Managing A Home In Florida

One of the most common reasons for buying a property in Florida is to use it as a holiday home and finance the purchase through rentals to other holidaymakers throughout the year.

Once you have a property in Florida, you have to decide how you will handle the management of all the issues surrounding renting it out if that is your intention.

Unless you are living not only in Florida, but close to your rental property – and have the time, energy and knowledge necessary to take care of all this yourself – you will probably use the services of a management company.

As this company will be the interface between you and your tenants, and indeed for much of the time will be the interface between you and your own property, it is clear that the selection of the right company and the right services are critical to the success of this enterprise.

Pick the right company and the right set of services and you will be able to enjoy the benefits of Florida property ownership without any of the headaches – even when you are thousands of miles away from your investment.

In this section we’ll look at the economics of property rental, some of the business-related matters you need to consider, how a management company can help with your property – and how to find the right company for your needs.

The Economics Of Rental

I make references to renting out your Florida property throughout this website, but I thought it would be worthwhile in this section to answer a few common questions and clear up some common misconceptions about the economics of the rental business.

THE ECONOMICS OF PROPERTY RENTAL

Financing an “investment” property is viewed somewhat differently from the purchase of a primary home – mainly because lenders understand that these properties rely on rental income to pay the mortgage and consequently there is a degree of commercial risk involved.

In practice, this means that you will typically have to pay a bigger down payment (deposit) and the 80% or higher mortgages you will see advertised are simply not offered on these types of properties. Although this seems like a hurdle they are putting in front of you, it is in fact probably a kindness, because the economics of property rental mean that breaking even requires decent occupancy rates, controlled management costs and a sensible mortgage. Depending on all the other factors, a mortgage of 60% is a good target, 75% probably the maximum you should consider.

As we will see later, there are many variables, but the line between profit and loss can be very thin. This may not be critically important if you place a high value on your own use of the property, but if you need income to finance the purchase, you have to be passionate about managing the cost of every aspect of the purchase process.

GUARANTEED RENTAL INCOME
With the sums of money and distances involved, advertised promises of “Guaranteed Rental Income” or “Guaranteed Return on Investment” can seem very appealing.

Too good to be true? All too often, unfortunately, yes.

Guaranteed income schemes do exist, but you have to look carefully at the full details of the offer and the motivation of the advertiser to fully understand what you are getting into.

First off, most guarantee income offers are short term and are used as a sales aid. Yes, it can be very useful to get a guaranteed income for (say) the first two years while you find your feet and get organized with regard to securing bookings, managing the property and so on.

However, you must think beyond those first two years and be sure that you are paying the right price for the property and that it ticks all the boxes for location, rentability and everything else. In short, if the property doesn’t make sense without the guaranteed income offer, that short-term guarantee should not be the deciding factor.

In other cases, the guarantee may be subject to all kinds of terms and conditions that limit your choice of property, sales agents, mortgage, management company, rental rates and more. You can end up so hog-tied by conditions that the property hardly feels like it belongs to you – the guarantee probably only scrapes you into break-even territory, and you can only use it for two weeks a year in mid-November!

SLIM MARGINS
I talk in several places in the book about the different variables that influence the economics of investment properties, but the last point I will make for the moment is to illustrate the narrow margin between profit and loss in this field.

With a 60% mortgage, you might find that the break-even point is around 30 weeks per year occupancy, with a 75% mortgage that might be 35 weeks. Most people agree that 38-40 weeks is the best possible occupancy rate you can hope to achieve – the upper limits of which would give you something like 6% yield on your investment with a 75% mortgage. That’s a lot resting on what might only be two bookings per year.