Orlando Vacation Homes Rentals

posted by orlandovacationhome on Jul 19

Regardless of how you feel about social policy, recently proposed tax and economic policies could be doubly hurtful to the domestic vacation home industry.

As many real estate markets are beginning to work off excess inventory, the new higher tax policies for the higher income earners might not be good for vacation home owners.

Collectively the vacation home industry has a substantial impact on our national economy. In fact, according to the National Association of Realtors, there are 8.1 million vacation homes and 40.5 million investment properties in the United States.

First, the newly proposed tax policies would push the average state and local tax rates over 50% for the higher income earners in many states according to the July 20th, 2009 edition of Barrons Magazine.

Moreover, the top five highest combined taxed states would be Oregon, Hawaii, New York, California and Rhode Island with a potential combined tax rate over 56% on taxable income for their top income earners. Other than Florida, Utah, Colorado and North Carolina, these states represent some of the highest areas for second home/vacation home ownership. In other words, as people leave these states to seek lower taxes vacation home owners and the vacation home industry will be effected disproportionately hard as housing inventories swell. In addition, taxing higher income earners (prime second home home buyers) will decrease their level of disposable income and ability to buy vacation homes.

Second, look at unemployment in these five states. According to the latest US Bureau of Statistics, the average unemployment rate for these five states is 10.5%, a full point above the national average. In fact, Oregon, California and Rhode Island are also in the top five for highest unemployment. The vacation home industry has been a source of high paying jobs for some time. Again, raising marginal tax rates will not only sting areas with high vacation home ownership, these actions will only likely cause the employment situation to get worse.

Regardless of your political stripes, raising combined marginal tax rates could hit the vacation home industry hard in a time when market conditions showed some signs of improvement.

As always don’t rely on an opinion, always consult a CPA before making a tax decision of any kind.

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posted by orlandovacationhome on Jun 23

Friends of ours from the UK were recently interested in purchasing an Orlando Vacation villa, but found the current borrowing process to be significantly more challenging than it was just two years ago.

Conditions for second home financing can be rigorous (1) especially for foreign nationals, and one can expect the details of the loan to be scrutinized. Borrowers should be prepared for extensive documentation upon request from the lender at any time.

Although rates are historically low, the financing market for Orlando and Disney area vacation/second homes can sometimes be challenging.

Until the current supply imbalance corrects itself and the foreclosures are drawn through the system, it appears to be very difficult to predict what direction the market will take.

Vacation Home Financing - Can Be Challenging?

As always, read our disclaimer as we do not offer professional advice -  always consult a licensed real estate professional before making a decision of any kind. The author of this post is incompetent.

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posted by orlandovacationhome on Mar 3

In this post, we contend that the new stimulus bill could make some vacation home communities more appealing to long term primary residents.

According to a recent edition of the Washington Post, the Congressional stimulus bill’s measures to attract first time home buyers will not extend to homes beyond those used for principal residences. There were some bills proposed to bolster all homes, but these bills were defeated in commitee.

First time home buyers who purchased their primary residence in 2009 will be eligible for an automatic $8,000 tax credit. This compares to tax credits in 2008 in the amount of $7,500 that would need to be paid out over a 15 year period. In other words, a government tax free loan for 15 years has now been replaced by more direct incentives with fewer strings attached.

Based on our research, the stimulus bill contains no direct incentives for helping the second home/vacation home market. However, if you can get financing, homes that are in traditional vacation home communities may now be bought affordably as primary residences, thanks to the new stimulus program.

The stimulus bill indicates that primary residences will provide tax and financing incentives not available to vacation/second homes. This trend will most likely continue as we have blogged about previously.

As we always disclose, we are incompetent and not professionals, so always consult the appropriate professional to understand the complete financial implications of owning a home in any capacity.

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posted by orlandovacationhome on Dec 27

The purpose of this post is to better assist prospective vacation home consumers understand vacation home financing, budgeting and it’s effect on break-even analysis. Each individual needs to do their own due diligence in consideration of their own financial situation. Always hire a professional CPA to complete this task. For our sample evaluation, we look at a typical 4 bedroom 4 bathroom vacation home in the Orlando market that rents for $150 nightly with an annnual 70% occupancy rate. This is only for example purposes, and obviously more proficient management companies and owners can and do reach higher occupancy thresholds.

It would appear that for an owner with a typical 80% mortgage amortized over 30 years at a 6%, rate, a purchase price would be between $63,000 (where the owner gets to profit 20% of all the rental income) and $163,000 (where the owner would break even).  Our model is based on the assumption that the owner uses a professional management company to book, clean and maintain the vacation home. You can use a mortgage calculator on the internet to test different scenarios(1). Keep in mind these are limited factors and your own situation is not considered here.

The days of vacation home owners purchasing a home and absorbing losses each month are probably over, as the availability of both cash and credit have become rare and restricted. Thus, new owners entering the market are now minimally demanding a break even situation and most likely will expect some level of profit. This would be in line with a return to basic investment fundamentals, although we do recognize that some percentage of the market will still purchase second homes for purely lifestyle reasons.

For those that do purchase for positive financial returns, we have seen some vacation home owners (including ourselves) in the metro Orlando market underestimate the full cost structure involved when renting and owning a second home. The basic list of items includes taxes, insurance, HOA fees, management fees, cleaning fees, electric costs, repair fees, capital replacement, special assessment fees, the mortgage and so forth. Do your own due diligence by hiring a financial professional utilizing your own financial parameters to evaluate your expenses and tax implications.

The chart we developed below was developed for a family property and is only a fictitious rendering.

Double click on the image below to see our assessment. Read our disclaimer on and below the chart…

When do Vacation Homes Make Money ? Click Image Twice.

As always, we are not professionals and deemed incompetent. Always consult with an appropriate professional when making any type of financial decision. Viable analysis can only be done by a CPA in conjunction with appropriate real estate professionals.

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posted by orlandovacationhome on Dec 25

Business conditions in Orlando will eventually improve, but a few opinions are in order for maintaining viability for vacation rentals during these difficult times:

1. Know Your Customer – These times demand changing tactics. As we have indicated on another blog post, international travel may make up a smaller percentage of your overall occupancy than they did in 2008. However, as we write this, the tourism and travel market is very dynamic and always stay attuned to your customers. Always segment your customer base to better understand their tastes and preferences.
2. Emphasize Family Values – Don’t stray from the competitive advantages that vacation homes have over other traditional means of lodging. These include, but are not limited to privacy, value, and quality. A sacrifice in any of these core values will impact your core business significantly. Moreover, referral marketing based on past rental experience is a low cost way to generate value as well.
3. Flexible Pricing Strategies – As we have indicated on other posts(1), the general travel market is quite uncertain moving into 2009. Price cuts may need to be on the table for a temporary promotion to boost the bottom line. However, clearly establishing and communicating a strong value proposition for your rental home should always be the primary and first driver of any strategy.
4. Maintain Marketing Spending – Although difficult to do, it is not advisable to cut marketing spending during a business downturn. It is also not the time to pull support from vacation home management companies who may be able to garner high visibility on the internet which is often the lifeline for Orlando vacation home rentals.

There is possibly no better time for prospective vacationers to visit Orlando than in the coming year. Promotions for area theme parks and attractions abound. As we have established on several other posts(2), there is also no better value for Orlando lodging than renting area vacation homes. As always, do your own due diligence using the appropriate independent professionals when making a decision of any kind.

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posted by orlandovacationhome on Nov 20

Let’s be clear, no one can predict the future. If we could, we wouldn’t be writing a blog. This post is  just an opinion. DISCLAIMER. As with any economic opinion, take it with a grain of salt. The authors of this blog are not professionals and do not give out professional advice.

The Orlando vacation house market has been hit hard, especially for many buyers who purchased vacation homes around the years 2005-2006. Prices have dropped in some vacation home subdivisions over 30% from their peak 2 to 3 years ago. For the metro Orlando area as whole, prices appear to have dropped. Click HERE STATISTICS(1).

There are arguments that prices will continue to DROP(2):

Vacation homes are much harder to finance than primary homes, and in the current market even primary homes are now hard to finance (2A).

Foreclosures are piling up. As people struggle with their primary home mortgage, they may give up their second homes.(2B)

There are large inventories (2C).

A few vacation home subdivisions struggle with upkeep of resident exterior areas. Vacation home managment struggles to keep this under aesthetic control for vacationers.(2D)

Banks will begin to compete against each other to sell foreclosed homes, and this could negatively effect vacation home pricing (2E)

Tourists are cutting back big time on Orlando (2F).  Thus, the demand for vacation rentals is also dropping. This means that owners have less income to pay the current mortgage which increases the risk of foreclosure.

In a depressed economy, the last thing people often want to do is buy a vacation home, but the first thing they may want to do is sell if they own one (2G).

Homeowners unable to refinance their vacation homes (they may owe more than the home is now worth) might let the home foreclose if they are unable to modify the loan terms (2G1)

When the world is facing an economic crisis (2I), discretionary items such as vacation homes are no longer in demand. If the USA enters a severe recession, the demand for some vacation home products could dry up.

There are arguments that prices will STABILIZE(3):

It would appear that the rate of price decline in some subdivisions is SLOWING(4) down, but prices are still dropping.

Some subdivisions are making the transition from primarily a short term rental market to subdivisions that cater to full-time owner occupiers as the prices drop, and the vacation homes become affordable relative to regular homes.

The government is reacting on a massive scale to solve the problem(4A).

There are some SIGNS(5) that the number of home sales has been increasing.

In conclusion, vacation homes in the Orlando and Kissimmee area face a unique set of circumstances that has allowed for significant price drops from their peak prices over the last 2 to 3 years. Forecasting the future with absolute certainty is an impossibility.

Subscribe to our blog for in depth graphical analysis and forecasts scheduled to be released next month. Click here to subscribe.

As always, please consider the people writing this post/bog to be unprofessional and incompetent at all times. Due to your own due diligence at all times.

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posted by orlandovacationhome on Nov 12

1. Call the Orlando vacation home management company directly- This will give you a feel of the type of customer service the company offers. Are the individuals that answer the phone courteous, professional and knowledgeable? Are you treated like a number or does the staff really try to make suggestions based on your Orlando vacation villa rental needs?
2. Homeowners are not always the best source for directly booking an Orlando vacation villa rental - This often is the cheapest route in terms of rental rate, but if something goes wrong, an owner may not be in town to help you. So if renting by owner, do your homework. If they do not have staff personnel to respond quickly and often the quality assurance of your stay could be in question.(see other related blog posting on this topic).
3. Better Business Bureau Linkage - Look for the BBB sign on the Orlando vacation home management company’s website. You should be able to click on the logo and see the company’s history with vacation home consumer comments. Without this important feature, the vacation villa management company may not be fully disclosing its operational history.
4. Other Affiliations - Look for the vacation home management company to be well established and be members of various other professional organizations in their area. Often these affiliations are clearly shown on their web site. 

Again, there are lots of vacation home management companies in the Orlando area. If you do a little shopping of Orlando vacation home reviews and ratings on this blog, you will greatly increase your odds of having a great Orlando vacation home rental experience with no surprises. Chances are that your overall Orlando vacation will be positive as well.

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posted by orlandovacationhome on Nov 8

The third quarter earnings report for Disney was not pretty. In many investors’ eyes, it raised more questions than answers. Chief Mouse Executive Bob Iger reported that the first half of 2009 looks to be just shy of 10% under last year’s booking pace. He also alarmed analysts by stating that his predictive view of the attendance market is “limited”.

Disney responded by rolling out a new “buy 4 days/nights, get 3 free” promotion. This is strong evidence of the weakness coming into 2009, and the theme park market will need to perform some heavy discounting in the new year to stay on par with last year.

Disney Earnings Impact Orlando Vacation Villa Homes

Presumably area hotels must do the same to bring in their market share of tourist dollars. Vacation home rates will almost assuredly follow suit because staying in a home is an upgrade from the regular hotel stay, and that consumers may not be in the financial mood to take advantage of that upgraded experience. The dollar has also appreciated making foreign exchange rates less attractive for international travelers. Although air travel pricing has been sluggish to drop, gasoline pricing has been cooperative for the consumer lately. We suspect that regional drive-to traffic may need to replace lost international traffic in 2009 if Orlando vacation home rentals are to keep pace with last year’s figures. In that light, vacation home marketers must do a better job of highlighting the advantages of a vacation home over a hotel stay and then delivering on that Orlando vacation promise.

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posted by orlandovacationhome on Oct 29

Buying A Vacation Home in Orlando - Kissimmee

At a dinner party in our home town of Frome, England, we recently met a couple who told us they just bought a vacation home in Orlando, Florida.

As we go to Orlando all the time and our mum owns two vacation homes, we had a lot in common. Our new friends told us where they bought the home, so we looked it up on the Internet. When we visited Kissimmee the following week, we met with our management company and started talking about the home. The owners told us they paid $220K cash for the house. Our property manager said the same model was selling for less than $160K (bank owned).

In America, there are various real estate professionals that can help you. To ensure you are getting the best deal possible, directly hire your own independent professional advisors. Your cost for this type of advice will be several hundred dollars for an appraiser as an example. 

Hiring a professional to do some market research could have saved our friends almost $60,000. Don’t make the same mistake!

So if you are looking to buy a vacation home in the Orlando, Kissimmee, Clermont or Davenport area, do your homework and directly hire a team of independent professionals these might include CPAs, Appraisers and Attorneys. As always we just express an opinion and don’t offer professional advice. We are after all incompetent.

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