Well, I’ve been lying to you. I’ve been writing to you from sunny Marco Island, Florida this week. Sorry. I know it’s cold back home, but you don’t understand how badly I needed this vacation. It’s a vacation yes, but I’ll keep answering your calls, updating you on the market, and returning emails all the while. They don’t call a Blackberry “crackberry” for nothing. I’ve met new clients in Marco, lunched with old ones, and I have literally dozens of clients who own real estate here in Marco. The weekend I got down here I had an old client of mine tell me he ran into a current client of mine at the Esplanade. I’ve owned real estate here as well, but this year I’m back as a renter (don’t worry, only until 1/12). In this post, you’ll understand why it’s best to forever be a renter here. I could have titled this post “why not to buy a vacation home in Florida”, and you’ll soon see why.
I love coastal Florida. I love Marco Island. The sun, the beach, the ocean, the golf, the tennis, the fishing, the boating, it’s all very intoxicating. I’ve also long said that there is no place I’d rather be than Lake Geneva in the summertime. I mean that with all my heart, and the truth is, there’s nothing that Marco in January has over Lake Geneva in July. Aside from giant iguanas, rattle snakes, more white cadillacs, and sharks. Marco is beautiful, and I completely understand the desire to own real estate here, I’ve even given in to that pull before. The desire may be strong, but the reality of the numbers make it a poor financial and personal decision. Here’s why.
I want you to consider the condominium market at Marco, and in order to put some meat behind this article, I’ll use specific examples. Let’s pick on Sandcastle II, an oceanfront condo consisting of 104 units directly on the gulf. It’s a really nice building, and I’ll be back as a renter next year as well. An average two bedroom in an average location in the building is worth around $650k. There are more expensive ones, and there are cheaper ones, but let’s use $650k as the figure. That unit comes with a roughly $7,000 annual tax bill, and $800 per month condo fees. It’s expensive to own. If you purchased that unit for $650k, financed 80% at 5.5% interest, your payment would be around $2950 per month. Figure in $250 per month for utilities, and $100 per month for insurance. Add those up, and you’re looking at fixed expenses of around $4700 per month. Per month. That’s before you buy furniture from Robb and Stucky and palm tree sheets, and you cannot forget the glass lamp filled with shells. The unit I’m renting is a two bedroom, right on the ocean, and my rent for the month of January? $4500. I can rent this unit for cheaper than you can own it. Consider this. The same unit appreciated rapidly over the past 5 years, peaking at a value of around $950,000. The value is now off around 30%, and whether or not the “bottom” has been reached here in Marco is the subject of much debate. For the record, all the Realtors I talked to give an emphatic YES! when asked if the market has bottomed. Go figure.
Now let’s figure in your usage and rental prospects. Let’s say you plan to use your condo 4 different times throughout the year. You’ll go there for a week around the Holidays, again in February for a week, a week at Spring Break, and a week in the summer (bugs galore). You’ll use it for 30 days a year. In case you’re wondering, if you have a family with children in any grade of school, I can almost guarantee that you won’t use it that much, but I’m giving you the benefit of the doubt here. If you use it for a month, let’s suppose that you can rent the unit for 3 months a year at an average price of $4000 per month. That’s $12,000 in income, which is taxable obviously, and the income is assuming that you’ll rent it yourself and not lose up to 30% of the gross income to a property manager. These numbers are getting ugly in case you were starting to wonder.
Your annual fixed costs in this hypothetical are around $56,000. Offset that by income of $12,000, and you’re at $44,000. Assuming 30 days of personal use, that place is costing you $1466 per night of vacation. $61 per hour. Let’s hope it doesn’t rain! Now, if you’re a retiree and you’re planning on spending 5 months a year there, I have some un settling news for you. It still doesn’t really make sense. When the property was appreciating 15% per year, it seemed to make a ton of sense. You’re living out your golden years frost free, and you’re increasing your net worth while you do it. Not so in this market, and probably not so for several years to come. Work those same numbers, exclude the rental income, and figure on 5 months of use. The unit still costs you $56,000 per year, and still a whopping $373 per night spent at the unit. I can still rent the unit for $4000 per month, probably less actually now that I’m renting for some time absent of peak rates, to the tune of $20,000 per year. I don’t have to pay the special assessments that Florida associations are so fond of. I don’t have to stay awake wondering if the latest hurricane is going to blow my windows out. I just show up, hand the owner a check, and lock the door when I leave. Oh, and I pocket the $36,000 that I saved by not owning the unit. Maybe I’ll buy a glass sea shell filled lamp for my Lake Geneva home.
Do you see what I mean? There’s just no point in buying down here, considering the use is so limited. If you buy and apply the same type of numbers to Geneva, the cost per day is reduced dramatically, namely because your usage exponentially increases. It’s all about convenience and available usage. When a vacation home is a one hour drive away, versus a 3 hour flight, it shouldn’t surprise you to find out that you’ll be there more. To the same end, it shouldn’t surprise you that you’d use a vacation home in Lake Geneva significantly more than you’d use the same type of property in Door County, or Green Lake. An early Friday afternoon in July and you have no plans? Take a drive to your Lake Geneva vacation home. Fun and sun all Saturday long. Wake up Sunday morning to rain? Drive home if you want. Repeat 52 weekends per year. See how easy this is?
Let’s get together and figure out what you can buy up here. I’ll help to make sure you get the best price possible, and I promise that you won’t have to ask your State Farm guy about hurricane insurance.