Florida Villa Rental Ownership Costs – part 3 – maintenance

Running Costs – the ugly truth

Clearly the biggest factor in making a vacation property act as a decent investment boils down to running costs vs rental income.  Rental income and taxes were discussed in a previous blog post.  This blog post attempts to dispel any rumours that a vacation rental makes good money, with factual advice and actual running costs we’ve experienced thus far.  It’s not pretty, but would you rather trust the advice of a realtor or the advice of an actual Florida home owner?

Villa running costs

Villa running costs – the ugly truth?

So what sort of bills are you going to rack up?  This depends on several factors, but I’ll look at the most common type of rental (and the one we have experience with) which is a 4 bedroom detached villa with pool and air conditioning, and a sprinkler system for the outside landscaping.  Inside the house, cable TV is installed with free wireless internet.  The villa is just over 2,000 sq ft so fairly big, with 3 bathrooms.  Single glazed, and the pool has a Jacuzzi spa.  These factors influence mainly the electricity cost, pool cost, and repair costs.

I’m going to reduce the electricity bills by the amount we charge for pool heat, due to the reasons stated below – basically because pool heat charges don’t make any profit.  I’ll also assume 25 rental bookings per year, of an average of 10 days each.

  • $1200 Electricity background cost @ $100 per month
  • $1000 Electricity cost for air conditioning @ $250 per month in the peak
  • $1440 Water charge @ $120 per month
  • $600   Gas cost @ $50 per month
  • $1440 Cable TV and Internet @ $120 per month
  • $800   Insurance (and theft coverage) costs
  • $600   Finance costs such as licenses
  • $2400 Management costs @ $200 per month
  • $600   Marketing costs – advertising on rental sites
  • $2160 Pool, pest and landscaping charges @ 180 per month
  • $1440 Repair costs @ $120 per month
  • $1000 HOA (Home Owners Association) fees
  • $2500 Property taxes
  • $820   Renovation costs to keep the villa up to date
  • $2000 Cleaning costs @ $80 per clean and 25 bookings

$20,000 Total running costs

A nice round figure – coincidence?  Not intended.  Compare this to between $14,500 and $16,500 that a realtor usually quotes (and quoted to us at the time) and you start to understand why it’s good to read blog posts as opposed to biased statistics that don’t show the ugly truth.

This is based on our experience of 5 years of costs – our average is just higher than this ($21k), but note we have had some large expenditures that we hope not to have again for a few years.

When will I break even? Will I ever?

If you put a lot of work into the marketing of the villa and make it one of the best on the market, then you may be able to average over 250 days’ occupancy a year, which is pretty good going and above average for Orlando, Florida.  An average price of $120 a night including any discounts brings home $30,000 per annum.  State and tourist tax cuts out 12% of this, reducing your net income before costs to $26,400.

If you have no mortgage to pay, then in a good year without any major repair costs on top of your running costs you will make $6,400.  Note that with the USA tax break of house value (not land value)depreciation over 27.5 years your taxable amount drops to $2,400 for a villa value of $110,000 – remember to ignore the land cost.  Most owners will have some sort of mortgage costs and these are likely to wipe out any profit you might have made.

Personally, our renovation costs have amounted to several thousand dollars this year, and with a brand new pool heater we are well into the losses despite getting a healthy 33 weeks of bookings so far in 2014!

The intention of this blog entry is not to deter though – the villa is an investment in the USA economy, and is also to be enjoyed by ourselves, friends, and family. How could you not enjoy our pool?

Pool renovation

Pool renovation

 

How have you worked this all out?  Back of a cigarette packet?

It’s not an exact science because running costs depend on how many rentals you get, how conscious your renters are of the air conditioning, and how hot the weather is.  Luck plays a big part.  Do you want to get a warranty or not?  Will anything major break in the house?

Summer months actually draw more almost as much electricity usage through air conditioning compared to running a pool heater.  So any extra income in high season is offset by air conditioning which runs at up to $10 a day.  Remember that even if your house isn’t occupied your management company will still probably set the air conditioning to 82F, which costs money.  Running costs can be reduced quite easily for air conditioning, but each solution will cost and initial investment amount of a few hundred dollars.

Pool heat seems to cost around $10-$20 a day for a decent sized pool and spa.  This depends on the ambient air temperature.  Factor in the costs of replacement pool parts ($3,000 for a heater, $1,000 for a pump) every few years and you’ll find your pool heat charges doesn’t actually make you any profit, but it does draw in the bookings which is where it counts.  Pools can actually cost a lot in top-up water costs in the drier months of the year too.

I’ll be returning to the blog to finish off the ownership and running costs series once we’ve completed our UK and USA taxes near the end of 2013.