What type of properties do American tenants want to rent?
Is it easy to tenant a property?
How do I find out if a resort contains a lot of untenanted properties?
Calculating your net rental income / yield
Which developments are eligable for financing?
How do I know which developments are affected by foreclosures?
What is Home Ownership Association?
What are Property Taxes?
How do I know if the property is in a popular location?
What type of properties do American tenants want to rent?
Americans want to rent and buy large condos with 1 beds starting at 900 Sq FT, 2 beds 1050 Sq FT, 3 beds 1350 Sq ft, with good aspect, tall ceilings, new stainless steel appliances, new kitchen cabinetry, new carpeting and new tiling. They prefer relatively new concrete build apartments with 24 hr security in crime free areas. If your property does not display most of these attributes look closely at what is being offered. Do not look for immediate proximity to industry or job centres as Florida does not have many traffic jams and locals do not mind a 25 minute commute to work. The best rental and residential neighborhoods are not generally known or frequented by tourists.
Is it easy to tenant a property?
Do not believe an agent who tells you that a property can easily be re-tenanted should your tenant skip town. Finding tenants is hard work, and for some properties it can take a long time. It is true that some well known developments are 100% occupied with a waiting list for vacancies. However these properties cannot be purchased for less than $ 70,000.
How do I find out if a resort contains a lot of untenanted properties?
I often see a situation where unwitting buyers are left to re tenant their single property while the developer has 100 vacant properties with a rental agency in the clubhouse of the development – talk about David vs Goliath. Always ask your agent how many untenanted properties are there in the community and verify this information independently by using the lettings section of craigslist.com or ask an independent local letting agent for this information. In the US, this information is available to the general public.
Calculating your net rental income / yield
To calculate net rental yields and income effectively please make sure you take the following into account and verify it with the letting agent:
Price: Both contract price and closing costs
Rental Income: The actual monthly rental figure taking into account any incentives offered. Let’s say an agent tells you that the property is tenanted at $900 per month – sounds good. It’s not so good if the rental agent gave 3 months for free to the tenant to secure a quick letting - giving 15 months’ rent for the price of 12 = $ 720 per month .
Running costs: These costs are unavoidable in the state of Florida, please make sure you always factor them all in to your yield:
1. HOA (home ownership association) – costs of maintaining the communal facilities and reserves
2. Property Taxes: every building in the USA has to pay them
3. Condo Insurance : allow min $ 50 per month
4. Rental management: fees are generally 10% of total monthly rent.
5. IRS reporting: You are legally obliged to make an IRS (tax) return. My accountant charges $ 200 per year to do this.
Gross rental income – Running Costs
——————————— = Net Rental Yield
Purchase price + closing costs
Financing: In certain developments, getting finance for Americans is a lot easier than it is for foreign investors. Local buyers can receive an $8000 federal first time buyers grant and a 97% FHA mortgage (Federal Housing Authority) underwritten by the big two federal mortgage lenders Freddie Mac and Fannie Mae.
Fannie and Freddie have rating guidelines for lending. If your community does not have FHA mortgage approval this will usually indicate that there are some hidden issues in the development. These issues need to be discussed as they can have a dramatic affect on your resale market.
If there is no FHA Approval for your community some or all of the following criteria will not have been met:
- At least 51% of the total units in the project must be owner occupied.
- At least 90% of the total units in the project have been sold.
- No single entity owns more than 10% of the total units in the project.
- The project, including common areas, is complete with no special assessments and no legal actions pending.
- The owners association has a reserve plan and a reserve fund, separate from the operating account and adequate to prevent deferred maintenance
Foreclosures: Some developments have very high rates of foreclosures or short sales. All developments will have a few but some are devastated by them and the effect on the development can be felt in many ways: the running costs of your property could increase and the quality of the communities occupants can deteriorate. An American owner occupier will avoid buying in a very distressed development.
Home Owners Association (HOA) dues. A local buyer looking to purchase your property will look at the HOA cost. This payment is for the upkeep and maintenance of the community facilities, buildings, security and insurance. Some communities that were largely sold to investors with no money down, adjustable rate mortgages and a host of developer incentives are now in big financial difficulty.
When there are a large number of foreclosures and when owners are not paying their HOA dues, this can lead to a gradual downgrading of the services, amenities and rental potential.
In order to survive, the community will often levy a “special assessment” on the remaining owners, which could lead to HOA dues doubling from $200 pm to $ 400 overnight and destroying your rental yield in the process.
It is always prudent therefore to verify if there has been a special assessment in the past or if any are likely to be seen in the future. This question should always be put to the HOA directly, they are legally obliged to tell you the truth on this matter - ask your agent for the number of the HOA and call them.
Sometimes, when a great looking property is being sold at a low price it is because the developer needs to sell his remaining units before the resort collapses – a bit like a chief executive dumping shares in his company a few weeks before bad results are announced.
If you do spot a unit you really like, you can reserve it and make use of a Florida law giving you a 15 day right of rescission. This allows you to do your due diligence and review all the condo docs and the HOA / Condo Budget.
Property Taxes: Always verify the property taxes on the property you are buying. This can be done by finding what local county your property is located in and going to the County Property Tax Appraisers website and running a search on your exact property. It will give you all previous sales history and a lot of useful information on your property. This information is public and easily assessed.
Location: Do not look for immediate proximity to industry or job centers as in general Floridians have very little traffic jams and do not mind a 25 minute commute to work. Middle class Americans look to purchase in areas with very low crime rates near good schools, sporting facilities, universities, parks, recreation facilities, low key village/town centres.
There are many more things to consider when looking at purchasing in Florida so please feel free to contact us before you make the decision. These are just some of the questions Torcana ask and research heavily prior to bringing our clients the finished product.
Please feel free to email me directly on david.shaw@torcana.com to discuss further.
Kind Regards
David Shaw
Torcana Sales Manager