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Home, Sweet Second Home
Finding the right hotel. Making sure it has vacancies. Negotiating the right price. Making certain the location is convenient for your plans.
These are the nagging chores that can dampen your vacation buzz.
And they’re also among the reasons that Central Florida’s second-home market remains strong.
When you own the property where you’ll be staying, the logic goes, it’s that much easier to plan a getaway. And the same logic applies whether you’re buying a home for your exclusive use or planning to rent it out when you’re not in residence.
Nationally, sales of second homes have climbed since 1997 and set a record in 2005 when they accounted for about 40 percent of all home sales, according to the National Association of Realtors.
Even though the housing market slowed in Central Florida in 2006—as it did in much of the nation—several factors bode well for long-term growth in the region’s second-home market, according to industry watchers.
First, baby boomers continue to dominate the market, and they’re in their peak earning years. Second, both vacationers and investors like Orlando because it remains one of the top tourist destinations in the world.
A market correction was expected and even needed, but Central Florida’s second-home market isn’t likely to suffer long-term, says local developer Garrett Kenny, president of Feltrim Developments in Davenport.
“In 2006, the market did slow down a lot,” Kenny says. “The number of overseas buyers dropped by about 25 percent. It’s a buyers market at the moment. There are opportunities out there for buyers.”
?But, Kenny adds, the slowdown was probably healthy. “There’s no way we could’ve kept going at the pace we were going,” he says. “Every real estate market goes in cycles no matter where you are. Long-term, Florida’s a good place to be.”
Sales began to slump in October 2005, but a year later began to show signs of a recovery, says Lee Ann Palmer of Meritage Homes of Central Florida.
The increasingly favorable foreign exchange rate is drawing overseas buyers back to Orlando, Palmer says, adding, “I’m sure it’s getting around that you’re getting some good deals right now.”
In December, Palmer sold six homes in Orange Tree, a community of single-family homes in Orlando" target="_blank">Lake County. “I’m very encouraged,” she says.
Bob Mandell, president of Meritage Homes of Central Florida, agrees.
“As has always been the case with real estate, we have both highs and lows in terms of demand and sale prices,” Mandell says. “We’re in a down cycle now, which may be the perfect time to buy a new vacation home.”
Dominic Pickering, chief operating officer of MRI Overseas Property, echoes Mandell.
“The market ran very hot 18 months ago,” says Pickering, whose company is based in Spain but has a huge showroom on International Drive. “Things tightened up about a year ago, but it’s starting to turn around again.”
Europe is a particularly robust market, Pickering says, because the dollar-versus-pound exchange rate is at a 15-year high. That’s one reason MRI’s sales are running 40 percent ahead of last year, he adds.
Indeed, a survey by the National Association of Realtors reported that international buyers of U.S. residential real estate accounted for about 15 percent of total home sales in Florida in 2005. About one-third of the foreign buyers purchased homes in the Orlando and Tampa/St. Petersburg areas, according to the NAR’s Profile of International Buyers.
“A large segment of those buyers live in Germany, Canada and Venezuela, but the United Kingdom is the biggest market,” says Cara Kane, director of public relations for KB Home in Orlando.
Central Florida has long been a favored vacation-home destination for the Brits, particularly when exchange rates mean bargains can be had. But in addition to the U.K., buyers are increasingly coming from Northeast and Midwest, according to Kane. “They’re coming to Florida to get away from the cold,” she says.
Second-home buyers tend to fall into two groups: those who want a vacation getaway and those who want an investment. The NAR’s Profile of Second-Home Buyers revealed that the typical vacation buyer is 55 while the typical investment buyer is 59.
In addition, according to the NAR report, vacation buyers usually spend more on their second homes and rarely rent them while investment buyers choose properties near their primary residences and rarely if ever visit.
A typical vacation home is located 220 miles from the owner’s primary residence while a typical investment property is located just 10 miles or less from where the owner lives.
“A large segment of local buyers are baby boomers who haven’t quite retired but are looking at that as the next step before retirement,” says Kane. “They have grown children but are still working.”
But if buying a vacation home gives boomers a head-start toward retirement, it’s also a good idea for younger parents with small children. Instead of shelling out large sums of money for a hotel each time they take a vacation, families can enjoy their own property year after year.
“The rest of the year, they can rent it to friends, family and other vacationers,” Kane says. “Then they’re getting the value out of it. It’s great from an economic standpoint.”
The local second-home market also has been appealing to investors thanks to skyrocketing values. Many buyers bought units at preconstruction prices and then sold them almost immediately for a profit. Other investors bought properties as long-term holdings, using rental income to cover the mortgage payments.
But when property values stagnate, investors and vacation-home buyers hesitate—especially when the cost of maintaining second homes becomes burdensome.
Kenny, who owns Coldwell Banker Team Realty in Davenport, focuses on buyers from the United Kingdom. He says between April 2002 and December 2005, he saw $520 million in gross sales and 80 percent of the buyers were from overseas. Today, it’s closer to 60 percent.
When Kenny moved to Central Florida from Dublin, Ireland, in the late 1990s, he says he bought a four-bedroom home with a pool for $162,000. Today that same home would carry a price tag of $385,000.
On top of that, other costs-property taxes, utilities, maintenance-have risen sharply in recent years. Therefore, Brits who once could expect rental income to cover most or all of their vacation-home costs are finding they now have to bear more of the burden.
“Close proximity to the theme parks helps draw tenants, but now the rental income isn’t going to cover your expenses,” Kenny adds. “That’s why we’ve seen an increase in the interest in condos [versus single-family homes]. You don’t have to worry about your own lawn, your own pool.”
Still, he says, buyers aren’t motivated only by income potential. They’re buying a lifestyle.
Vacationers want sunny climates with abundant recreational opportunities including golf and watersports. In Central Florida, the biggest draw is the theme parks, which is why many vacation communities are clustered near the attractions.
What’s changing is that buyers today often want maintenance-free properties with at least two or three bedrooms, Kane says. “What we’ve seen in the last nine months is that people are now looking for townhomes,” she says. “They’re maintenance free.”
That’s why KB Home is developing two townhome communities, Paradise Cay and Crestwynd Bay, where prices will start at $214,990 and amenities will include a pool, tennis court and a children’s playground.
At Orange Tree, amenities include tennis and basketball courts, a five-acre park and a children’s playground.
But buyers are also looking for multiple bedrooms, pools and spacious lots, Palmer says. So the community boasts four-, five- and six-bedroom floorplans that range in size from 1,755 to more than 2,300 square feet. Better yet, homes come fully furnished.
“The extras are important to today’s second-home buyer,” agrees Kenny. “They do want the facilities, and they’re willing to pay a little bit more for them.”
Developers are delivering. For example, in Reunion, a 2,300-acre resort where home prices can reach seven figures, residents enjoy perks such as golf, maid service and hiking and biking trails. Even horseback riding will be offered.
“I predict steady growth in 2007,” says Pickering. “Florida will never go out of fashion. As long as the sun is shining, buyers from up North, Europe and South America will still love it here.”
These are the nagging chores that can dampen your vacation buzz.
And they’re also among the reasons that Central Florida’s second-home market remains strong.
When you own the property where you’ll be staying, the logic goes, it’s that much easier to plan a getaway. And the same logic applies whether you’re buying a home for your exclusive use or planning to rent it out when you’re not in residence.
Nationally, sales of second homes have climbed since 1997 and set a record in 2005 when they accounted for about 40 percent of all home sales, according to the National Association of Realtors.
Even though the housing market slowed in Central Florida in 2006—as it did in much of the nation—several factors bode well for long-term growth in the region’s second-home market, according to industry watchers.
First, baby boomers continue to dominate the market, and they’re in their peak earning years. Second, both vacationers and investors like Orlando because it remains one of the top tourist destinations in the world.
A market correction was expected and even needed, but Central Florida’s second-home market isn’t likely to suffer long-term, says local developer Garrett Kenny, president of Feltrim Developments in Davenport.
“In 2006, the market did slow down a lot,” Kenny says. “The number of overseas buyers dropped by about 25 percent. It’s a buyers market at the moment. There are opportunities out there for buyers.”
?But, Kenny adds, the slowdown was probably healthy. “There’s no way we could’ve kept going at the pace we were going,” he says. “Every real estate market goes in cycles no matter where you are. Long-term, Florida’s a good place to be.”
Sales began to slump in October 2005, but a year later began to show signs of a recovery, says Lee Ann Palmer of Meritage Homes of Central Florida.
The increasingly favorable foreign exchange rate is drawing overseas buyers back to Orlando, Palmer says, adding, “I’m sure it’s getting around that you’re getting some good deals right now.”
In December, Palmer sold six homes in Orange Tree, a community of single-family homes in Orlando" target="_blank">Lake County. “I’m very encouraged,” she says.
Bob Mandell, president of Meritage Homes of Central Florida, agrees.
“As has always been the case with real estate, we have both highs and lows in terms of demand and sale prices,” Mandell says. “We’re in a down cycle now, which may be the perfect time to buy a new vacation home.”
Dominic Pickering, chief operating officer of MRI Overseas Property, echoes Mandell.
“The market ran very hot 18 months ago,” says Pickering, whose company is based in Spain but has a huge showroom on International Drive. “Things tightened up about a year ago, but it’s starting to turn around again.”
Europe is a particularly robust market, Pickering says, because the dollar-versus-pound exchange rate is at a 15-year high. That’s one reason MRI’s sales are running 40 percent ahead of last year, he adds.
Indeed, a survey by the National Association of Realtors reported that international buyers of U.S. residential real estate accounted for about 15 percent of total home sales in Florida in 2005. About one-third of the foreign buyers purchased homes in the Orlando and Tampa/St. Petersburg areas, according to the NAR’s Profile of International Buyers.
“A large segment of those buyers live in Germany, Canada and Venezuela, but the United Kingdom is the biggest market,” says Cara Kane, director of public relations for KB Home in Orlando.
Central Florida has long been a favored vacation-home destination for the Brits, particularly when exchange rates mean bargains can be had. But in addition to the U.K., buyers are increasingly coming from Northeast and Midwest, according to Kane. “They’re coming to Florida to get away from the cold,” she says.
Second-home buyers tend to fall into two groups: those who want a vacation getaway and those who want an investment. The NAR’s Profile of Second-Home Buyers revealed that the typical vacation buyer is 55 while the typical investment buyer is 59.
In addition, according to the NAR report, vacation buyers usually spend more on their second homes and rarely rent them while investment buyers choose properties near their primary residences and rarely if ever visit.
A typical vacation home is located 220 miles from the owner’s primary residence while a typical investment property is located just 10 miles or less from where the owner lives.
“A large segment of local buyers are baby boomers who haven’t quite retired but are looking at that as the next step before retirement,” says Kane. “They have grown children but are still working.”
But if buying a vacation home gives boomers a head-start toward retirement, it’s also a good idea for younger parents with small children. Instead of shelling out large sums of money for a hotel each time they take a vacation, families can enjoy their own property year after year.
“The rest of the year, they can rent it to friends, family and other vacationers,” Kane says. “Then they’re getting the value out of it. It’s great from an economic standpoint.”
The local second-home market also has been appealing to investors thanks to skyrocketing values. Many buyers bought units at preconstruction prices and then sold them almost immediately for a profit. Other investors bought properties as long-term holdings, using rental income to cover the mortgage payments.
But when property values stagnate, investors and vacation-home buyers hesitate—especially when the cost of maintaining second homes becomes burdensome.
Kenny, who owns Coldwell Banker Team Realty in Davenport, focuses on buyers from the United Kingdom. He says between April 2002 and December 2005, he saw $520 million in gross sales and 80 percent of the buyers were from overseas. Today, it’s closer to 60 percent.
When Kenny moved to Central Florida from Dublin, Ireland, in the late 1990s, he says he bought a four-bedroom home with a pool for $162,000. Today that same home would carry a price tag of $385,000.
On top of that, other costs-property taxes, utilities, maintenance-have risen sharply in recent years. Therefore, Brits who once could expect rental income to cover most or all of their vacation-home costs are finding they now have to bear more of the burden.
“Close proximity to the theme parks helps draw tenants, but now the rental income isn’t going to cover your expenses,” Kenny adds. “That’s why we’ve seen an increase in the interest in condos [versus single-family homes]. You don’t have to worry about your own lawn, your own pool.”
Still, he says, buyers aren’t motivated only by income potential. They’re buying a lifestyle.
Vacationers want sunny climates with abundant recreational opportunities including golf and watersports. In Central Florida, the biggest draw is the theme parks, which is why many vacation communities are clustered near the attractions.
What’s changing is that buyers today often want maintenance-free properties with at least two or three bedrooms, Kane says. “What we’ve seen in the last nine months is that people are now looking for townhomes,” she says. “They’re maintenance free.”
That’s why KB Home is developing two townhome communities, Paradise Cay and Crestwynd Bay, where prices will start at $214,990 and amenities will include a pool, tennis court and a children’s playground.
At Orange Tree, amenities include tennis and basketball courts, a five-acre park and a children’s playground.
But buyers are also looking for multiple bedrooms, pools and spacious lots, Palmer says. So the community boasts four-, five- and six-bedroom floorplans that range in size from 1,755 to more than 2,300 square feet. Better yet, homes come fully furnished.
“The extras are important to today’s second-home buyer,” agrees Kenny. “They do want the facilities, and they’re willing to pay a little bit more for them.”
Developers are delivering. For example, in Reunion, a 2,300-acre resort where home prices can reach seven figures, residents enjoy perks such as golf, maid service and hiking and biking trails. Even horseback riding will be offered.
“I predict steady growth in 2007,” says Pickering. “Florida will never go out of fashion. As long as the sun is shining, buyers from up North, Europe and South America will still love it here.”