Given that Florida is half the size of the UK, the lettings market varies massively from region to region, and so careful research is necessary if buying to let…
The strong pound versus the US dollar exchange rate, coupled with continued poor performance of pensions and alternative investments, seem to have been the catalysts for the continuing buy-to-let investment market in Florida. It’s now well known that the magic of Orlando, with its ever expanding theme park attractions and nightlife, is bringing in a high volume of holidaymakers, prompting thoughts of owning a home in this area for rental purposes. However, the oversupply of property in these tourist areas needs to be approached cautiously.
It may be better to research options elsewhere in Florida that face less competition from so many short-term rental properties. There are some locations on the coast which from an investment perspective can be a better option, but it’s critical to obtain impartial advice as there may be zoning restrictions or the potential for them to be introduced after you’ve bought on certain developments.
Buying off-plan
Off-plan property has caught many unwary investors out in the past few years, with properties being uncompleted following the financial collapse of the builders. There have been several high-profile prosecutions against builders and realtors selling to British buyers. Today, buying resale properties away from the competition in appropriately zoned areas of Florida may be more prudent.
Rental periods
Long-term rental is a possible consideration for any investor. The majority of clients wishing to explore this route will be renting to local US citizens, who are more than likely to have their own furniture and equipment, and will simply expect the home to have the usual items such as fully fitted kitchens and bathrooms, along with tiling, carpets and blinds. The rental amount received may seem low when compared to short-term rates, but can be a reliable income each month, effectively eliminating any apprehension about being able to get shortterm customers regularly. There are a number of letting agents who specialise in long-term lets based throughout Florida. Many of them are US -owned and the standards of professionalism are mixed.
Short-term lets are by far the most popular choice for investors, mainly because of the purchasers’ ability to use the home themselves, as well as the extra income earned from rental that can be used to pay the running costs of the home.
Buying to let
Renting the home out for short-term visitors allows homeowners to choose their own holiday periods within the year and block the home from being available for rent. Caution is urged though, as the temptation of blocking peak weeks, particularly for those owners with young families, can cost a fortune. UK-based school holidays coincide with the times when it becomes easier to obtain rental clients for these homes. A simple two-week family holiday can sometimes come at a cost of $3,000 of income on a typical rental home in peak season.
The continuous supply of homes for this shortterm market has caused the standards of rental homes to rise, with many investors spending that little bit extra on more exclusive furnishings on custom designed properties. In this way, many owners are ensuring that they can continue to command the same high rental rates that have been achievable since this buying trend began, despite the supply increase.
A typical four-bedroom detached home with its own private screened pool, supplied fully furnished with all the housewares and luxuries you would expect in your own home, is generally available for $750-$1,200 per week, depending on the season and the area.
When buy-to-let initially became popular in the Orlando area, local management companies were allocated bookings in the homes themselves. It now seems to have become more fashionable for owners to work as a team with their chosen management company. Many owners have a website designed for their home and place it within a pooled website consisting of many other owners and properties. Others try their luck with advertising such as workplace notice boards or local newspapers. The basic idea is to obtain additional bookings to those sought by the management company and top up the income levels to their highest possible levels.
The same rules apply here as to the owners using their homes themselves. Owners need to concentrate on filling the less popular times in order to reach their target income. As for the management company bookings, some are more likely to receive a higher volume of rental bookings than many others. It is these companies that tend to have contracts and good working relationships with tour companies, travel agencies and specialist home rental companies. The rates paid by these companies can be lower than those achieved by the owners direct, but if a management company can fill over 25 weeks of the year for you at one rate, the owner’s booking role becomes instantly less daunting.
What’s the appeal?
UK property prices remain high, with plain twobedroom flats often costing well over £160,000, so it’s not hard to see why investors have looked to more affordable foreign soil for their investments. For a similar amount, you could buy a detached home in Florida that has three bedrooms, two bathrooms, over 1,400 square feet of land, a beautiful private screened 26-foot swimming pool, double garage and fitted kitchen, bathrooms and flooring. With 65 per cent loan-to-value mortgages available from many of the US banks (and some in the UK now), Floridian properties have been feeling increasingly affordable.
The exchange rate remains a major factor in the decision on where to buy. $1.90 plus to £1 has become an expected rate, although it is expected to fall back over the next few months. Compare this with the $1.40 or so that you would have got in previous years and you get another reason for continued investment in the region. Large scale investment has also contributed to the trend this market has seen. It seems that investors in general are building up portfolios of homes in a variety of locations. The majority probably own homes in the UK which are let, and it would be sensible to guess that a large percentage of them may own property in popular areas within Europe too. Investors have a habit of buying multiple homes in a market they have confidence in, and they are right in identifying Florida as being good value for money.
Tax awareness
Owners of a home in Florida will need a US-based accountant (or a UK-based one specialising in US law). Just as in the UK, you’ll need to produce a tax return for the IRS (Internal Revenue Services). You can offset virtually all costs incurred on a home against US income tax, including interest on the mortgage, associated management fees with the ongoing maintenance and care for the home, and your utility bills and insurance. You also receive an allowance on your own costs to visit your home to monitor the maintenance of it. Even bearing all this in mind, you still get a tax-free allowance before reaching the threshold to pay US taxes. In the last calendar year, this threshold was around $3,000.
Most owners who borrow against their property find that they don’t end up having any tax to pay at the end of each financial year. Those who have a very small mortgage (or no mortgage) can find themselves paying a small sum of income tax.