Tell me about owning a vacation rental property in Florida
May 30, 2014 7:04 PM   Subscribe

We are considering buying a second house as an investment property in the Orlando area. We'd rent it out on a weekly basis through a management company. Help us decide whether or not this is a good idea.

We want to diversify financially by adding real estate to our portfolio. We travel a lot and always turn to VRBO for vacation properties, so we thought, let's buy a property and rent it out ourselves!

The details: We are homeowners, so we know what owning a house entails. We live in the NYC area and first considered buying in the Hudson Valley, but decided the Orlando area is smarter from a financial standpoint.

We can spend up to $300K. We are looking at houses in the Kissimmee area because it's next to Walt Disney World and in an area that draws 60 million visitors per year, and because everyone says it's among the best places to invest. We've had some initial conversations with a couple of real estate agencies and management companies, including Villa Direct. Most of them are (of course) upbeat about the possibility of 60% occupancy and positive cash flow for a house in our price range.

We've done the basic research. We know that proximity to the Orlando attractions is important, as is the house and its amenities. We know that on top of a mortgage we'll have the usual expenses, plus fees for a management company. We don't expect to get rich but we won't do this unless there's the likelihood of a positive cash flow while gaining equity in the house.

So: Is this a good idea or not?

More specifically, do you have any experience in owning and renting out a vacation house? Bonus points if it's in the Orlando area. But we're open to all thoughts, ideas, recommendations and general wisdom about this kind of venture.

posted by bassomatic to Work & Money (4 answers total) 5 users marked this as a favorite
Price insurance, Florida has incredibly high rates, IF you can find an insurer.

Research Chinese Drywall.

Florida... I lived there for 12 years, I wouldn't.
posted by Ruthless Bunny at 7:13 PM on May 30, 2014 [1 favorite]

I'm not your financial or investment advisor, but if I wanted to diversify into real estate, I'd buy a REIT, not a vacation home in Florida. At least with a REIT, you're getting diversified real estate exposure (rather than one property) with professional experts for a lot less fee than the 10% a manager is going to charge you. Buying real estate as an investment property from 1000 miles away because "everyone" says it's a smart bet seems like a recipe for disaster to me.

Again, not financial or investment advice--speak to a professional before doing this.
posted by Admiral Haddock at 7:29 PM on May 30, 2014 [4 favorites]

I am a real estate investor in Central Florida. I mostly buy in Polk County, which is just west of where you are talking about. I flip houses and do long term rentals. I am also an electrical contractor and I work a lot in the Orlando area. I have service agreements with two vacation rental management companies. I do electrical service work in lots of houses exactly like you describe.

Without question, the real estate market in Central Florida is still very hot for buyers. There is definitely tons of money to be made here. The foreclosure crisis inventory is not yet cleared out. Institutional buyers and hedge funds are gobbling up these foreclosures, but you can definitely get one too. I have gotten a bunch. There are lots of people doing exactly what you are suggesting, buying foreclosures and renting them as weekly vacation homes - and as a service contractor, I see these vacation investments working.

Insurance in Florida is expensive, but less so inland away from the worst hurricane risk areas, like in Orlando. If you are making a serious real estate investment, it goes without saying you should do a home inspection, and every inspector knows about Chinese drywall. Don't worry about that stuff. You need to find a house where the numbers work (even if they are lop-sided to insurance), and a house with a clean inspection report (or where complete repairs still work within the budget numbers).

Best place to start is at the Central Florida REIA. Do you know about REIAs (pronounced REE-AH) ? Real Estate Investment Associations. They are networking groups for real estate investors, and they are becoming more common all over the country. Very handy place to have contacts if you are an investor. When you need a roofer, or surveyor, or some other professional service for your investment property, you do not want to be flipping through the yellow pages. One email to a few people in the REIA, and you will get good recommendations. I can put you in contact with some people at CFREIA, so at least you have some initial point of contact. Good people, who I can vouch will help you get connected at that REIA.

You realize this is something that will require you to come to Florida periodically. You cannot armchair all of this investment. You can shop out a lot of the work, but make no mistake - this is an active investment. You have to be involved. (Though, fear not, return on sweat equity is often very high.) You have to come down here, and form some relationships, and kick the tires of your new investment property. You should make an effort to attend CFREIA at least once a year, if not twice - and network your butts off when you are there.

At a REIA is also where you might find some of your best buys. There are guys at every REIA who buy foreclosures at auction, and then assign the sales contract to other buyers. For a $3,000 assignment fee, you can get a courthouse auctioned foreclosure, without having to learn all about tax deed foreclosures. You can get title insurance with these contract assignments, which is something you can not get on the steps of the county courthouse.

If you just call realtors on the phone, you will never get a deal. Homes sales magazines at the local coffee shop are a waste of time for you. Those homes are selling a top market retail price. The investments are in the houses being wholesaled out from the bank inventory. Every realtor down here has there handful of investors they can sell these properties. Unless you develop some relationship with some of the sellers down here who have access to these foreclosures (or learn tax deed foreclosure at the court house yourself), you will never find the good working deals.

You might even want to attend a Polk County REIA meeting. I am very involved there, and can definitely help you network there. We get houses in the Davenport area, which is the edge of the Orlando vacation rental zone. And, it is another opportunity to develop a local network of reliable professional services.

I can also give you the names of property managers in the Orlando and Kissimmee area who manage vacation rental properties - though I work with these people as a sub-contractor, not as a real estate investor, so I can't really vouch for them. They seem reputable and successful though.

I don't really know the laws about vacation rentals in Florida. I know that there is considerably more that you are required to do than just rent a house. Various hotel laws and regulations kick in. Like you have to provide towels and soap. You have to provide water and electricity too, of course - so you have those monthly utility bills. There are other safety and handicap requirements. There is also a hotel tax in the state of Florida, which you will have to pay on each rental. Either way though, if you find a reputable property manager down here, they will know the laws and such. They can lead you through it.

The whole key to this is finding the right house, where the numbers work. To find the house, you need to develop the network. Feel free to email me privately with questions or anything. I could babble on a bunch more, but I think I have babbled enough.
posted by Flood at 9:31 PM on May 30, 2014 [19 favorites]

Thanks for this detailed answer, Flood. This is hugely helpful and better than I was hoping for! Look for an email later--if you don't mind, I'd love to ask a few questions. And yes, we fully expect to be spending time in Florida if we move forward with this.
posted by bassomatic at 9:36 AM on May 31, 2014 [1 favorite]

« Older How did the star-rating system for spiciness get...   |   Help my dog overcome his terror of umbrellas Newer »
This thread is closed to new comments.