A place of your own overlooking the Gulf or within earshot of Disney!
The kids will love it, the climate is great and, being the world’s largest playground, transport links from the UK are not realistically going to be a problem. Let’s not forget that there is also a domestic market of a quarter of a billion people, with among the highest GDP per capita on the planet and a severe lack of passports between them. Oh, we nearly forgot, it’s also the number one domestic retirement destination too!
OK, that clears up the issue of continued demand , nobody will question Florida’s credential as a long term destination for tourism or retirement and I’m sure we could very easily gig out many more reasons to invest from the state’s inward investment promotional materials too. For many investors, the location itself is not in doubt but the achievable rental returns, longevity of regions and specific sites and the potential capital growth are not so clear.
Rental Returns:
When compared to many UK or European resorts, holiday rents are (outside of the premium holiday weeks) are relatively low. In fact, we priced up a family (2+2) holiday for the half term week in October, for a 3 bedroom villa, on a site with facilities being close to the Disney attractions. The total cost was approximately £2,600, with the villa rental being just £300 of this. An equivalent property in Spain (Costa del Sol) was £425 and a Cornish Chalet over £500.
We used a summary of rents and running costs, kindly provided by a respected and licenses realtor in the region to put together our own analysis of what we believe is a realistic, but perhaps slightly conservative, estimate for both a 3 three bedroom townhouse and 2 bedroom Condo, on a well maintained serviced resort close to Disney, along with an independent 4 Bedroom Villa.
Although perhaps a little overly simplified and arguably under-represented in terms of the possible occupancy rates, we believe the apparent myth of fabulous rental returns is indeed just that. There are exceptions of course, such as premium properties in Miami of the more exclusive (particularly island) resorts on the Gulf Coast, which command excellent rents year-round, but for majority of primarily holiday homes close to the main attractions, a high rental return should not be expected.
Capital Growth:
50% below pre-crash rates – must be a bargain…. Well perhaps, but the question really should be how inflated were those pre-crash prices? To be fair, you probably could build them for what some of the foreclosures were being released for a year or two ago, meaning you were effectively being paid for taking the plot. Whilst we understand that there has not been any significant rise in price for most areas, it is reported that the time properties are spending ‘on market’ has reduced to the lowest it’s been since the crash.
What is also interesting is that, using marketing and sales data from some key sites / developments we have been observing, the difference between asking prices for Short Sales / foreclosures and those with ‘no special circumstances’ (e.g. private sales) has greatly reduced. Whilst this does not mean that prices are about to rocket, we do believe that the backlog of distressed stock is close to being absorbed and the market is showing signs of stability.
So what can you expect? Well, we have taken the example of a 3 bedroom townhouse on a resort in close proximity to Disney and other attractions. The development has good communal facilities (restaurants, gym, bars, pools, playground etc) and is well maintained with a good rental history, scoring well on comparison sites etc. Units were selling at up to $400,000 during the boom and bottomed out at as low as $75,000 during the darkest days of the recession.
Today, a good unit can still be picked up for around $100,000, including a contribution to a central HOA fund (site reserve). Fees and taxes will equate to around $5,000.00 per annum, so we expect most will still want to rent for a few months of the year to cover running costs and maintenance. In our opinion, these properties are likely to be retrospectively seen as undervalued and, once the oversupply of units has been fully absorbed, would expect some ‘bounce’ in the next 2-3 years to at least $150,000, a return of 50% (or approximately 15% compounded over the period) .
The Propportunity:
If you’re looking for a well equipped holiday home in a great climate with plenty to do and consistent rental market, you’ll do well to find a better deal. The strong potential of short term uplift should also be tempting, though running costs are relatively high, thus excluding the ‘lock up and leave option”. If you are looking for a long-term and hassle free rental investment, perhaps look to a condo (good 2 bed units can still be found for around £50,000), but for an immediate and higher yield, look elsewhere in the US (cities such as Detroit) or stay in Europe.
We think the best option for smaller investors (ignoring the old advice about business and pleasure) is to consider a syndicated purchase, where each party gets to enjoy their own holiday home for a few weeks of the year, thus minimising running costs and the need to ‘holiday let’, with the added bonus of a decent return in a few years time. We suggest using a purposely designed UK Company with around five investors (£15,000 – £20,000 each) to purchase the asset, and adopting a rotational calendar system to divide up usage rights.
