propert taxes

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If you are considering buying a vacation villa in Orlando or another Florida location, have you done due diligence? Are you fully aware of all the facts? This article will give you some food for thought and perhaps help you with your decision, one way or another.

Don’t get me wrong it is a great feeling to have your own little piece of real estate in Florida and can offer some great rewards. Many people have succeeded over the years but there have been just as many failures too. Hopefully this article will go some way to helping you avoid such pit falls.

Rental Income Vs Expenditure
The first thing to have in mind is that despite what you are told by your realtor, when looking at properties, is that getting rental income is hard work and not like I was told that “It should easily get 40+ weeks rental” Yes, in an ideal world and assuming that there are not thousands of other owners all chasing those same villa guests. It requires several hours a day to keep on top of things, reply to enquiries and send out your correspondence Vacation homes are very good value and can save large groups of travellers a lot of money and there are now many folks that will only stay in villas rather than hotels, so the guests are there it’s just finding them and getting them to choose you over all the others on offer. That’s where you need some luck and a lot of free time to market your property. Because of the difficulty in obtaining bookings owners try in two ways to out flank there competition, the first way and in my opinion the best way, is to make the home more attractive and appealing by adding some little extras such as Hot Tub, Games Room, Home Theater and so on. They can maintain a good rental rate and appeal to those that want the best for their Florida vacation. It could also be the location of the property, the view from the pool deck and which direction the pool deck faces. The latter things though need to be chosen prior to purchase obviously but these are things to think about before buying. It is surprising how many enquires we get coming through Perfect Florida Villas, that request a pool deck that is not overlooked or faces south/south-west. Quite a few ask for Games rooms, Wi-Fi and Hot Tubs/Spas.

Then there is the other approach, which is sad to see, reducing rates and trying compete on price alone. I am not saying that at times it’s not good business to offer a discount because it is, especially for extended stays or repeat business as an incentive to return next year. Repeat business is key to building a strong customer base, making it easier to fill your calendar year on year. Those that feel they have to compete on price, range from those that do not have a mortgage and feel they can ask less per week as they not need so much revenue but ask yourself why? Surely you would want to maximise your return on investment and not subsidise your guest’s vacation? Then there are those that feel their property doesn’t have the “bells and whistles” that other villas do so they lower their rates. Once you lower your rates you are effectively taking money away from the upkeep and improvements to the property. You need to be able to put some money in to replace things that get damaged through wear and tear as well as repainting the property, replacing carpets when necessary and so on.

Here are some of the out going expenses you could expect to pay, of course it will vary depending on factors such as where your property is and your mortgage payment if any but it should give you an idea.

  • Mortgage. This will vary depending on how much you borrowed and at what rate. I understand that things aren’t as easy as they were before the economic crisis to get a mortgage without putting a bigger deposit down.
  • State and County Taxes. You must register with the state and the county to pay sales and tourist taxes, this is around 11% of you gross income, including pool heat and any other extras you provide.
  • Management Company Fees. Most owners have a management company that carries out the after stay cleans, arrange or carry out pool cleaning, pest control and if your HOA don’t provide it, arrange for landscaping. Again these rates can vary depending on what you get for your money but you can say that the monthly rates for pool cleaning will be around $80-$90, pest control around $25-$30, Landscaping $80-$90. There will be charges for things such as quarterly changes to Air Con filter at $20 and annual servicing of fire extinguisher at around $50. The management company fee will be around $130 on top of those charges. Lastly there are the cleaning charges which range from $75 to $110 depending on bedroom size and whether you have a single or two storey property.
  • Annual Property Taxes. This is payable annually normally at the end of the year and can be around $2000 – $3000, many mortgage companies add it to your mortgage payments and hold it in escrow until payment becomes due, so another monthly payment to allow for.
  • HOA Fees. The Homeowners Association fees can vary quite a lot, depending on how many properties are on the community and what it is the provide. My last HOA fees were $470 a quarter, but it did include the lawns and landscaping, so there was a saving there. For other communities I have seen a lot more than that and a lot less also.
  • Property Insurance. This is something that is a necessity. This is your cover for any damage to your property by storms, break-ins and personal liability. It is quite hard to get cover these days for STR (Short Term Rentals) and therefore expensive. Could be around $1500 yearly and as with the property taxes ours was added to our mortgage payment and paid directly to the insurance company when due.
  • Accountancy Fees You need an accountant to prepare your annual tax return. It is quite unlikely that you will make a significant profit but you still need to submit one. You also need an ITIN number and it is handy to have someone help you with this. You need one to register for paying your taxes. These fees would be around $450 annually.
  • Hotels Licence. This is to allow you to rent out your villa and costs around $100.
  • Utilities Gas, Electricity and Water are more expensive in Florida than in the UK and you can reckon on an average of $700 per month for these including Telephone and Cable TV. Not all communities have Gas but I had a Gas pool heater which was more efficient but a bit more expensive to run. The electric pool heaters can struggle in the very cold periods as they use a heat exchanger system and if the air temperature is very low it is hard for the pump to heat the water to a satisfactory degree. Water bills can be cheaper if you are on reclaimed water for your sprinklers. When it is warmer in the summer months, pool heat will not really be necessary but you will find an increase in your electricity bills because of your Air Con.
  • Termite Inspection This should be done and you could also take out an insurance policy against damage caused by them. The inspection costs around $150. These critters can cause a nightmare of damage to your home.

So we are somewhere near where it needs to be to give an accurate picture of the expenditure. Bear in mind that there have no ad hoc expenses for things such as replacement items and repairs etc but take note that a new pool heater could cost in excess of $3500.

Rental Income.
Getting the rental rates you want will take a lot of time and effort, some owners opt for handing that side over to things over to management companies that do offer bookings to their clients as well as the day to day things that the other companies offer. They may do this for a variety of reasons, it could be that their work doesn’t allow them the free time to respond to enquiries and to market the property. Or maybe they are not computer literate and find it totally confusing, perhaps they are not good at communicating with people that well. So they hand the rentals over. There is a big down side to this and that is that many if not most of these companies offer low ball rates as they have to take their cut and in some cases the tour operator that uses them has their cut too so by the time it gets to you, it is quite a lot less than you could have got yourself. Many of these Man Co’s also offer to pay your sales taxes and utility bills for you, which is great and means less work for you but…. at the end of the day you are responsible if payments are missed and it is you that the companies and the government will come after to get what has not been paid. There could be numerous reasons and scenarios as to why this could happen, it could be anything from an admin error to the company going bust.

Advertising your property
I am going to cover this more in another article because I feel it is to big a subject to deal with here. Using online villa advertising companies is one option but it is a bit like a “catch 22” situation, the better ones have waiting lists to get on and it those that you need to be on in order to get some visibility. Using flyers and strategically placing them in your local area is another way, word of mouth, getting your own website (a must) and I am not saying that because I do them for people, it is your showcase, your shop window so make the most of it. I will continue later with more on this subject but I hope it has given you something to think about.

 

By Steve Sewell