Crunching the Numbers:

Crunching the Numbers:

Does buying a Central Florida Vacation Home make financial sense?

 

So, the idea of buying a vacation home in the Orlando, Kissimmee, or Clermont area sounds great—after all, the possibility of having a furnished pool home that rents out to snowbirds and Florida visitors throughout the year, but that is waiting for you to come home to on your family visits to Florida, seems like a dream come true. But is it? What costs are really involved, and how often are the vacation homes rented? What is the best to hope for?

 

In an attempt to shed some light on this question, we are going to use a real world example of a client who purchased a short term vacation home close to the parks earlier this year. This client bought a 4 bedroom (two masters) 3 bath, pool home in Clermont, Fl this past January. The home came fully furnished, including all appliances (of course), furniture, linens, bedding, silverware, TV’s, and DVD’s and games for visitors. The purchase price was $171,000. The buyer put 20% downpayment, and his total monthly payment (including principal, interest, taxes, and insurance) is $1068 a month.

 

Now, in addition to the house payment, let’s get into other costs you are likely to incur:

 

Most buyers hire a management company that takes care of virtually every aspect of owning and renting a vacation home.  The average management start up cost totaled $2415.  That included:

 

Escrow Balance	$1,000		Lock change	$300
FL State License	$220		Electric Deposit	$400
Occupational License	$55		Cable Install	$175
Tax ID	$5		Water Deposit	$125
Rental Registration	$5		Notary	$5
Start-up Prep	$50		Fire Ext	$75

 

We will also take the start up cost of $2415, and prorate it over the first year, just so that we include it in our calculation. Remember, this is not a cost that will continue but we do want to account for it here. The prorated charge for this start up is $201 per month (for the first year).

 

After the initial start-up cost, the monthly management fee is $520 (this was the fee for this particular client and the management company he chose—this fee varies depending on the company you choose, but this is probably a good average and fits with this example).  This management fee includes:

 

Management services fee of  $185  (email me for a breakdown of this fee)

Pool Care                          $ 95

Lawn Care                            85

PestControl                         30

Phone (unlimited calls)          35

Alarm Service                       40   

Home Inspection                   45    

Web Link                               5                      

 

So, at this point we have the following recurring payments:

Home payment               $1068

Monthly management      $520

Prorated start up fee (1^st yr only)  $201

Total                               $1789

 

Now, let’s take a look at the upcoming bookings that the home has, so we can calculate some income:

 

For the summer months, June through August, the home is presently booked for 52 days. (This is as of today,6/17/11—more bookings may be received as summer gets underway, but we’re just calculating what is currently booked).

 

The 52 days currently booked represents $10,340 of gross receipts. 

This is calculated based on the number of days booked, and when they are booked (some weeks are more expensive than others).

 

The price per night depends on what is called The “Rack Rate” which varies on the season.

For this particular 4 bedroom home:

Low season books for  $175  per night (Jan 5 – April 14, May 2 – July 15, Sept 1 -Dec 15)

High season books for  $195 per night (July 16- Aug. 31)

Holidayseason books  $235 per night ( April 15 – May 1, Dec. 16 – Jan 4 )

 

So if we take the gross receipts of $10,340 and subtract all the carrying costs for three months which include:

Mortgage payment    $1,068

Management fee            520

Pro rated start-up            201  (first year only expense)

Booking fee                    345

Homeowner’s assoc.        33

Total                          $2,167 x 3 months = $6,501 

 

$10,340 – $6501 we end up with a profit of $3839.

 

In this example, the home really does pay for itself and generate some cash flow above and beyond the expenses. Please note that this example showed a home rented 52 days out of 3 months (approx 90 days), so it was a little more than 50% occupancy.  Your “breakeven point” for the house to pay for itself (in this example) is approx 30% occupancy during the low season, and around 25% during high season, and even less during “holiday season”. So as you can see, not only do you get to enjoy your vacation home while you are inFlorida,

………..it may even help pay for itself. 
 

Thank You,

Jim Chuba, SFR 
Castro Realty Group
407-446-5076

 Please note that this example is not intended to guarantee a return on an investment, that would be illegal and unethical. We are simply trying to show you a real world example of a recent buyer’s current experience, and to provide you a list of the various fees you are likely to come across.

If you know anyone who is looking to buy or sell real estate in Orlando, Kissimmee, and the surrounding areas, please refer them to Castro Realty Group. For more information on our company, you can connect with us through the following media:

Website: www.castrorealtygroup.com
Facebook: www.facebook.com/orlandoandkissimmeevacationhomes
Facebook: www.castrorealtygroup.com
Email: jim@castrorealtygroup.com
Office Phone: 407-856-9901

We look forward to hearing from you and working with you to be the best real estate company to represent you in buying or selling your vacation home in Orlando, Kissimmee, Clermont, or Davenport.