Vacation Homes - A Panacea For A Cold Real Estate Investment Market...
I'm often amazed at how many people visit Florida and have never heard about the opportunities of renting a vacation home. If you've ever driven through the southern part of Orlando in areas such as Kissimmee or Davenport (just south of the theme parks), then you've been driving directly through the heart of a prime investment opportunity and a fantastic alternative to hotel rental that has been overlooked by the masses. And, regardless of the current depreciating market, this industry is thriving. Here's why...
An estimated 50 million tourists visit Orlando every year, either on business, to visit family or to enjoy the numerous theme parks and the fantastic weather this great city has to offer. Sadly, most are cramming themselves and their families into 500 sq. ft. hotel boxes at the expense of thousands of dollars per week. Timeshares thrive on the promotional pitch of offering perhaps an additional 300 or 400 sq. ft. alternative than the traditional hotel room has to offer - all I have to say is "Look Out Timeshares," Vacation homes are coming!
The vacation home market is really nothing new, but what is new is the incredible growth that this market is experiencing due primarily to internet savvy investors and more mainstream advertising portals that set out to promote this alternative style of vacationing. One such portal is Vacation Rentals by Owner that sets out to help homeowners to promote their own rental properties without the assistance or the expense of hiring a property management company. Additionally, high gas prices and the recent down-turn in the economy are both incredible driving forces in a recent change in vacation consumerism. Consumers are now looking for vacation opportunities that give them the most bang for their buck without having to give up all the creature comforts that their families deserve. Vacation homes are fast becoming the panacea to providing families with some major buck-bang, plus a little more than what they bargained for.
Vacation homes are a win/win for both the investor that owns the home and the vacationer that rents the home. Let's first take a quick glance at what the renter receives, then we'll move on to why vacation homes can be a smart investment opportunity in a depreciating market:
Firstly, vacation home prices are seasonal just like Hotel rentals. So let's use peak season rates as an example. For $1,300 to $1,500 for the week (seven days) during prime season a vacation rental as an example can offer you the following:
A five or bedroom home, in excellent condition & professionally cleaned;
1,800 to 2,800 Sq. Ft. home;
With fold out couches the home will more than likely sleep 8 to 10;
Fully furnished;
Plasma TV's and DVD Players;
X-Box or Nintendo's with games for the kids;
Telephones where local calls are FREE;
Pool Table;
Air Hockey Table;
Ping Pong Table;
Dart Board;
Private Heated Pool;
Jacuzzi;
High Speed Internet;
Golf Course Neighborhood;
Washer & Dryer - excellent for extended stays or for children (plus less packing involved);
Club House on Premises with DVD rental, Pool, Tennis Courts, Jacuzzi, Fitness Center, Cyber Cafe and Kiosk with food and basic consumer items such as towels, sunscreen, bathing suits etc. Not to mention an in house concierge service to assist you with getting directions or tips on where to go for basic needs or entertainment purposes;
Want a bottle of Moet on ice for when you and your loved arrive for a weekend getaway? Yes, it's not uncommon for vacation home owners to provide an ice cold bottle of Moet, a bouquet of flowers or a box of chocolates for moment you and your loved one walk through the door. Don't believe me? Call in your order a day or two before your departure and have it added to your bill.
The above list represents some of the items you can expect when you stay at a vacation home. The pricing is comparable to that of a hotel stay. The major advantage over a hotel or a timeshare comes down to privacy, master bedroom suites and room to move so the rest of the family aren't pulling each others hair out. Additionally, you have a refrigerator, microwave and oven where you can cook your own meals which can be a tremendous savings for those travelling with a family. It shouldn't cost you $15 per kid for breakfast when all they are going to eat is a half a bowl of cocoa puffs, a piece of toast and a glass of milk!
Also, because there are so many rooms - many vacationers are able to defray the cost of the rental property by travelling with friends or family members. Thereby reducing the cost in half or more depending on how many are travelling with you and without giving up your privacy. Yes, some homes come with two and even three master suites, so there is no need to fight over who gets the master when splitting up the bill. Also, if you're staying for a month or more, you'll be pleasantly surprised with the additional discount the home owner will negotiate with you. Try getting a hold of the owner of the Hotel to negotiate this great monthly rate. Fat chance!
Okay, so why is owning a vacation home such a smart investment opportunity? I'd like to start off with a recent personal experience that I've had to illustrate before going into the nuts and bolts of the dollars and cents. I've been selling vacation homes in Orlando for some time now and have, albeit by accident, become somewhat of an expert in the area of vacation homes.
Recently I met with a potential buyer from the UK looking to obtain his second vacation home. Naturally, I want to know why this owner is looking to add an additional property to his portfolio so I ask, "What year did you buy your first property?"
Expecting to hear 2001 or 2002, "2006," Replied the buyer.
In case you've been living in a bomb shelter for the past couple of years - 2006 was the peak of the real estate bubble before it came crashing down. People who purchased during this period are generally looking to dump their properties and most aren't too thrilled even about the mention of real estate as an investment.
Amazed at this statement I dug a little deeper to find out why a person who overpaid for a property was wanting to obtain more homes. It turns out that he purchased his original property for $400,000 in 2006 and estimates its current worth to be around $210,000. His monthly payments are $1,800 per month and running costs are around $1,000 per month with an average gross income of $48,000 per year and a net income of roughly $10,000 after taxes and running costs.
Wow, "Not a bad investment," I said.
This buyer went on to tell me that he believes he can slash an additional $1,000 per month off this budget due to the lower prices in the market and the current exchange rate between the US and the UK. "That's a total NET profit of around $32,000 per year from two properties. Where else in real estate can you get this type of return? And, on top of that, I have free accommodation any time I choose to visit Orlando."
This really got me to thinking about the possibilities. Two properties and this gentleman will have a net income well over the average income of an Orlando resident. No matter what way you look at it, this buyer is profiting even though he paid a premium price for his initial home and that to me ladies and gentleman is a WIN in my book. Not only that, he has a legacy that he can pass down to his children that will yield an income for many years to come and perhaps many generations to come. Not a bad investment strategy.
Unfortunately not everyone will have a win like the example above. Before investing in a vacation property you should have a budget set aside for slow months. Vacation rentals can be seasonal and some months can be slower than others. Owning an Orlando vacation home is also a business, or at least should be treated like one in my honest opinion. You should have an advertising and marketing budget. And I say that regardless of whether you utilize a property management company or not. Property management companies sometimes manage hundreds of properties and won't always keep your property booked to maximum capacity. Therefore it may be in your best interest to do some of your own marketing to compliment that of the property managers marketing efforts.
Writing a business plan on how you are going to market your property and how you are going to manage it are of paramount importance to your success. With a successfully implemented business plan and just the right amount of operating capital, you can also have a thriving investment for you and your family to enjoy for years to come.
If you would like to know a little more about the set up expenses of vacation homes, please visit the following page on my website: http://www.orlando-real-estate.biz/Orlando_Vacation_Homes/page_2055248.html
If you are interested in renting a vacation home, I would be more than happy to point you in the direction of some of my previous clients. Or simply visit: http://www.orlando-real-estate.biz/Vacation_Home_for_Rent/page_2060331.html
Feel free to contact me at (407) 346-5331 should you have any questions whatsoever about the vacation rental market. Don't worry if you're not interested in buying, I always have time to offer suggestions, answer questions or give advice.