discovered by a hapless investor. At the same time, such properties may also present a real estate investor with tangible opportunities and many of these can be found down in Florida.

The Florida Market is depressed…but Depression Sometime Spells Opportunity.

While depressed values in Florida may be true, there are still attractive opportunities to be found. Among the most promising are homes and condos located in desirable vacation areas, especially in parts of Florida, like Vero Beach and the Florida Keys. We’re considering homes and condominiums that might be defined as ‘distressed properties’. Many of these could be near the beaches or waterfront areas and normally could be rented out on the weekly or monthly basis during most of the year, if they were in presentable condition.

Florida vacation properties will always be in demand by tourist regardless of the economy:

•       In a weak real estate or economy, people will still take vacations, but rather than drop thousands for lavish destinations in Europe or elsewhere, Florida is still a great vacation destination.

•       In a strong economy, many will still opt for Florida as a fill in or second vacation. It’s easy to get to Florida from anywhere in the U.S. and airfares to and from are typically reasonable

The Florida Vacation Connection

The areas we’re considering are located mostly on the east coast of Florida, such as Vero Beach and the Keys. Although parts of the west coast are also desirable and quite obviously this approach will certainly work there, as well. Single-family homes or condos near the beach or the shore front areas will command high prices, but in today’s real estate markets, what is high anymore? This investment strategy is intriguing, but there are a few factors that must be considered.

Averting a Home Purchase Disaster

Obviously, there are dangers inherent in purchasing distressed properties. Sometimes the previous homeowners never maintained the properties very well and sometimes they’ve moved out because of foreclosure and actually vandalized their own homes, rendering them unlivable. Other times, a home is just so old that modernization is absolutely mandatory. There are many reasons why a home is in substandard condition. Should this deter you from making a purchase? No, not if appropriate precautions are taken prior to finalizing on the purchase. And the price can be adjusted downward, if possible.

Also, keep in mind that real estate in Florida vacation areas will always be in relatively high demand because of its income generating potential. Unlike typical residential locales, the land in vacation areas will always have a high value relative to other areas in the sunshine state Even if a home must be practically rebuilt, this renovation will further enhance the value of the investment. Caution is the name of the game and making sure that the price is consistent with your minimum income generation expectation is your ultimate goal.

However, there are fundamental issues that must be explored and answered to your satisfaction in order to avoid a catastrophic mistake, prior to finalizing on this type of real estate transaction.

1.      Question the neighbors as to what type of person the previous homeowner was. If your sense after speaking with the neighbors was that the previous occupant was erratic and possibly negligent about maintaining his home, you might avoid the purchase or at least you’ll be on guard.

2.      Always, always, always check out the zoning. If short-term rentals are prohibited, don’t expect to obtain a zoning variance. The property, under these circumstances, cannot typically generate enough revenue to justify the purchase.

3.      Always use an expert home inspector that has been recommended. He should be able to sort out and identify major problems from minor problems. Once problems are identified, then they must be quantified and whether you perform the renovation yourself or use outside contractors, the cost of repair and renovation must be realistic. You should factor in a 10%-20% cost over run in determining your cost basis, to account for unforeseen circumstances.

4.      If the home you’re considering purchasing is a VA repossession, attractive price and mortgage opportunities are available, including obtaining financing directly through the VA. The VA however doesn’t guarantee home condition and therefore inspection is still mandatory.

5.      An alternative approach might be to use the FHA HUD program section 203(k) which will assist you in rehabbing a property. The only limitations are with condos for investment, which is prohibited under HUD regulations.

6.      Whenever possible, consider an investment vacation home in an area where the property you’re considering is one of the lesser expensive properties in a more expensive area. This will offer some upward potential, as opposed to buying a more expensive property in a lower priced area.

7.      Now, once you have established realistic and conservative costs, you will need to run a rate of return analysis to see if your potential weekly/monthly rentals can afford you the ability to purchase the home and enjoy a positive or at least break even cash flow after all relevant costs, realistic expenses and revenues are taken into consideration.

Assuming that the numbers work, you can begin the price negotiation process. Also keep in mind that if the property is now salable and economic conditions have substantially improved, you can always sell and cash out your investment for a profit. Of course, having a vacation property in a sought after location gives you a place to go and relax from the stresses of life.

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Orlando and Orange County Investment opportunities
Aside from commercial investments the two situations most people are looking for in Florida are:

• Vacation homes/2^nd homes, both single family or Condos that can be rented out.
• Generally a purchase involves a 1031 tax exchange or just someone looking for a second home in an area that he/she or the family will use occasionally.
• A home to eventually retire to and rent in the meantime to help pay mortgage costs.

Due to the incredible growth in tourism and people relocating to  Orlando, Kissimmee, Sanford and Winter Park,  investments ( both commercial and 2^nd family home rental) in these communities should be a strong consideration.

As to Orange County-where would the best rentals probably be located? The following is a partial list.

• ·      Orlando, near theme parks.
• ·      Orlando-historic downtown area.
• ·      Homes and Condos on the lakes, golf courses (all locations)
• ·      Sanford, historic downtown area.
• ·      Kissimmee

*To get an idea on rates charged and potential income of vacation (short term) rentals, see nightly rates: http://www.awardpoolhomes.com/Rates.htm

Long term
*The downtown areas in cities are also seeing strong growth. In short some people are going away from life in the suburbs and opting
for closeness to theatre, restaurants and the vitality of a city environment. So, don’t overlook the downtown areas.
To know:

• The best areas to rent are generally near the water and the best rental income will start at open water locations, followed
  by homes/condos with a partial view to homes on canals. The neighborhood and the furnishings will also dictate the rent amounts you can get.
• In the Keys-the best situation was a home at least three bedrooms and up on the Ocean or Gulf with a pool and a boat dock. In some cases these
  bring as much as $5000.00 per week, depending on the home/area.

• It is very important that you find out early on which residential areas and which condo associations allow weekly rentals-as this will be generally be your best return.

• In some cases you may want to just rent out long term and skip the dealings with handy men and cleaning services.

• In all of this—the most important thing is that you find a qualified agent. He/she can guide you through the process completely—including setting up property management.

Renting your home out as a seasonal (vacation rental)or long term.

• Long-term renters are generally easier to find as there is a shortage of homes for rent. So, if you want to buy something for retirement or a vacation home and rent it out to help your payments-this is typically the easiest way. (Long term rentals are considered to be anything over 6 months, as the tenants don’t pay the 11.5% Florida tax)
• Generally long-term rentals should be unfurnished.
• Initially your agent’s company will do a credit check before submitting a lease to you, then with your approval of the lease, they typically collect the first and last months rent plus a security deposit which is typically a months rental amount.
• As to utilities- The tenants generally take the lease to the water, electric, phone and cable people and have the utilities put in their name and of course they pay their own deposits. In most areas of Florida, garbage is included in the tax bill-so there is no separate garbage bill.
• Seasonal rentals. Most residential areas can only rent monthly or 28 days, meaning the owner can only rent the home out 12 times per year. This means about 5 months of income-Jan-Feb-Mar and July-August. There are some April and June monthlies. .
• As to what is the best rental situation , that is size, which areas, views, pools, how water and boating accessibility affects rental amounts and the typical rental amounts for both long and short term, plus the fees involved, ask your agent.
• As to extra costs and what is necessary to have a Home as a Rental.
• When you rent your home out you generally need to license it through the County. This costs is typically minimal and your agent’s company should be able to handle the paperwork for you.
• The County and the Tax people want the homes licensed so they know where there may be tax dollars coming in. When your home is used as a rental, in effect you are operating the same as a hotel or motel and so they come under their safety guidelines.
• This applies to the Keys but may be the cases statewide:
• Every bedroom and the main living area must have a hardwired smoke detector and there must also be an escape light. This light comes on in case of a power outage-this also must be hardwired. (About $450.00 installed smoke detectors and escape light for a 2/2)
• There also needs to be a professional quality refillable fire extinguisher that is approved by the fire department (about $55.00). This would be the same as you’d find in a restaurant or hotel room. There needs to be a dead bolt on the door that works from the inside and is a different key than the main door. All of these issues help protect your liability in cases of fire/break in.
• When the home complies with all of the above and your agent has a signed contract from you authorizing them as a rental agent, then it can go into the rental pool.

• What about Hurricane preparation?
• In the event of an impending Hurricane, a handyman or someone else can be hired to put up the storm shutters, bring in the lawn and patio furniture, etc for a fee-most agents have too many homes for them to do it individually.
• *This agreement should be set up in advance by the homeowner and the handyman. Your agent can find someone to do this.

What makes a good Vacation Rental

• A clean, well maintained home on a canal or open water.
• Typically one of the bedrooms should have a set of twin beds if the renters are bringing children.
• Good linens and towels and a backup set. This is especially important for monthly renters.
• The washer, dryer and refrigerator should be newer if possible.
• A good Television hooked up to cable (about $35.00 per month) and a CD or tape stereo system.
• The kitchen must be completely outfitted. A microwave is also very important for renters.
• Patio and/or Lawn-Deck furniture. If there is an upper deck, a table and chairs plus loungers.
• On the waterside, a set of loungers and chairs.

Repeat renters

• If the renters have a good experience, they will come back. We see this especially with people that book two to three months a year.
• The Rental laws-what is going on in your area now and what is proposed? Ask your agent!!!!

For specific agents and property management/1031 see the real Estate links under each area.

#For commercial investment opportunities, look at the Real Estate links under 1031 or commercial for agents who can direct you to investments and ROI.

To find agents that can manage your investment, See the real Estate section in the area you like and then property management.

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