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Over time we've regularly been asked by Europeans if buying a house in Florida is the thing to do. An adequate answer depends on several factors.
• The projected use of a second home will determine whether a purchase is a good investment. The math to either rent or buy a home is the same everywhere, whether it be in Florida or in Europe.
• If you'll use the home for only three or four weeks per year, and if you plan other excursions elsewhere, it will be far more reasonable to stay in a hotel and just rent a car.
• If you'll use the home for at least three months per year, and if you can rent it out to friends or family, the calculation changes quite a bit. Your own home will provide far more comfort than the best hotel, and you'll live more comfortably in your own "nest"... You can decorate the house to your own taste, and all your own "stuff" will always be available.
• If you are thinking about hibernating, and spend the winter months in a blessed climate instead of in our cold and wet central Europe, then the matter certainly merits a closer look.
• If you plan to remain socially and physically active and spend a large part of the year under the sun, then the matter becomes very interesting.
• As usual, the available budget will play a paramount role...
A more recent concept is the purchase of a Florida home by TWO families, whereby the use, the maintenance and the costs are divided equally. However, your fellow-owner needs to be a completely reliable partner, a sort of "marriage-de-raison"...
Momentarily, Florida homes can be bought at a very low price. They are still inexpensive because of the financial and real estate crisis. Previously owned homes are being sold at even less than the actual cost, even though Florida manages to somewhat dodge this phenomenon through continuous immigration and higher demand than elsewhere.
The European media have very heavily documented the real estate crisis in the USA - probably to avoid having to report on the mess in their own countries... Some European investors therefore tend to think that the "gold" is simply up for grabs in the USA. Even with very low market prices a nice, recent and spacious house will always be more expensive than an old, ugly and small house...
A little realism is necessary, and for 100.000 usd one does not find a decent and recent villa with four bedrooms and a swimming pool... Top-class villa's remain just as expensive as before the crisis, exactly as it is the case in the Mediterranean area.
Foreclosures can indeed be an opportunity, but it is indispensable to check them out in person, because some houses have been abandoned in a terrible condition. They usually need a complete overhaul. Another consideration is that most "good" foreclosures already have passed over the counter by now. The quality of the homes that haven't been sold yet may be rather questionable.
As soon as the stream of foreclosures dries up, the Florida vacation-magnet will once again drive up the price of real estate, because of its formidable climate. Remember the rise and fall of Spanish and French real estate in the past, and look at their prices now...
Another important consideration is that the US dollar is low right now, compared to the Euro. If calculated in Euro, it is completely impossible to acquire a villa anywhere in the Mediterranean area for a comparable dollar amount. However, the Florida climate is far better, since Central Florida is closer to the equator than Tenerife !
The purchase of a house can also be seen as an investment. Purely mathematically, the calculation of a middle term investment is not too difficult.
Let us assume a house acquisition at 250.000 usd. If we assume that real estate value will rise at minimum 3% per year, this will bring us to 289.819 $ after 5 years. Add 5 years of an estimated rent of 1.250$ per month, and the total end result is 364.819 $. This represents an increase of 57,92% on the initial investment, or more than 10% per year.
These figures may look extraordinary on paper, but one must also consider other factors, such as the yearly expenses, a seller's or buyer's market, charges and taxes. And then there are unpredictable elements such as political decisions, exchange rates, war, depression, speculation, etc. Now you know why financial institutions never take any responsibility for their numbers...
The same investment, but made by a European buyer, may present other considerations. The current exchange rate from the Euro is more than favorable to him, although perhaps not overmuch realistic given the economic results on both continents. An investment in the USA may be a way to diversify in another currency. Let us not forget that for several years now Europe has been printing oodles of money at full capacity, and that there are currently far more euros around the world than dollars...
Another important consideration is the growing number of retired people. In recent years, millions of people have been professionally "liquidated" throughout Europe, with or without a Golden Handshake. Most of them however are at an age where they are still very active, both physically and mentally.
Society uncaringly dropped them into the category Third Age, even if nowadays that starts at 55 or even younger. In most of "socialized" Europe, older people are not allowed to work anymore, once they have been put to pasture...
These newly retired persons have a sea of free time on their hands, and they will obviously want to participate in several activities, such as hobbies and sports. The individual cost of such activities is not inconsiderable. Nevertheless, in Europe it is hard to find any formula that caters to this important group.
Americans usually remain physically active far longer than Europeans. It is no exception to see a lively 80-year-old Recycled Teenager play golf or Pickle Ball... In the warm south, this may partly be due to the climate, but probably even more due to the difference in community and individual mentality.
In the USA, millions of not-so-young people still make themselves useful with a temporary job. One reason may be the financial aspect and the heavy cost of social security, but the main consideration is usually to keep social contacts, and not to feel entirely useless, as is the case in Europe.
The real estate market in Florida is one of the best regulated markets in the world, and it is stringently overseen by the “Florida Real Estate Commission”. If you consider a purchase and don't know the other party, it is advisable to be assisted by professionals and a Real Estate Agent for exemplary protection.
The technical aspect of the purchase is somewhat different from the European procedure (Napoleonic vs. Anglo-Saxon law). Instead of a Notary, it will be a Real Estate Lawyer who draws up the papers.
There are several more details to examine, such as being sure that the purchase includes the land, and that both land and house are in your name. If the purchase is situated in a community, make sure that you'll also become owner (Pro Rata) of common parts such as roads, clubhouse, swimming pool and sports centers. If these are still owned by the developer, your final bill could end up being very high !
Living in a residential area is nice, but what happens during your absence ? And what happens if your neighbor doesn't concern himself with order and neatness, and dumps a dozen car wrecks next to your door ? Personally, we prefer a gated community, with internal Home Owner Regulations.
Finally, the purchase of a house is an important decision. Next to the price there are very personal considerations such as location, view, size, finishing, equipment and comfort. It may be possible to obtain information from a distance, but in the end a personal visit is unavoidable.
Salespeople often bring up the possibility to lease your home temporarily to vacationers, and thereby realize an interesting return. Mathematically this is correct.
Leasing a house in Florida is subject to the rules of the Florida Real Estate Commission. Rental and leasing management is a bit complicated, since County Property Tax has to be paid on vacation rental value, and 12 % sales & tourist tax goes to the state. Right now there are too many vacation homes on the market, given the many previous European purchases. Therefore potential renters will have to be found mostly in one's own circle of acquaintances.
Practically, it is almost impossible to manage a rental home from out of Europe, and it is commendable to look for a good Property Management Company. They will take care of rentals, payments, maintenance and cleaning, for a monthly fee of about 100 $. This fee is obviously also due during the months when your house is not occupied...
One last consideration. If you intend to lease your home, you'll obviously adjust the finishing, furniture and house wares accordingly, and you'll avoid buying expensive articles. Which doesn't always sit well with your own (or your wife's...) sense of aesthetics and comfort when you use the home yourself !
Even though there is a marked interest in the purchase of real estate in the US, we also find a certain reticence for the new and the unknown. Building or finishing a house, adapting it and equipping it with furniture and household goods is in itself quite an assignment, and even more so in a foreign country, where the adequate subcontractor and the right store is yet unknown. It also takes a sea of time, and a mountain of patience...
*** Also read my article about A new American Visa in the making ? ***