This is a frequently asked question by investors looking to buy homes in Florida. After all, is it possible to pay off the loan with the rental income from the property purchased? Yes, it’s perfectly possible. However, there are some figures that come into play and must be considered. Read on to understand what you need to consider in order to cover the costs of ownership of your vacation home in Florida.
Free period for rent
The first and most important is the free period that the property will be available for rent. Most investors in Orlando an Miami buy properties to enjoy during the vacation period and, for the rest of the year, they make them available for rent. If the owner occupies the property for a long time there will be a shorter period available for rent. In this situation, it is natural that the rental income with would be lower, thus compromising the payment of the loan installments and other expenses regarding the house. However, even using the property on vacation, it is very common for the owner to be able to pay off the financing installments and costs of ownership. At least a good part of them. That’s why it’s important to hire a good property manager.
The great advantage of property managers in Florida is that they manage the entire rental. The owner does not even need to speak to the tenant. It only receives the amounts collected in a designated bank account. The entire part of creating the ad on Airbnb (and other platforms), attracting clients, check-in and check-out bureaucracy, inspection, cleaning, preparing the property for the next client and collecting the values is done by the property manager. Learn more about rent management and property administration in Orlando.
Another important factor is the characteristics of the property and its features. How many bedrooms? Is the property well maintained? Is it in a good neighborhood next to the main attractions of the city? Is the decor designed efficiently and practically for the rental.
Orlando vacation homes near the parks tend to be better off for vacation rentals. In Miami, most condos that allow short term rental are located in Downtown.
Larger properties, from 4 bedrooms, also offer better output and higher returns. The greater the number of people that the house in Orlando can accommodate, the higher the daily rate for the owner and the lower the per capita rate of the daily rate for the clients. Everyone wins.
What is the expected rental return?
Generally, the average return on vacation homes in Orlando is at least between 6% and 8% a year, and can easily exceed 10%. There are situations in which this percentage can reach 12% or 13%.
Miami is a completely different scenario. Actually, the city is new to short-term rental since most of the condos released for this activity are new and concentrated in Downtown, near to the main attractions of the city. So, there is not much historical data in the way we have for Orlando which, traditionally, is the main market for short-term rentals. However, Miami is attracting each year more and more tourists and people from all over the world, making it one of the best places to invest in real estate, specially regarding income producing properties. The confidence in the market by the developers is so high that in most new condos they guarantee a minimum return in the first two years in approximately 6% aa.
What is the average occupancy of a vacation home in Orlando?
In areas like Kissimee in Central Florida (nearby Orlando theme parks) and Downtown Miami, the occupancy rate for vacation homes varies between 70% and 75%. This is an annual average. The rate is usually considerably higher in high season months, such as July and December.
Is it possible to pay off the financing with the income from the vacation rental?
Yes, it is possible!
Conservatively speaking, and based on the experience of almost 20 years working in the Florida Real Estate market, it is important to highlight that, most of the time, out of the 12 installments of the loan, clients are able to pay off 8 to 10. The others must be considered as an investment of the owner in the new property. This is mainly for the reason we mentioned at the beginning of the post: use by the owner in high season. If the owner does not use the house for his own purposes, the probability of paying 100%, all the expenses and even profit from the activity is much higher.
Paying off 8 to 10 installments of financing with rental income is already an excellent return. The other installments must be seen as an investment. REMEMBER: Loan installment is NOT an expense, IT’S INVESTMENT!
Imagine acquiring a house in Florida with only the down payment? It is a solid investment.
Want to know learn more about rental income in Florida?
AMG International Realty is a global real estate company specializing in Florida. If you want to know more about the real estate market in Orlando, Miami or another region in Florida, contact me right now and let’s chat via WhatsApp: +1 305 318 6968 (Heloisa Arazi).