Many budding owners want to know what the Return on Investment will be on their vacation home in Orlando. Although it is a great question to ask, it is the wrong question!
If your vacation home was to be a true ‘investment vehicle’ certain parameters would be fixed, especially the initial investment. Imagine if we could buy stocks and shares on a mortgage? It is just not realistic! So instead, we have to look at alternative ways of measuring a return on investment.
Fixed overheads of ownership:
- Property taxes
- Mortgage payments
- Insurance costs
- HOA fees
- CDD fees – if applicable
- Membership fees
- Management Fees – this can include lawn and pool maintenance, cleaning etc.
You should also allow for setting aside funds annually. These will be used to redecorate and maintain your property in the future.
Return on investment – Variable overheads of ownership
The rental income is mostly variable and each year your occupancy rates and price levels will fluctuate. These differences, to some degree or another, are due to changing occupancy levels or your pricing structure. One thing you should be aware of when calculating future income is the difference between ‘Retail’ and Wholesale’ rental rates.
- Retail rates are when the property is rented out at the full booking price.
- Wholesale rates are those which have been discounted either by you (maybe for family and friends). Alternatively it is rented at discount by your management company in order to meet targeted occupancy levels. Management companies can do this by discounting the cost of rental to travel agents and specialist companies. In return they agree to supply a certain number of weeks of occupancy.
In an ideal world, a good management company and some self-generated bookings, should easily attain over 40 weeks occupancy each year. This should be sufficient to cover you running costs and deliver to you a good profit. Once your property is established and you are generating some re-bookings, your income level can obviously increase over time.
We believe that ultimately the return on investment on vacation homes is best measured as a mixture of overall costs and personal enjoyment. You get to create some great memories during your time as an owner and the property pays for itself. This is when your return on investment is undeniable.
You are buying a beautiful property for you and your family to use and therefore nothing will ever be set in stone.
Selling your property in the future.
Hopefully you will be able to benefit from increased equity gains. Should prices continue to increase you could be putting some serious capital back in the bank.