Second Homes and Vacation Properties in Southwest Florida
Today, a common type of real estate transaction in our area is the ‘baby boomer” purchasing a second home, where the home will serve as a vacation home now and later as a retirement home. These second homes are often on seasonal rental to offset expenses. After all, if you can only use your vacation home a few weeks out of the year, why not offer it for rent to generate some income?
People vacation here from all over the world, and they rent homes or condos for a few weeks or a few months. It’s common to meet people vacationing from the Midwest, the east coast, Canada, Germany, Australia, and Great Britain.
It’s sound financial management to see both an offset in expenses and a great rate of return via the appreciation. The concept is catching on like wildfire for good reason—by and large the numbers bear out positively for both the short and long term. Money Magazine, Business Week and others concur that buying now is a sound strategy.
- Second Home — For Now, Business Week
- Buy your Retirement Home Now, Money Magazine
- Let Renters Buy Your Retirement Home, RealtyTimes
What Types of Vacation Properties?
A second home might be a single-family residence. Or, it might be a condominium or townhome, or duplex. Single-family homes offer the most flexibility, as there is no association-enforced restrictions on frequency of rentals or tenants (whether pets are allowed, for example). Condominiums or gated-development homes that are managed by an association will have a rental policy in place. Policies typically range from 4x per year (the unit can be rented every 3 months) to monthly, weekly, bi-weekly, and daily rentals. If you are considering a condominium, check out our Condo Buying Guide.
When you are shopping, we look for units that have leasing terms that match your cash flow objectives.
Will your second home generate positive cash flow?
Perhaps, but you should not count on positive cash flow. Think instead of seasonal rental as a way to reduce expenses (operating costs, mortgage reduction) so that your second home is affordable now. And of course there is the benefit of the property’s appreciation that is the ultimate prize. (If you wait to purchase a second property until you retire, will it still be affordable? Many experts recommend buying now while in your prime earning years. This is especially true if you prefer high-demand properties, such as waterfront or golf course views).
Who manages the property?
Most people prefer to hire a professional property management firm to market the vacation rental, handle leases, screen applicants, clean, service the lawn and pool, and oversee the property on your behalf. Fees are typically 10-15% of the gross rental fee. Some second-home owners market their vacation rentals via the internet, as there are many web sites available for promoting and renting homes.
There are also property management and homewatch services that are affordable and bring peace of mind.
Are there tax benefits?
A second home that is considered a vacation rental under IRS regulations may qualify for tax benefits. These benefits generally fall in the same category as those for landlords of apartment-like rental properties. Certain conditions must be met, such as how often the property is rented, personal use duration, gross annual rent, and who rents the home.