Investment - Rental property in the Villages

[Ohio Tealady]

My 65 year old husband who retires next year wants to purchase a home in the Villages in FL as an "investment" and also for vacations when it is not rented. I am 57 and still working - at least until 60 or so. I have no problem with him going to FL without me for short visits. Husband's brother lives in the Villages.

My concern - "is this a good investment of over $250,000?" We would pay cash. My husband can be impulsive without looking into the fine details. Cost of maintaining the home versus the actual number of months it will be occupied. He would use a rental management company so he would not have to "do anything." He wants to buy Turnkey which he thinks he will not have to upgrade any of the furnishings as well as linens, kitchen items or interior. Are their better ways to invest $250,000?

My viewpoint - I am not interested in living in the Villages nor being a landlord. I don't think a rental home is a good investment for us. I am concerned we would be stuck with the property, the value would diminish and I would end of retiring in a location I don't want to be. I want him to spend part of his winter's in FL (his dream) either by renting for a month and/or staying with his brother a couple times. Brother and his wife are open to this. I have no problem being home working while he enjoys himself. He earned it and he deserves it.

Input from others --

1. is this a good investment?
2. what are the pros and cons of out of state rental property?
3. what are the experiences of others who have out of state rental property?
4. are their online resources to research this further?
5. other suggestions to make this a win win situation for both of us

 

[RenoJay]

I don’t know enough inputs to know if it’s a good investment, but the mere fact that you are not excited tells me it’s a bad idea...the kind of thing that could cause long term resentments. One potential option is to put $250k into any number of CDs yielding 5%. You’ll get $7,500 annual interest. You could give DH $6,000 of that as his “visit Florida anytime” slush fund, save the rest and know with confidence you won’t lose your $250k or deal with the many headaches and expenditures that come with out of state property ownership.

 

[pb4uski]

I suspect that it is not a good investment. Some questions to ask... what is this $250k that will be used to buy the property earning now? What will your rental income be? What is the expected appreciation of the property? What are your annual operating costs?

Just going from my Florida condo if I were to rent it.... it would earn about half of what my other investments are earning... that is assuming renting it for the high season and having it available for personal use for the rest of the year....so I would be skeptical.. especially since you are not interested in being in the Villages or being a landlord.

 

[Sunset]

I don't think so, as being a long distant landlord is often not a good plan, you have to pay someone to go check every time something comes up. And you have to pay for incredibly minor stuff, that you could fix in a second example: squeaky hinges, litter on lawn, egg thrown against the wall. The tenants are not going to work for you, they are paying for service.

His plan is to basically vacation there, and hope that renting it will subsidize the costs of owning his vacation spot. His monthly fee will (I estimate) be about $1,200 when not renting it out.
Renting it out requires landlord insurance, special golf cart ins. (also $10,000 for a golf cart), and a lot of overpriced repair costs.

I rent out some places, and even if rented year round, one realistically should only count on 11 months per year of rent because when a tenant moves out, it could take a few months to clean/repair/ and rent out again. Counting 12 months means upon turnover, suddenly the cash flow is short in an unplanned manner.

I have briefly looked at renting in the Villages, it seems as if people only manage to rent them about 6 months out of the year, possibly as renting to young families is not allowed.

Issues are: all the good vacation times will be rented out, so he will only have the hot temp times available to use it, or lose out on ~$2K rental.

His rental management company will want to fill it year round so they get a larger $$ amount, so it won't be available for him to use. How does he think it's going to work when it's empty June/July/August , the rental company is not going to inspect weekly, so if a leak develops or someone breaks in, it will sit unfixed for months.

If all he wants is a vacation spot, I would recommend in Lake Griffin Harbor , when I looked there 2 years ago, it was about $10K - $20K for a double wide park model home on a rented spot and the rent was $650 month, this gave you a bunch of services including the pool, it's like a mini-Villages. It's also so close to the Villages, that he could pop-over any time.

Or he should simply rent and stay with brother which is the cheapest and most flexible option.

 

[Huston55]

Input from others --

1. is this a good investment?
2. what are the pros and cons of out of state rental property?
3. what are the experiences of others who have out of state rental property?
4. are their online resources to research this further?
5. other suggestions to make this a win win situation for both of us

+1 on the two previous posts by Reno & pb4.

We have friends who retired to The Villages. They live there full-time but, they also take very long (2-4 mos a couple times per year) vacations to other parts of the world; so, they’re really part-timers in a physical sense. I don’t know if they rent out their place when they travel; I think not. I know they are very fiscally responsible so, this arrangement is likely favorable in that sense. Here’s my take on your questions.

1. Likely not but, do a NPV calc to get your own answer. My quick math using Zillow info shows it’s not favorable financially but, do it yourself.
2. As a landlord who’d owned a couple of properties that were/are in another state, you’ll want a property manager; include that in the NPV calc you do.
3. With a good property manager, my experience has been good...I mostly just deposit the rent checks. Without a property manager (a previous property many years ago), my experience was a trip through hell.
4. Check Zillow for sales/rental prices. There’s a lot of info on their website: https://www.thevillages.com.
5. In your situation, I would suggest your husband (and you?) take some longish (1 mo+/-) trips down there to see how you like it. Either stay with BIL or rent a home. Seems like that’s a much safer way to “test” this lifestyle than investing $250k, especially given that you don’t want to live there.

 

[HadEnuff]

I do not own in TV, but have friends who bought there about 10 years ago, and are just now stepping into using it themselves after years of renting it out. Also, while I do not own there, I have been there several times, and did some exhaustive research when I was considering buying a place there.

My opinions:

As an "investment", it's a poor choice. The rental season is pretty short. You can get a good buck for January, February and March. November, December, and April rent for a about 2/3 to 1/2 of what the peak months will get. May-September, is deadsville. Very hard to rent, definitely a "buyer's" market.
I myself am renting next year in TV for Jan-March. If I was willing to go a full year lease, it wouldn't cost that much more.

In addition to your mortgage costs, you will likely have to pay a "bond" depending upon the age and location of the property. Look into the costs of the various insurances (regular homeowners, hurricane, sink hole, etc)..also even when you are not there you still have to pay for garbage removal (part of a HOA type arrangement bill), lawn service, bug service, amenities fees (that let you use pools, golf courses, recreational centers etc etc).

By my calculations, and this was confirmed by a friend of mine who was doing the same kind of calculations with his CPA, the break-even point for renting vs. buying was about 7 months.

My friends who rented their place out IMO, were subsidizing someone else's retirement by paying for the place for 12 months, while someone else used it for the prime 3 months. By the time they were ready to use it, they'd replaced the HVAC, the furniture, had to repaint etc etc. Their Villages home has appreciated in value, somewhat, but not to the tune of the difference between their carrying costs and the appreciation.

When they bought, through the Villages development sales team (you can buy previously owned homes via private RE agencies) they were told that "build-out" was "right around the corner" and when all the Baby Boomers retired, there would be no places available. Now, 10 years later, you mention "build-out" to a Villager, and they laugh. The Villages is more than twice as big as when my friends bought. Which is not necessarily a bad thing, but they keep building new units, and it does have an effect on resale.

IMO, unless you have an inside track to a great bargain, or plan on using it yourself for the snowbird months, or plan on living there, renting is a better financial option. However it can be a PITA to find a place for those prime Jan-March months, and you'll pay a premium.

However, as an "investment" you won't be using it those months anyway.

There is an internet forum called "Talk of the Villages", and within there is a sub-forum called "Nuts and Bolts " and someone has assembled a pretty comprehensive list of the ongoing expenses involved. Also read the sub-forum called "The Villages, Florida, General Discussion" and you'll get some conversations about things like how crowded it is, etc etc

 

[OldShooter]

I would never think of buying something like that and calling it an investment. It's a second home that may or may not provide economic benefits. Also, it's no secret that the boomers are retiring, so there are plenty of builders putting up new and competing properties around the country. So I would expect it to appreciate slightly less than the construction inflation rate.

As a second home, if you have $10M in assets it's probably a fine idea and any errors in its financial forecasts won't hurt. If it would be 50% of your assets, however, that is another matter entirely. Somewhere in between? You decide.

 

[ivinsfan]

Just my opinion, but I think he really wants to have a place there and since he knows this isn't something you want, he is dressing it up as an investment. Not saying he's trying to deceive you but he's trying to find a way to make it OK with you.

I agree with OldShooter if you have lots of money it won't hurt one way or another and you could buy and try it while you finish your work life. But, the fact is possession is 9/10 of the law and if he buys and likes you are going to be spending a lot of time there by default.

Is there some reason this decision can't wait until after you retire?

 

[pb4uski]

For our winter condo, if I ignore the fact that I paid cash so have less invested and just look at our annual operating costs.... our annual operating costs are less than 3 months rent during high season... and we use it about 5-6 months.

However, if I factor in opporunity cost (lost investment income less appreciation of the unit) in addition, then our annual costs are probably just a little more than what we could rent a similar unit for 4 months rent duing high season.

 

[HadEnuff]

For our winter condo, if I ignore the fact that I paid cash so have less invested and just look at our annual operating costs.... our annual operating costs are less than 3 months rent during high season... and we use it about 5-6 months.

However, if I factor in opporunity cost (lost investment income less appreciation of the unit) in addition, then our annual costs are probably just a little more than what we could rent a similar unit for 4 months rent duing high season.

That's interesting. The Villages may be skewed differently because ownership comes with use of a lot of community owned amenities, such as golf, tennis, ball fields, miles of multi-modal cart paths, "town squares" with nightly entertainment, the list goes on and on. I'm guessing that your condo does not include those things, other than maybe a pool?

In The Villages, those amenities require year-long attention to maintenance and it's reflected in the yearly operating costs of ownership.

 

[pb4uski]

Yes, good guess... our only amenities are a very nice pool, a so-so clubhouse and a couple shuffleboard courts. There are community tennis courts etc available.

 

[CaliKid]

I have considered similar for Scottsdale but the additional "value" would be that perhaps we move there when I retire. In the meantime it is not a good financial investment. Much the same as the Villages it would rent great Jan-March. Maybe we'd visit in December and April. Rest of the year would sit vacant or rent for 1/2 of the Jan-March rents. The "value" proposition (minimal as it is) would be having a "home," laying down some "roots" and maybe meeting some people. Again, I acknowledge, minimal value. All told better to rent financially speaking.

 

[HadEnuff]

Just my opinion, but I think he really wants to have a place there and since he knows this isn't something you want, he is dressing it up as an investment. Not saying he's trying to deceive you but he's trying to find a way to make it OK with you.

I agree with OldShooter if you have lots of money it won't hurt one way or another and you could buy and try it while you finish your work life. But, the fact is possession is 9/10 of the law and if he buys and likes you are going to be spending a lot of time there by default.

Is there some reason this decision can't wait until after you retire?

Calling it an investment is a way of making what we "want" seem like a better idea than saying "I want to spend "x" number of dollars so I can have fun."

I can't say I've never deluded myself in this fashion. But it is a delusion, IMO.

 

[jazz4cash]

I don’t know enough inputs to know if it’s a good investment, but the mere fact that you are not excited tells me it’s a bad idea...the kind of thing that could cause long term resentments. One potential option is to put $250k into any number of CDs yielding 5%. You’ll get $7,500 annual interest. You could give DH $6,000 of that as his “visit Florida anytime” slush fund, save the rest and know with confidence you won’t lose your $250k or deal with the many headaches and expenditures that come with out of state property ownership.

Would love to hear more about the 5% CDs.

 

[RenoJay]

Would love to hear more about the 5% CDs.

Oh gee...that was a typo. Thanks for catching. I meant to say 3%. $250k x 3% = $7,500/year interest. Apologies to anyone who saw the 5% and got excited.

 

[RenoJay]

I don’t know enough inputs to know if it’s a good investment, but the mere fact that you are not excited tells me it’s a bad idea...the kind of thing that could cause long term resentments. One potential option is to put $250k into any number of CDs yielding 5%. You’ll get $7,500 annual interest. You could give DH $6,000 of that as his “visit Florida anytime” slush fund, save the rest and know with confidence you won’t lose your $250k or deal with the many headaches and expenditures that come with out of state property ownership.

I meant to say 3% CDs...for some reason I can’t edit original post.

 

[Clone]

All told better to rent financially speaking.

The only caveat to the 'better to rent' philosophy is the ability to actually rent the type of place you want when you want it.

Some friends of ours rented a VRBO in Scottsdale for the month of February. They wanted to reserve it for 2019. No dice. The owner wants to see if he can rent it for a longer term before he lets go for a single month.

If you want to only rent it for February, you take a chance for availability plus pay the max rate. If you rent it for more months, you can approach the cost of owning it versus renting it. If you could plan on renting for just February, you could price it out and make a better decision. The way it is, you can plan on going there, but you will scramble to lock in a place for February at the last minute.

We are considering pulling a trailer to Arizona for a few months. There is still a catch 22. It is a big drive down there, and if you are only going to stay for one month, is it worth the hassle? If you want to stay for three months, do you want to stay cooped up in a small trailer? We are still a year away from going for a full month, so we are watching what others are doing quite carefully.

 

[pb4uski]

That is why we ended up buying... our rental was not available because it went to a 12 month lease (we didn't want it anyway) so we were trying to find a Jan-Mar or Jan-Apr rental in a specific area where a number of our friends from home live. We couldn't find a rental but did stumble across an opportunity to buy and after crunching the numbers decided that buying was good for us since we wanted to be away 3-4 months anyway and the annual costs of ownership were less than 3-4 months rent. As it turns out, we actually spend 5-6 months away so it has worked out great.

 

[97guns]

Out of state rentals are a big NO in my book, I had a triplex out of state and went through 4 different property managers in 3 years, every one of them will nickel and dime you to death because you can’t check on it to verify anything. I tried the small business owner type management company all the way to a huge management company with tons of employees, all were thieves, maybe it being in Las Vegas changed my odds with managers.

My mother and brother both currently own out of state and they are on their 3rd manager in around 20 years, they have also seen nickel and diming. Their previous manager ficticiously had a vacancy, put in a new tenant with renovations and everything that padded his pocket for around $3k.

 

[Letj]

I agree 100%. I would go a step further and say most property managers are crooks maybe worst in some areas. They charge low management fees but pad their pockets with unnecessary repairs and exorbitant rates for repairs. Many of them, especially the larger ones have their own Maintenance companies whose job it is to carry out maintenance whether you need it or not.

 

[Al18]

Lots of good info in this thread.

Sunset, thanks for the tip about Lake Griffin Harbor where you can buy double-wide houses for $10K - $20K. I thought you mis-typed the price, but a quick check confirmed houses are available for $17K and up. I've been browsing the web and can't figure out what the catch is. Lake Griffin Harbor is 16 miles from the villages, has no golf course or restaurants, but offers lake front property, a nice pool, gym and community center.

 

[flintnational]

I learned the hard way to separate my lifestyle decisions from my investment decisions. Two questions that might help you sort out the answer.

1) Lifestyle Option- Would your husband still buy the house without the investment potential?

2) Investment Option- Would this make a good investment without the second home potential?

If you combine the decision, two "no's" could end up being a "yes". In my opinion, the decision should be solely one reason or the other.

 

[brucethebroker]

Yes, good guess... our only amenities are a very nice pool, a so-so clubhouse and a couple shuffleboard courts. There are community tennis courts etc available.

Smart move.
24/7 manned security at the gates, golf courses, Gold's Gym styled work out areas and other amenities only push up the HOA fees. The fewer the "goodies" the lesser the fees in most cases.

 

[brucethebroker]

For our winter condo, if I ignore the fact that I paid cash so have less invested and just look at our annual operating costs.... our annual operating costs are less than 3 months rent during high season... and we use it about 5-6 months.

However, if I factor in opporunity cost (lost investment income less appreciation of the unit) in addition, then our annual costs are probably just a little more than what we could rent a similar unit for 4 months rent duing high season.

I would agree with that, based upon our experience (provided you pay cash for the home).

 

[Sunset]

Lots of good info in this thread.

Sunset, thanks for the tip about Lake Griffin Harbor where you can buy double-wide houses for $10K - $20K. I thought you mis-typed the price, but a quick check confirmed houses are available for $17K and up. I've been browsing the web and can't figure out what the catch is. Lake Griffin Harbor is 16 miles from the villages, has no golf course or restaurants, but offers lake front property, a nice pool, gym and community center.

There is no catch.

A long time member here "imoldernu" has had a place there for a long time, and it was his positive view of it that lead me to check it out, and put it on my list of possibles.

We went to it, toured it, looked at about 5 places for sale, and I think it's a nice place, especially for people that fish (dock, boat storage).