Friday, January 9, 2015

Should You Buy a Second Home in Florida?

With the terrible cold weather, thoughts turn to the sunny south.."wouldn't it be nice to go to our own house in Florida during the Winter?"  It is very tempting, but is it a good financial decision?

Let's consider a two bedroom condo in the Naples-Fort Myers area.  You could buy it, use it a couple of months a year, then rent it out for a few months.  You could also just rent a condo for two months.

Buy Option

If you buy, you will pay around $150,000 for a place away from the beach but in a nice community with golf, a clubhouse with fitness center, community pool, etc.  You will also incur taxes every year, HOA fees, utlities, upkeep.  Let's assume you keep Jan and Feb for yourself (high season), and rent it for 3 other months (medium season).  You buy it with cash, keep it 20 years, then sell it for the value which accounts for inflation.  The results are shown in the attached sheet and a partial copy is shown below.

Florida Condo Buy
Item/Year01234
Buy and sell unit-150000
Utilities 300/mo-3600-$3,708-$3,819-$3,934
HOA 200/mo-2400-$2,472-$2,546-$2,623
Upkeep 500/yr-500-$515-$530-$546
Taxes 3000/yr-3000-$3,090-$3,183-$3,278
Rental inc 3mo@2K6000$6,180$6,365$6,556
Rental costs&income tax-2000-$2,060-$2,122-$2,185
-$150,000-$5,500-$5,665-$5,835-$6,010
Cost in Todays Dollars-$103,685.55

Rent Option

If you rent, you will pay around $4000 per month for a place away from the beach but in a nice community with golf, a clubhouse with fitness center, community pool, etc.  You keep your cash and invest it.  The results are shown in the linked sheet and a partial copy is shown below.

Florida Condo Rent
Item/Year01234
Rent 2 mos@4K-8000-$8,240-$8,487-$8,742
Invest 150K@4%6000$6,240$6,490$6,749
$0-$2,000-$2,000-$1,998-$1,993
Cost in Todays Dollars-$26,637.62

Summary

The conclusion is that on a purely financial basis, you are better off to rent, but not by a huge amount.  Another factor to consider is that you must rent out your purchased condo or the buying financials will be much worse.  There are still the intangible benefits of owning: go whenever you want, keep it the way you want, have family use it, etc and the intangible costs such as feeling that you must use it and the responsibilities of keeping it up.


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