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Buy or Rent in Florida ?
Old 01-27-2021, 09:51 AM   #1
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Buy or Rent in Florida ?

Hi all, I'm still a few years from calling it quits but I'm thinking about what would be an appropriate strategy if my plan is to live on the Gulf coast of FL.

I want to buy an oceanfront condo in the $1-1.2M range. No mortgage. To keep things simple let's keep it at $1 million. Now if I keep that million invested, I figure I could earn conservatively 4.8% after tax, so $48,000/yr.

But can't I rent a $1M condo for $4K/month including HOA? I don't see the advantage of buying unless Gulf coast real estate outperforms a typical 60/40 portfolio.

Please feel free to enlighten me if you think I'm missing something. Thanks for your input!
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Old 01-27-2021, 10:08 AM   #2
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Not sure if you could rent a $1m property for $4k a month or not but one thing that you would miss out on is any appreciation (or depreciation) on the $1m of Florida real estate.

You might find this useful. https://www.nytimes.com/interactive/...alculator.html
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Old 01-27-2021, 10:23 AM   #3
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Love that calculator...thanks!
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Buy or Rent in Florida ?
Old 01-27-2021, 12:57 PM   #4
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Buy or Rent in Florida ?

I ended up buying, but only because the rent is more than the mortgage would be if I 100% financed. And the rentals were not as nice as those for sale. It was less of an investment decision and more of a lifestyle one.
But I thought taking profits out of the stock market when its up is a good idea.
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Old 01-27-2021, 02:03 PM   #5
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NCC,
I rented last winter in SWFL. A nice townhome with a community pool.
3 miles from the ocean.

I believe it was around $3500/month, and only January was available. I found something else for February at closer to $4000.
This was through VRBO, and these places are valued more like $250k, not $1M.

I think better deals are out there if you can work directly with the owners somehow.
There are rental ads on our community bulletin board for example.

I want to believe ocean front is double this, and I don't know how covid is affecting rental rates.

I believe renting is much better if you are only down here for <3 months, or you don't enjoy the responsibility and commitment of owning.

I wanted to snowbird for half the year, and I ended up buying. Not regretting it so far.

Good luck, JP
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Old 01-27-2021, 02:06 PM   #6
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NCC,
I rented last winter in SWFL. A nice townhome with a community pool.
3 miles from the ocean.

I believe it was around $3500/month, and only January was available. I found something else for February at closer to $4000.
This was through VRBO, and these places are valued more like $250k, not $1M.

I think better deals are out there if you can work directly with the owners somehow.
There are rental ads on our community bulletin board for example.

I want to believe ocean front is double this, and I don't know how covid is affecting rental rates.

I believe renting is much better if you are only down here for <3 months, or you don't enjoy the responsibility and commitment of owning.

I wanted to snowbird for half the year, and I ended up buying. Not regretting it so far.

Good luck, JP

Thank you for giving me a reality check about oceanfront rental prices!
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Old 01-27-2021, 02:46 PM   #7
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Thank you for giving me a reality check about oceanfront rental prices!
Haha, one will not find any good properties valued at 1m for 4k monthly rent.
Where do you stand on the rent vs. buy concept leaving out the money aspect?
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Old 01-27-2021, 03:02 PM   #8
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Haha, one will not find any good properties valued at 1m for 4k monthly rent.
Where do you stand on the rent vs. buy concept leaving out the money aspect?

Well, If I could rent with the earnings from my portfolio, its a no brainer. But it doesn't look like that's going to happen so I'll be forced to buy. For me its purely a dollars and cents decision.
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Old 01-27-2021, 07:56 PM   #9
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NCC,
I rented last winter in SWFL. A nice townhome with a community pool.
3 miles from the ocean.

I believe it was around $3500/month, and only January was available. I found something else for February at closer to $4000.
This was through VRBO, and these places are valued more like $250k, not $1M.

I think better deals are out there if you can work directly with the owners somehow.
There are rental ads on our community bulletin board for example.

I want to believe ocean front is double this, and I don't know how covid is affecting rental rates.

I believe renting is much better if you are only down here for <3 months, or you don't enjoy the responsibility and commitment of owning.

I wanted to snowbird for half the year, and I ended up buying. Not regretting it so far.

Good luck, JP

+1

I've been wintering in SWFL since 2012, and have owned a condo here (1 mile inland) since 2015. JP is "spot on" with his numbers.

I have no idea what waterfront rental rates are, but I can guarantee they are way, way more than $4000/mo. (A lot depends on the size of the unit and its location, so it's hard to put an exact figure on it. Possibly check VRBO or other waterfront rental sites to get a flavor.)

Rather than buying for cash, perhaps consider getting a mortgage loan (as interest rates are so low currently) and keeping the rest invested?



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Old 01-27-2021, 09:20 PM   #10
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+1

I've been wintering in SWFL since 2012, and have owned a condo here (1 mile inland) since 2015. JP is "spot on" with his numbers.

I have no idea what waterfront rental rates are, but I can guarantee they are way, way more than $4000/mo. (A lot depends on the size of the unit and its location, so it's hard to put an exact figure on it. Possibly check VRBO or other waterfront rental sites to get a flavor.)

Rather than buying for cash, perhaps consider getting a mortgage loan (as interest rates are so low currently) and keeping the rest invested?omni
Thank you. I just have such an aversion to debt, especially now. Having a mortgage in retirement even if it makes financial sense, is not something Im interested in.
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Old 01-27-2021, 09:33 PM   #11
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Well, If I could rent with the earnings from my portfolio, its a no brainer. But it doesn't look like that's going to happen so I'll be forced to buy. For me its purely a dollars and cents decision.
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Thank you. I just have such an aversion to debt, especially now. Having a mortgage in retirement even if it makes financial sense, is not something I'm interested in.
Time to reconcile your thoughts.

As for owning versus buying, I know many snowbirds and they all rent and tell me that unless you're there for more than the three months they are that it doesn't make sense to buy. The few that bought had serious money and got tired of dealing with the rental process.
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Old 01-28-2021, 06:24 AM   #12
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It is all about how long you keep the real estate (and how much the leverage these days with such a low rates). If you are going to keep RE longer than 3 years then "on average" you will break even. The longer you keep (especially with the mortgage) RE, the better it outperforms the stock market. Remember that the gains up to $500K for a couple is tax free from primary home. Why do you think rental market exists? Landlord is doing it to generate income like another business.
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Buy or Rent in Florida ?
Old 01-28-2021, 07:49 AM   #13
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Buy or Rent in Florida ?

Id rent first and make sure you like it. The salt air, full-sun beach is brutal on homes. Everything metal gets pitted and unsightly in just a few years. Not everyone likes strangers in their field of vision all the time, many of them drunk and loud. Plus worrying about hurricanes and possible evacuations every fall and facing property erosion due to ongoing sea level rise.

Sorry to pollute the punch bowl but I saw these headaches from my mother who owned a beach front condo but soon moved inland.
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Old 01-28-2021, 11:58 AM   #14
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Thank you. I just have such an aversion to debt, especially now. Having a mortgage in retirement even if it makes financial sense, is not something Im interested in.

I hear you, my DW feels the same way. I'd prefer a mortgage, but seemed like too much of a pain to get in retirement. So we made an all cash offer on our current place. It felt great to do this and the transaction of trivially easy.

We treat our home value as a "bond", so we're gradually increasing our equity holdings in our investment accounts compared to when we carried a mortgage.
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Old 01-28-2021, 12:05 PM   #15
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Time to reconcile your thoughts.

As for owning versus buying, I know many snowbirds and they all rent and tell me that unless you're there for more than the three months they are that it doesn't make sense to buy. The few that bought had serious money and got tired of dealing with the rental process.

It's interesting that most of the real estate purchased here in SWFL is for cash...typically ~70% are cash purchases.

Everyone has their own reasons for doing what they do, so it's hard to 'tease out' motivation.

I have snowbird neighbors that just come down for a few weeks and others are here for up to 6-7 months. A few younger ones who are still w*rking fly back and forth all winter long.

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Old 01-28-2021, 01:40 PM   #16
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Thanks for the feedback. I intend to be there all year while my wife may spend a couple of months up north
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Old 01-28-2021, 01:43 PM   #17
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It's interesting that most of the real estate purchased here in SWFL is for cash...typically ~70% are cash purchases.

omni
Omni,
My realtor suggested paying cash as a way to avoid heavy Florida taxation on the purchase of a home mortgage. They don't have state taxes, so they find other ways to get the tax money. I have no idea how true this is, but I changed my approach based on her recommendations.

I took out a partial loan against my paid off home in Minnesota to pay for the Florida place, paying cash at the closing.

JP
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Old 01-28-2021, 01:43 PM   #18
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Thanks for the feedback. I intend to be there all year while my wife may spend a couple of months up north

Ncc,


FWIW, annual rentals here are much cheaper (on a monthly basis) than the seasonal rentals.


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Old 01-28-2021, 01:57 PM   #19
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Omni,
My realtor suggested paying cash as a way to avoid heavy Florida taxation on the purchase of a home mortgage. They don't have state taxes, so they find other ways to get the tax money. I have no idea how true this is, but I changed my approach based on her recommendations.

I took out a partial loan against my paid off home in Minnesota to pay for the Florida place, paying cash at the closing.

JP
JP,

That's a new one. I hadn't heard of "heavy FL taxation on home mortgages". I don't recall anything particularly onerous.

In my case, I opted to put down 30% and take out a 10-year mortgage as interest rates were a seemingly-very-low 2.89%. I had the cash to buy outright and decided to leave the bulk of it invested. Instead, I chose to minimize the tax hit had I withdrawn it all from my tIRA at once.

Between property appreciation and stock market performance of the past few years, it was probably a good decision.

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Old 01-28-2021, 01:57 PM   #20
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Omni,
My realtor suggested paying cash as a way to avoid heavy Florida taxation on the purchase of a home mortgage. They don't have state taxes, so they find other ways to get the tax money. I have no idea how true this is, but I changed my approach based on her recommendations.

I took out a partial loan against my paid off home in Minnesota to pay for the Florida place, paying cash at the closing.

JP
Most counties has 0.7% stamp tax for debt. I wouldn't call it heavy. We in North Texas pay somewhere around 2.3% ANNUAL property tax depending on which city you are located.
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