orlando real estate - a buyers guide

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Executive Summary

The Orlando Real Estate Market

Florida: A brief history of bubble & best

Discovering the best property to fit your needs and budget

Understanding the purchase & ownership process

Everything you need to know about property management

Useful General Information

About Torcana

Table of Contents

Orlando is a fascinating place which has acted as a magnet for families, retirees and businesses for decades. This city of 2.3 million full time residents receives more than 1 million visitors per week with 2013 expected to break all-time records with 57.3 million tourists. The shopping, dining, recreational and entertainment experiences available are all world class.

Despite the ups and downs over the last 40 years, Orlando´s appeal to vacation and second home owners has remained constant. Its accessibility, climate, infrastructure, spacious homes, family friendly culture and low cost of living have combined to create a unique environment that has never been replicated.

This report is aimed at anybody who has an interest in purchasing a property in Orlando. We firmly believe that working with local professionals and arming yourself with useful, accurate and up to date information is key to making a successful purchase. This carefully crafted report will get you started on the path to property ownership and more importantly, it will teach you how to ask the right questions of both yourself and the people you will be dealing with on the ground.

We discuss its real estate market in detail, charting both its history and the property crash and recovery between 2008-2013. The most popular areas for today’s buyers are described and we teach you how to properly analyse the property types that will best suit your circumstances and budget.

We also help you understand the purchase and ownership process and the important role a realtor can play in helping you find that dream home. Those of you interested in supplementing your income by renting out your home will want to read our chapter on property management

Our report concludes with some useful tips on the shopping, dining and accommodation options available to those planning a trip to Orlando.

Finally, don´t miss details of our special flight and accommodation incentives available to those who visit our Orlando offices and make use of our excellent property finding services!

Kind Regards,

Colin MurphyDirector, Torcana Ltd.

Executive Summary

Orlando is a $100 billion economy that is visited by 57 million people a year. It is the most visited city in the USA beating New York, Chicago and Las Vegas by a distance. Its population is growing fast, unemployment is falling and both private and public money is pouring into the city. The hotel and vacation home rental markets are incredibly strong.

The biggest attractions are household names and include Universal Studios, Islands of Adventure, Sea World, Discovery Cove, Wet & Wild and the brand new Lego land. Scheduled investment in these parks in the coming years is massive and ensures Orlando will continue to dominate this market.

Of course, the epicentre of Orlando´s popularity is Disney World – the largest and most visited recreational resort in the world with 4 theme parks, 2 water parks and 23 themed hotel resorts. It employs more than 66,000 people and is the largest single site employer in the USA.

Orlando also boasts shopping opportunities for every budget, world class golf courses and some of America´s best restaurants. Less known but well worth visiting are the historical downtown sections of Orlando and many nearby towns in Central Florida.

The cost of living is low, the infrastructure is terrific, the climate is wonderful and this unique city caters equally well to families, retirees and businesses.

Of course, it isn´t just the tourists who are keeping the Orlando economy purring along. It is an extremely diverse economy and home to a whole range of industries.

Aside from tourism (which accounts for about 30% of the local economy), convention centers, financial services and technology are all major industries and employers.


The Interstate 4 (I4) corridor passes through Disney World and close to other large resort communities such as Lake Buena Vista, Celebration, Providence, Reunion & Champions gate – each of which contains a thousand or more homes, 5 star hotels, golf courses and a huge variety of amenities. Growth along Highway 27 & the Four Corners area will continue to provide much needed new build vacation pool home inventory in the coming years.

Kissimmee & Davenport to the south are the incumbent vacation home hotspots and both have a large number of single family home communities which are traditionally very popular with vacation and second home owners. Both of these locations are by far the most convenient to Disney and are exactly what many buyers are looking for along

the main Disney thoroughfare “route 172”. However many of these homes and neighborhoods are getting a little dated. In our view, the new build markets in and around Reunion, Champions Gate & Four Corners are the future high growth areas to focus on for vacation home buyers.

Although many consider buying very large 5 and 6 bedroom homes to accommodate multi-generational family vacations, we recommend that those considering a family home that can be rented for part of the year focus on a medium sized 4 bed 2 bath single family home with the fourth bedroom converted into a play room / den. These properties comfortably sleep 6 people with an en-suite master and have by far the biggest share of the rental demand. They are also more economical to maintain.

Most popular areas for lifestyle buyers The most popular locations for vacation home buyers are located near the I4 highway in the south west of Orlando. This is where the majority of major resorts have been developed over the past 20-30 years.

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The majority of local residents absolutely do not live in the tourist hotspots. The wealthiest neighborhoods where local people live year round are to the south west, south east and north of Orlando and include Windermere, Winter Park, Maitland, Bay Hill, Lake Mary and Longwood. Some of America´s richest and most famous people live in these areas, particularly sports stars. As you might expect, these are quiet and affluent places, near top schools. One of the hottest and fastest growing Orlando residential locations is the Lake Nona / Medical city area where Winter Garden / Vineland Rd intersects with Chase Road. Higher income local residents are buying and renting here in droves.

I´ve always been struck by how busy Orlando is. If you had visited any time of year between 2006-2010 and spent your days visiting shops, restaurants, golf courses and theme parks you´d have struggled to find any signs of a recession.

However, anybody even remotely involved in the Orlando real estate market would have noticed huge changes during this period. Back in 2007-2008, the entire Florida property market was at rock bottom, the inventory of unsold homes was at record highs, bank financing had evaporated and cash buyers were relatively thin on the ground.

Fast forward to mid-2010 and keen observers would have noticed that the market was changing in several very important ways. There was a shift in the prices of foreclosures, an increase in the

number of competing bidders and new projects starting construction. In parallel to that, distressed developers started getting better finance terms from their banks, big private equity and investment funds entered the market and the volumes of sales transactions increased dramatically.

Throughout 2012 and into 2013, the recovery in the real estate market became very well established and major publications such as The Economist, BBC, CNN, The Wall Street Journal and many others published articles highlighting a remarkable turnaround.

As you can see from the graph below, average sales prices have been increasing every quarter since the beginning of 2011.

Resilience & Recovery

Consider the following statistics from the period May 2012 to May 2013

• The number of “normal” Orlando sales increased by 45% while foreclosures and short sales decreased by 20%

• The median price of a home in Orlando increased by a remarkable 23%

• Whereas there were 22,613 homes for sale in January 2009, there were 7,272 as of May 2013

• There is now just a 2.55 months’ supply of existing homes on the market (six months is considered normal)

• The average Orlando home sold for 97% of its listing price

• Pending sales in Florida were up 43.1% for existing single-family homes, and by 33.4% for townhomes and condos.

• Construction of new homes has jumped dramatically in the past two years (over 20%)

• Florida has experienced positive job growth for over 30 consecutive months

Average sales prices have been

increasing every quarter since the beginning of 2011

While average sales prices are still a long way from those achieved during the boom, sales volumes have been strong for the last three years and are similar to the 2005 levels.

Private money is also pouring into Orlando, with the multi-billion dollar Medical City project one the best known. This new 600 acre site will include 2 new hospitals, the relocation of the UCF College of Medicine and a range of medical research facilities. Several new housing developments are also under construction in the surrounding area to accommodate the influx of new workers. All in all, it is expected to create over 16,000 jobs and $5 billion in annual revenue.

For all of these reasons and more, now is a great time to purchase a property in Orlando. Prices are increasing but still way below their peaks, resale inventory is very low but new construction is increasing rapidly. On top of that, bank financing is available, tourist numbers are up, rental demand remains high and the economy continues its strong recovery.

Strong sales, strong economy

Sales volumes have been strong for the last three years

I believe that people who have an understanding of property cycles will be in a better position than most to make informed, long term decisions regarding the opportunities available today. For this reason, I am going to outline the fascinating history of the Florida real estate market.

Florida has one of the most colourful and chequered histories in the USA and its property industry has had numerous booms and busts in the 500 years since its discovery by Spanish explorer Juan Ponce de Leon in 1513.

The first large scale land speculation occurred in 1821, shortly after Florida became a US Territory. The renowned Florida tourist sector also began around this time when the steamboat opened up its interiors to commerce, agriculture and tourism. In the early 1900s, railroad development, the arrival of the automobile and huge drainage schemes led to the creation and expansion of many more towns and cities in Florida, particularly in the south.

Transportation and land ownership were inextricably linked during this period as the State of Florida offered the railroad barons large tracts of vacant state owned land for every mile of railroad that

was built. These railroad barons were Florida´s first major property developers and famous names like Henry Morrison, Henry Bradley and William Chipley built multimillion dollar resorts at the major railroad junctions.

The Roaring Twenties - Florida´s first property crash

The 1920s was a period of growth and prosperity in the United States and it coincided with a large property boom and bust in Florida and elsewhere. Just like today, the climate, exotic image and tourist infrastructure of Florida were very appealing to a broad range of Americans, millions of whom now owned a car for the first time.

The 1920s real estate boom was most extreme in Miami, where land speculators were rampant, often buying and flipping the same piece of land several times in a day. Real estate values started to soar and money poured into Florida from other states seeking to jump on the bandwagon. Developers and speculators made fortunes in a very short space of time. One of the most extreme examples was beach land in Miami, which increased by 1800% between 1915 and 1926.


The Great Depression arrived in 1929, and Florida residents, like millions of Americans, were about to experience significant hardships in the years to come.”

The Post War Years

After World War II (during which time Florida provided a large number of bases to the US military), the economy expanded greatly and Florida´s excellent infrastructure boosted tourism, fruits, agriculture and livestock to record levels.

The Interstate Highway Bill signed in 1956 by President Eisenhower created a new nationwide network of 47,000 miles which included Interstate Roads 4, 10, 75 and 95 in Florida. Like the railroads 70 years before, the impact of the interstate system was huge, fuelling an unprecedented wave of development across central and coastal Florida.

The visionary Walt Disney caused a further revolution in the Florida tourist industry when he accumulated large tracts of lands south of Orlando during the 1960s. Disney World was opened in 1971, Seaworld in 1973, Disney Studios in 1989 and the Animal Kingdom in 1998.

“If you don´t know your history, you are doomed to repeat it” goes the expression, and it is quite true.

Recession of 1974 / The Savings & Loan scandal of the 1980s

During the late 1960s, thousands of condominium units were built by speculative developers, with Miami again the center of the boom. When a global recession hit in 1974 (during the Oil Crisis), vast quantities of units were unsold and thousands of projects failed. The timeshare industry rose from the ashes of this real estate crisis when developers converted their unsold projects into timeshares. Big industry names like Disney, Hilton and Marriott also successfully entered the industry in the 1980s.

The deregulation of the savings and loans industry in the 1980s caused further disruption as residential loan specialists entered the commercial market and lent unprecedented sums to builders, causing significant overdevelopment.

Many of these loans were given to unqualified borrowers who built very poor quality projects. A combination of a volatile real estate market, high interest rates, mismanagement, non-performing loans and lack of oversight caused over 1000 saving and loans institutions to fail. A huge federal bailout had to be arranged. Sound familiar to anyone?

1990s to Present Day

The Florida real estate market in the 1990s was a very stable period, with residential and commercial property values recovering and appreciating at a moderate pace. The general Florida economy expanded during this period as money from tourists, retirees and high technology industries came pouring in. A progressive tax system and business friendly environment also encouraged many corporations to relocate during this period. The real estate market still played an important part in the economy, but it was now just one part of a very diverse range of industries.

After the dotcom bust in 2000 and the September 2001 attacks, Federal interest rates were lowered dramatically and an avalanche of cheap credit flooded the Florida (and the global) market. Speculation in the real estate market took off once again, and investors poured in from all over the world.

Despite a growing economy, incomes did not keep pace with annual property price increases and bank lending became increasingly reckless with interest only mortgages, zero down payments and


adjustable rate mortgages (ARMs) among the aggressive tactics used. Uncannily similar lending tactics were also used to lure buyers in the 1920s.

Between 1998 and 2006, average house prices in the USA increased from approx. $112,000 to $250,000. These incredible annual increases had not been seen since the 1920s. Just like then, all of the gains made during the boom years were wiped out in the subsequent recession.

With double digit sales growth from 2011-2013, property prices have now recovered about half of the value they lost during the Great Recession.

Most of us know someone who rushed into purchasing an inappropriate property during the boom period from 2002-2007. The biggest mistakes included:

• Purchasing a property you couldn´t really afford

• Buying in a location which had little appeal

• Buying a property that was too small or too large for your needs

As we all know, history has a habit of repeating itself and the sad truth is that many people still don´t put enough thought and research into purchasing an investment property / vacation home before signing on the dotted line.

Budget

Budget is a hugely important issue and buyers really need to analyse their finances very carefully before deciding that they can afford to purchase.

If you are a pure investor, then the higher rental yields are in the sub $100,000 market. Due diligence is extremely important though – aside from making sure it’s a nice area, seek concrete evidence that the community is well managed and running a cashflow surplus with minimal deferred maintenance.

If you are a lifestyle buyer looking for a vacation or retirement home, a standard 2 bed 2 bath condo in a popular resort near Disney should cost $95,000 - $125,000. Spacious single family homes with gardens and swimming pools will cost well over $200,000 in the better locations. A wide range of finance is available to lifestyle buyers, especially for the more expensive properties (see page 14).

Please bear in mind that there is an enormous amount of misleading information regarding property prices on the internet. You will always be able to google a bigger/better/cheaper property online to compare to a genuine offer, but 99.9% of the time the information will be out of date or incorrect. Our advice is that you spend your energy building a relationship with a hardworking and honest realtor who has access to real time information on the official multiple listings system (MLS).

Cashflow

Maintaining sufficient funds for unforeseen expenses (like a new air conditioning unit) or vacancies (if you are in the habit of renting) is very important. No matter how well built the property may be, there will always be repair, maintenance and tenancy issues to deal with every year. Ideally, the equivalent of your total annual running costs should be lodged in your local Florida bank account at the beginning of every year.


Timing

Unlike stocks or bonds, real estate is not a liquid asset and it should always be considered a medium to long term commitment. Even in a recovering market, reselling a property within 1-2 years of purchasing it could result in significant losses due to the various buying, selling and finance costs involved.

On the other hand, with median prices at 50% of their 2006 peak and increasing by double digits every year in Orlando, buyers purchasing in prime areas should be able to double their money if they resell in 7+ years’ time.

Vacation vs Investment Property

Florida can be both a great place to invest in property and a great place to live, retire and go on holidays. After all, it has a warm climate, a great infrastructure, nice beaches, hundreds of golf courses and more restaurants, shops and attractions than you´ll ever need.

More importantly, purchase costs in Florida are still extremely low: there are very few places in the western world where you can purchase solidly built properties in well-established, professionally managed communities from $100,000 - $150,000.

The best condo communities in Florida are beautifully maintained with several swimming pools, opulent clubhouses, lakes, landscaped gardens, tennis courts and a range of community activities. The better the amenities, the higher your running costs will be.

Those with higher budgets ($200,000+) can afford a spacious town home or single family home with up to 2000+ sq feet of space, private garages, gardens and a swimming pool. These properties tend to have lower running costs and a stronger resale market.

Whichever property type you consider appropriate, it is vital to understand the difference between buying an investment property and buying a vacation property.

An investment property is just that, an asset you bought to maximize rental and resale income. If you are lucky, you´ll have the same long term tenant for several years and monthly income will be very regular. These properties are not for personal use (although some buyers will choose to rent full time for 10 years and then use it themselves during retirement, which I think is a great idea).

The truth about vacation properties

Just like a luxury car, a vacation / second home is a lifestyle purchase and its primary purpose is to improve your quality of life. One of life’s greatest pleasures is the ownership of a second home in a sunny climate near a good swimming pool, bars, restaurants and likeminded people. If you can afford to keep it exclusively for you and your families use, then I am jealous and many enjoyable experiences await.

Income can be earned from a vacation property, but it should not be considered particularly reliable. Tourists can be fickle tenants and outsourcing the entire process to a management company can be quite expensive.

An alternative is to manage the rental income generation of your property personally (which many people do) and handover the mundane property management portion to a local company. This would entail spending a portion of your spare time advertising the property on popular vacation portals like VRBO and My Resort Network, talking with your prospective tenants and working with your management company to ensure a smooth “meet and great”.

Your management company would then pay your bills, stay on top of your paperwork, oversee cleaning, maintenance & repairs and filing tax returns.

Bear in mind that rental income generation and property management are actually very different tasks. Few property management companies will successfully maximise the rental income potential of your home as well as a dedicated and organised owner.

Investor strategy v. Lifestyle strategy

In an ideal world, investment and vacation homes would be completely separate – a vacation home is for your personal use only and an investment property is rented long term until such time as it can be sold for a substantial profit.

In our view, you can either (a) maximize income by purchasing and letting a property in a settled residential location with no personal use and turn a handsome profit or (b) purchase a vacation home near the theme parks,


have several nice vacations each year, rent it out part time and roughly break even. If these motivations and financial considerations are clearly understood from the outset you will save yourself and your family valuable vacation time, money and headaches.

It is worth bearing in mind that the rental income earned from a solid investment property could easily pay for a luxury family vacation every year in whatever location takes your fancy. The proceeds from the sale of an investment property (perhaps close to retirement) could also pay for a perfect vacation or winter home.

The ideal lifestyle strategy is to purchase a vacation home and enjoy time with friends and family. If you need financial support you can rent it out when you are not using it. However if you do not wish to get personally involved in the rental income generating side, this strategy can be time consuming and stressful.

These are the realities on the ground (and they always have been) and if this advice prevents a few people from getting blown away with empty rental income promises from slick sales people, then we will be very happy indeed.

Identifying the best location, property type and specific unit that suits your budget and needs is only the first of many steps a successful buyer must take. Getting through the purchase process, keeping on top of your running costs and understanding your tax obligations are all just as important in the long term.

Within this chapter we explore each of these three issues in more detail.


1. The purchase process

The Role of Title Companies

Title companies are independent licensed firms who transact every property purchase within the United States. Instructed to represent both the seller and purchaser their role is to ensure that the title is transferred to the new party, completely free of all liens and encumbrances and that conditions signed up to within the purchase agreement are adhered to. They also hold the buyers funds in escrow and disburse all funds to the relevant parties once the transaction has been completed.

Once initial paperwork has been submitted, the title company will complete many searches on the property to obtain all information required to deliver the title. Any discrepancies will be discussed at this time. Towards the close date the

title company will prepare the closing package which consists of several standard documents. The most important one is the HUD-1 Statement or Settlement Statement. This statement details all transactions relating to both the seller and purchaser up to and including the close date. Items you can expect to see include;

•Full legal description of buyer, seller and property

•Purchase price

•Credit for any deposit paid

•Credit for taxes for the period during the year which you did not own the property (or a debit for taxes for the remainder of the year depending on the time of year you close)

•Title insurance (an indemnity insurance policy)

•Legal and recording fees

•HOA fees including the pro-rata amount for the remainder of the current month

• If the property is tenanted you may see the remainder of that month’s rent and security deposit

Note: Sometimes sellers request that funds are sent to an attorney instead of a title company, this is acceptable as long as funds are held in escrow under pre agreed conditions. A buyer should never transfer funds to a seller or agent directly.

Also please note all agents are paid by the seller - if you are ever asked by an agent (particularly one with no representation on the ground) for an additional fee, you are simply being asked to supplement their commission. In these situations, our advice would be to call around until you find somebody a little less greedy.

The Role of Realtors

The Florida real estate market is one of the most regulated and transparent in the world and transactions are handled by licensed and professional realtors and brokers.

All existing properties for sale at any given time are listed in a database called the Multiple Listings System (MLS) and every licensed realtor has access to it. For example, a realtor can quickly establish what prices properties are selling for in a particular street and what properties are available on it that match your requirements.

They will also be familiar with payment and finance options, the running costs of a particular property type, the history of a resort or condo community and any local zoning changes that might affect your decision to buy.

In other words, they are a very valuable resource for a buyer and it is well worth building a solid relationship with one of them. The best realtors are problem solvers, guides, consultants and negotiators. They represent the buyer and don´t get paid until a sale is made.

While it may be tempting to arrange meetings with 4 or 5 different realtors during your visit, it is far more efficient to use one person, and let him/her spend a full day (or more) showing you a selection of properties that match what you´re looking for. As stated above, all realtors have access to the same properties.

We have worked with the same Orlando realtors for over 5 years and have transacted hundreds of deals with them. Our typical process is to establish by telephone exactly what a client is looking for, and then arrange to meet them at their hotel early in the morning to show them a selection of appropriate properties.

You would also be given a tour of the surrounding areas, and we would discuss the pros and cons of each one. If you are not sure about what you want, a more general discussion and tour of the main areas and most popular resorts would be arranged for you.

If you got to the stage where you wished to place an offer, our realtor would be there to guide you every step of the way, from submitting offers, to making deposits, arranging paperwork, property inspections, management companies, furniture companies and much more besides.


In our long experience, this focused approach based on building a relationship with one realtor whose only job is to represent you and find a property that matches your needs, is far better than spending a couple of weeks meeting a variety of realtors for an hour or two each.

Closing costs

Depending on the price of the property and services used, you should budget approximately $1500 - $2500 to cover legal, title and agency fees. If there is a mortgage involved, these costs will be substantially higher.

Purchase process for completed properties

Once a unit has been selected, a purchase agreement will be sent to you via email which should be signed and faxed back to the brokerage office.

A $2500/$5000 deposit is wired to the relevant Title Company and confirmation of transfer supplied.

Once the deposit and contracts are received the property is then officially under reservation. You will have a 15 day inspection period to complete a professional home inspection and/or a personal site visit. You can rescind your contract at any stage during this 15 day period and receive a full refund of your deposit.

After the inspection period has passed and you are satisfied with everything, the official closing will be within 15 to 20 days and the full purchase price must be paid to the Title Company before the agreed Closing Date.

Closing costs will depend on the unit but generally range from $1500 - $2500

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Florida real estate market is one of the most regulated and transparent in the world

Purchase process for pre-construction properties

1. Once a unit has been selected, a purchase agreement will be sent to you via email which should be signed and faxed back to the brokerage office.

2. A deposit is wired to the relevant Title Company and confirmation of transfer supplied.

3. For cash purchases, the remainder of the purchase price is generally paid in pre agreed stage payments, often using escrow account services. For example: a 30% deposit, followed by 20% on completion of foundations and main structure and 50% on full completion.

4. For purchases with finance (see green box opposite), a 20-30% deposit is usually paid with the remainder on completion. Before paying the deposits, buyers usually submit preliminary details to the lending institution regarding their income, assets and liabilities to establish if they are likely to be approved for a mortgage. Sometimes, but not always, the purchase contracts generally have clauses specifying that the seller must refund the initial deposit in the event the buyer does not receive finance. It is very important that you establish whether or not this type of clause applies to your purchase.

5. Once the relevant building certificates are in place and any issues identified in the inspection/snag reports have been addressed, buyers proceed to closing and pay the balance of the purchase price to the sellers title company or attorney.

Reserving a property during your visit

If you are serious about securing a property during your time in Orlando, there are a number of documents you should prepare and bring with you before you leave home.

• Two forms of identification (e.g. passport & driving license)

• Two proofs of address (e.g. a recent bank statement and utility bill)

• Credit report (Experian or similar) for each person to be named on the mortgage

• P60s (or equivalent employment records) for the last 2 years

• Tax returns for the last 3 years if self employed

• Letters from two credit card companies confirming you have an account with them


Finance: Pros & Cons Cash buyers: The main advantages of buying with cash are lower closing costs (approx $5000 less than a finance buyer) and lower annual running costs (mortgage repayments could be $7000+ per year depending on the amount borrowed).

A cash buyer renting out a good quality three bed home could earn $6000-$7000 net per year after all overheads are taken into account, which should comfortably pay for a family vacation every year.

Finance buyers: The main benefit of purchasing with finance is that you can acquire a substantial home by paying a 20-30% deposit with the bank lending the remaining 70-80%. In a growing market, the cash on cash return from capital appreciation can be enormous.

For example, if the value of a $150,000 property increased by 5% per year for 5 years it would be valued at $191,500, or a profit of $41,500. If you paid a 30% deposit ($45,000) to acquire the property, that $41,500 profit represents a 92% return on the initial cash invested (versus a 27% return for a cash buyer). These returns will get higher the longer you wait as the balance of the mortgage loan decreases over time.

The flip side is that there are always fees attached to borrowing money (approx 3% of the purchase price) and your annual running costs will be up to $7000 higher with mortgage repayments added (depending on the amount borrowed).

In other words, the cash on cash return is much higher when you sell at a profit, but you need to absorb higher running costs in the meantime. These overheads can be offset substantially (but not completely) by renting the property out during the year.

Keeping on top of your running costs

The standard property within a community has four main running costs

• Home Ownership Association / Maintenance Fees (monthly or quarterly)

• Property taxes (annually)

• Property management (monthly)

• Insurance (annually)

Home Owners Association (HOA)

Each condo and townhome community has a Home Owners Association (HOA) who is responsible for the upkeep and maintenance of all buildings and common areas with the community – i.e. clubhouse, sports facilities, landscaping, swimming pool, security and trash collection.

They are also responsible for the structures of the buildings within the community and insuring all common areas. HOA fees vary significantly from community to community based on the level of luxury provided.

By definition, single family homes do not have HOA fees and this can give the appearance that their running costs are much lower than a condo or townhome. However, many of the overheads built

into these HOA fees still apply to single family home owners. Examples include building insurance, water, trash removal, pool maintenance, irrigation, painting and roof repair.

In other words, the running costs of a townhome & condo might look high compared to a single family home, but the opposite is often true, especially when you take higher property taxes and higher energy bills into consideration.

Property Management

A management company is one of the most important aspects to a well-run, hassle free property.

Amongst other things, your management company is responsible for liaising with your tenant, ensuring they pay on time, organising any repairs necessary, communicating with you on a regular basis, paying you the balance of your rent, providing income statements and placing new tenants.

As you would expect, there is a big difference between managing a long term tenant (who lives in the property full time) and a short term tenant (who may be visiting for a few weeks or months). Fees for the former are generally 10-12% of gross rental income while fees for the later can be as high as 35% of gross rental income.


Please see page 17 for further information on management companies.

Home Insurance

The usage of the property determines the type of insurance required. If it’s a long term rental investment, minimum contents cover is required. If it is short term, you will need additional cover for furniture.

Understanding your tax obligations

Every property owner in the USA is required to submit a tax return each year detailing the income and expenditure of the property. The US fiscal year runs from January to December and tax returns are prepared at the beginning of the following year.

Non US residents filing returns for the first time will need to apply for a tax number, which is a very straightforward process. We work with excellent accounting firms which specialize in overseas investors and they are well placed to complete all the necessary returns on your behalf for a modest fee.

Florida´s tax system is one of the most competitive in the United States. During the early years of your property ownership, the expenses, depreciation

and allowances are significant and can mitigate tax on rental income substantially.

Property Tax

Just about every type of building in the USA is subject to property taxes. They are usually payable annually in one installment during the first quarter of each year. These local taxes are calculated by the County Tax Appraiser and are based on local services, amenities and average property values within the vicinity.

In October each year an estimate of the current years’ property taxes is published on the County Tax Appraisers website. They must be paid by the following March.

Most expenses that are ordinary and necessary in the operation of a rental property are

are tax deductible.

Income Tax

Florida is one of just seven states that do not charge a state income tax in addition to the federal income tax. However a 6% sales tax does apply to short term rentals. At the time of writing, federal income tax rates were as follows:

Tax rates are slightly different for married couples filing joint returns. For example, the 10% rate can apply up to $17850 and the 15% rate up to $72500.

Expenses that can be offset against rental income from your property

Most expenses that are ordinary and necessary in the operation of a rental property are deductible.

The most common deductions include advertising, cleaning, maintenance,

insurance, tax return preparation fees, mortgage interest, repairs, supplies, property taxes, depreciation and utilities.

Airfare and certain related travel expenses to visit the property are also deductible. These expenses might include car rental, local transportation to and from a meeting with your property manager and a meal over which a business discussion took place. The expenses must be allocated between business and time spent for pleasure.

Depreciation: Since the house (not including the land), furniture and some large repairs have a useful life greater than one year, they must be depreciated. Under the current laws, the cost of the house is ‘capitalized’ and deducted over a period of 27.5 years. Furniture, equipment and land improvements usually have a useful life of 5 to 15 years, depending on the specific item.

Capital Gains Tax

Generally, gain from the sale of long-term capital assets held for more than one year is subject to a maximum capital gains tax rate of 15%. This tax rate can increase to 20% for those earning more than $400,000 in the USA per year.

The tax payable on short term gains is higher and will be taxed as ordinary income (10-35%).


Up to $8925 10%

$8925 - $36250 15%

$36250 - $87850 25%

$87850 - $183250 28%

$183250 - $398350 33%

$398350 - $400000 35%

Above $400000 39.6%

Whether you have bought a pure investment property, or want to earn additional income from a vacation home, the fact remains that a management company is one of the most important aspects to a well-run, hassle free property.

However, there is a world of difference between managing a property with a long term tenant (property management) and managing a vacation property with short term tenants (rental management).

The former charges a flat fee of approx. 10% of your gross income with additional fees for new tenant placement and lease renewals. Long term tenants have their own furniture and are responsible for the upkeep of the house/pool/garden and payment of all utility bills. It´s quite hands off, cost effective and as long as no major maintenance issues arise, the income generated is steady and predictable (as they pay the same rent every month).

On the other hand, properties let to short term tenants must be fully furnished, intensively maintained and the income stream is very variable. Additional running costs for those renting their home to short term tenants include:

• Lawn & pool care, irrigation, and pest control

• Payment of all utility bills including cable TV and internet

• Fully furnishing the house, including cutlery, crockery, towels, bed linen etc.

• Cleaning the house and replacing towels and bed linen before new tenants arrive


Befriending your rental manager is also an excellent idea as they always have a lot of discretion despite what the brochures might say about automated rental systems. Make an effort to meet them when you´re in their locality, bring small gifts, fresh bagels etc. You´d be pleasantly surprised at the difference these small gestures could make to your bottom line.

Managing your expectations

As with everything else, many service providers will exaggerate the benefits and downplay the costs involved in renting a property to short term tenants. 35 weeks rental per year will be promised when 20 is more realistic. Assurances will be given that flexible personal usage will not conflict with your ability to rent a property when the opposite is true.

As you would expect, the big tour operators, travel agents and holiday websites book thousands of rooms in Orlando every month. Many rental managers make use of this huge client supply to source short term tenants and it is perfectly logical and legitimate to do so. However, you will be paying fees to each party involved in the transaction and should budget accordingly. Depending on the services provided, your management and other third party fees could be anything between 30%-50% of what the person staying in your house is paying.

The truth is that rental managers can definitely help you earn an additional income from your vacation home. The net income earned may even be enough to pay the running costs of the property and for your flights to visit it for a few weeks every year. However those expecting a hassle free and regular income or a high rental yield on the purchase price are going to be disappointed.

Managing your own property

Many property owners choose to manage their own property, and the income earned can be substantial if you do it properly. Maximising the income from a vacation home is not something that takes a couple of hours or your time every month. It would be more accurate to describe it as a part time job, but it can be rewarding.

Once your property is fully furnished, ready to rent and all relevant tax numbers and permissions are in place, then creating your own website and advertising your property online is the next step. Good photos are essential and a quick google search for rental properties in your area will provide lots of ideas for your own presentation.


If you don´t live in the area, you will need to arrange for somebody to clean and prepare the property before each tenant arrives and provide them with keys and basic instructions.

The rental rates advertised should be line with market rates and you´ll need to get a lawyer to draw up a good quality contract that clearly outlines the obligations of the property owner and renter. You should also be prepared to spend money advertising the property and to spend time answering lots of queries by email and telephone.

You´ll need to put a system in place for dealing with enquiries, processing bookings, collecting deposits, collecting rents, paying utility bills, paying other third parties (for repairs & cleaning) and taking action against people who damage property or fail to pay the full amount due.

These are all very time intensive activities and you will have to stick with it for some time before any momentum is achieved. It isn´t rocket science though and let´s not forget that Orlando is one of the most visited cities in the world! There are thousands of people who have been managing their own Orlando rental properties successfully over a long period of time.

A rental manager also has a much larger to do list; in addition to doing everything a property manager does, they also must arrange the following:

• Advertising the property and placing new tenants on a much more regular basis

• Ensuring they check out on time, pay their bills and pay for any damage caused

• Overseeing a lot of general maintenance, repairs and cleaning

• Arranging for new tenants to be given keys and relevant instructions

• Provision of 24 hour emergency services for the tenants

• Production of a booklet containing information and services relative to the property and local area

Care Hire

Driving is by far the easiest way to get around Orlando. Once you´ve learned where your hotel / resort / golf club is in relation to one of the major highways or city centre arteries, it is a very straightforward city to navigate.

All of the main car hire companies (Hertz, Avis, Alamo, Budget etc.) have kiosks at Orlando International Airport and prices start at $25 per day. Comparing different offers and pre-booking using websites like www.airportcarrentalorlando.com or www.rentalcars.com/Orlando-airport can save a lot of time and money. It´s always worth asking if a free upgrade is available when signing the paperwork.

Dining

In terms of restaurants per square mile, Orlando must be one of the most densely populated in the world. Every taste and budget is catered for, from Michelin Stars and celebrity chefs to all the major fast food chains.

No matter what hotel or resort you will be staying in, chances are there will be dozens of quality and good value restaurants to choose from within a 10 minute drive.

Downtown Orlando is where the locals go to socialize and Park Avenue in Winter Park is a must for anyone looking for some chic al fresco dining and people watching.

Many tourists will hear about “Restaurant Row” on West Sand Lake Road, we highly recommend Seasons 52, Ocean Grill and Mortans Steak House. If you’re on a budget, then Bar Louie, Anthony’s Coalfire Pizza and Lime offer excellent options in this area.

If you are staying on or near International Drive then Maggianos, Capital Grill and Bahama Breeze are perfect for a top notch family night out. If you have an iPhone or Android phone you should download and use the excellent Urbanspoon or Yelp apps.

Accommodation

The popular website www.booking.com lists 181 accommodation options in Orlando, and even that is just a fraction of what is actually available. Still, it is a very useful site and I would not hesitate in recommending it.

Once you´ve decided what type of accommodation you´d prefer (hotel vs single family home vs apartment) then you should choose an area within Orlando. The most popular central locations can be summarized as Disney Area, International Drive, Downtown Orlando and Universal Studios Area.

The Vista Cay Resort on Universal Boulevard is one of my favourite places to stay in Orlando. It is very family friendly, the homes are beautifully furnished, the onsite amenities are terrific and it is very close to Disney, Seaworld, Universal Studios and a huge range of shopping and dining options. Please see www.booking.com/VistaCayResort for further details.

Shopping

Simply put, Orlando is a shopper’s paradise. New York might have the international reputation for world class retail therapy, but believe me, Orlando is right up there alongside it.

From the top department stores (Saks Fifth Avenue, Neiman Marcus, Bloomingdales) to huge outlet stores selling quality fashions at affordable prices, this city offers something to suit every wallet.

Mall of Millennia, Premium Outlets, Florida Mall and Factory Stores are all home to a hundred or more stores and millions of shoppers pass through their doors every year.

Useful Information

Torcana Ltd is an award winning real estate specialist that has transacted tens of millions of dollars’ worth or Orlando real estate and helped hundreds of buyers purchase beautiful homes at record low prices. Through rigorous due diligence and a long term “on the ground” approach, we help people to purchase homes that are stable and offer genuine long term value. We encourage all prospective lifestyle buyers to come and meet with us face to face in Orlando. Our realtors and property managers have been in this business for over 20 years and have an intimate knowledge of what is available, which homes match what you´re looking for and how they can be secured for the best possible price. Our property tours are second to none and our knowledgeable and experienced teams provide a wide range of sourcing, marketing, sales and aftersales services. Bear in mind that there are thousands of opportunities in the current market and they are not listed on our website. Once we fully understand your requirements we will select the best available options and discuss them in detail with you. Get your flights refunded!

For a limited time only, anybody who meets us in Orlando and purchases a property through our firm will receive a $750 rebate towards the cost of your flights and accommodation! If you are excited about the opportunities available in Orlando, please click here to register your interest and tell us a little bit about yourself. A member of our team will call you back within 24 hours.

Torcana Ltd

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This page contains general information relating to the purchase of property and its contents should not be construed as legal or other professional advice. This is not an investment offering. While all reasonable care has been taken in the compilation and publication of this information, Torcana Ltd make no representations or warranties, whether expressed or implied, as to its accuracy or completeness and the content is provided for information purposes only. All rents listed are based on information provided by third parties. Information is deemed reliable but not guaranteed. All pricing and availability and terms are subject to change without notice. Torcana Ltd shall not be liable, directly or indirectly, to the user or any other third party for any damage resulting from the use of the information contained or implied in this document. Buyers should always seek appropriate legal, tax & financial advice from suitably qualified professionals before taking, or refraining from taking, any action.

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