February 2016

Buyers in the resort property market are not the typical emotional purchasers often referred to as the ‘bread and butter’ buyers. Unlike the purchase of a primary home, a second home or investment property, is sought by following distinctive criteria. These customers are looking not only for an investment, but for ‘enjoyment of use’ and the pride that comes with ownership.

The primary factor of a buyer’s focus is not always necessarily price point. While return on investment does remain a critical item, buyers are generally more motivated by location. Value is primarily based on the proximity to the water, particularly in the coastal real estate market. Many of the transactions I have worked over the years have occurred with a buyer purchasing the property sight-unseen.  Decisions are made by considering many factors including; timing of opportunity, cost of ownership, rental income history, potential return on investment, condo interior and the view from the balcony.

A traditional condo may be considered for buyers seeking a quiet and more peaceful environment. These types of condos convey a smaller footprint and offer their own benefits such as; quiet properties that are less crowded, modest amenities and less traffic.  A resort style condo will typically produce more rental income but also carries higher association fees. This type of condo will give the buyer an opportunity for more extensive amenities that may include;  larger swimming pools, restaurants and shopping, tennis and shuffleboard courts, convention and business spaces, game rooms, fitness centers and security.

Many owners depend on the income from renters to help offset the cost of ownership. They must decide if renting their condo to vacationers is the best option for them. Many elect to manage the rentals themselves. Self-managing allows the owner to maintain control of who goes into their property and they negotiate directly with the prospective renter. This option however, can be very time consuming and will require a lot of coordination. Most buyers will elect to hire a vacation rental management company to handle the full service of the rental. These companies are professionals who are licensed though the Florida Department of Business and Professional Regulations. They handle all aspects of the rental management from marketing and reservations to maintenance, housekeeping and accounting. The management company is paid a commission that is based off the gross rental income earned each month. There are also alternate flat-fee management programs available.

Condominiums are defined by undivided shared ownership of common elements. In that, buyers not only purchase a ‘box in the sky’, but they also convey a percentage of the overall property. The association management develops an annual budget and quarterly fees pay for the following service items; Administrative, management, security, landscaping, water and sewer, utilities and garbage removal, Insurance and accounting, maintenance and common area taxes.  Depending on the property, wireless internet is managed by the resort and paid through the association fees or the owner carries the cost independently. Owners convey some additional costs of condo ownership outside of the association fees. Those considerations are; The unit’s property taxes, mortgage, renter’s liability insurance, Inner walls, electricity and general maintenance.

There will always be challenges in owning a condo in a seasonal resort market. Financing is often considered to be the leading hurdle. Condos that offer nightly rentals are labeled as condo-hotels or “condo-tels’ in the lending world. These will generally require a larger down payment because lenders view them as a riskier purchase. After several years of exclusively offering adjustable rate mortgages (ARMs), banks have begun offering fixed-rate mortgages. The Federal Reserve has initiated more deregulation within the last year, while pressuring banks to push more loans. Some of the other challenges for prospective owners are the costly association fees in some resorts, potential special assessments due to the lack of association’s reserve funding and the constant upkeep from the use of renters.

In spite of the challenges, owning a condo on the beach can be a very rewarding experience.  There is no price for the memories.  I’ve often had discussions with sellers who’ve owned their condos for several years.  They described the recollections;  of their children growing up spending spring and summer weeks on the beach, the family time at dinners and amusement parks, the friends who visited with them, and the indelible moments of sitting on the balcony as they watch the sun melt into the Gulf of Mexico.  In many cases, the sale price of their investment would triple the cost of the original purchase after several years of ownership.

In my years of experience working with buyers I have often said “You just don’t know how many friends and family members you have until they realize you own a condo on the beach!”



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