There are two obvious profit centers available to Kissimmee Florida Vacation Homes homeowners. First, there is money to be made on
the actual rental of the Vacation Home Disney World to vacationers. Secondly, there
is the eventual realized appreciation profit if the Disney World Vacation Homes is
sold. Naturally, the return on investment is affected by financial
factors such as deposit, interest rate, closing costs, etc. We
will discuss those in the finance section. There is also a third
return on investment for Orlando Holiday Homes, which is huge, that I will spotlight at
the end of this chapter.
Let's now examine the Orlando Vacation Villa rental profits. If vacationers pay the
same rates to rent your Orlando Vacation Property that they pay for a suite in an upscale
hotel (roughly $90.00 to $250.00 per night, depending upon season),
the total would be at least $630.00 per week. Consider that Walt
Disney World draws tourists every week, 52 weeks a year. Of these,
25 weeks are particularly active and command the highest rent for Vacation Home Disney World.
That is 25 weeks which could bring in $250 per night. This is
a profitable business, right? So, what percentage return on your
money invested will you derive from the rental income? OK - stop
here and sit down. The answer is "zero"! I am glad you
are reading this chapter before you buy a Vacation Homes In Kissimmee.
Return on investment is calculated after expenses. It is certainly
possible that you could profit from the rental if you plan on
doing part, or all, of the rental advertising and booking. However,
most Disney Vacation Villas homeowners prefer to have a management company take
care of that. The Vacation Homes Near Disney World management company is going to get a percentage
of the rental income for its services. If you can just cover the
expenses, mortgage, taxes, and insurance with your portion of
the income, that is great. That is real. That should be your goal.
Don't worry. You should reap a return to brag about in years to
come if you ever sell the Vacation Home Disney World. For now, be content to allow
the hard working Walt Disney World Vacation Home management company to profit from the rentals.
There is security in knowing that if they are profitable, the
management company will be around to take good care of the goose
laying the golden egg -
your Vacation Home Disney World.
If you are not going to profit from the rental of the Vacation Home Disney World, then
is there any return on your investment at all? You'd better believe
it! My next statement may sound like a contradiction to the last
paragraph, but bear with me. The vacationers who will rent your
Kissimmee Florida Vacation Home will be putting money in your pockets. The better description
is that the vacationers will keep you from taking money out of
your pockets, but it means the same thing. A penny saved...is
not having to pay for the mortgage, the taxes, the insurance,
the association dues, the utilities, the housekeeping, the lawn
care, and the general maintenance. In fact, that should account
for saving millions of pennies per year. This means that you are
no longer investing in the
Vacation Home Disney World. If it all works out as planned, your only investment
will have been your initial deposit and closing costs.
Before we calculate the projected return on investing $75,000
in Vacation Home Disney World, let us first look at that same amount of money
in different investment. Let's say that most individuals would
be satisfied with a 10% return on their money. $75,000 producing
10% per annum will earn the investor $7,500.
If that same $75,000 were used to purchase income producing
Vacation Home Disney World, where would the money be used and how much of a
return would there be? For this example, let us say the original
purchase price of the home is $300,000. I'll keep it simple, primarily
because it is. The initial 20% deposit will be $60,000. Closing
costs, a one-time expense, usually vary between 0 and 5%, depending
on your mortgage and whether you purchase from an individual or
a developer (a developer may offer to pay all, or part, of your
closing costs). For this example, factor in 5% for closing costs
($15,000). You now have invested a total of $75,000. Say the Vacation Home Disney World
appreciates 8% in value over the first year. How do we calculate
the return if you were to sell it for that increased price? Would
it be $75,000 multiplied by the annual appreciation rate (8%)
? No. To accurately
calculate the return, first determine the current market value
of the Vacation Home Disney World. Multiply $300,000 times the annual appreciation rate
($300,000 x 8% = $24,000). Add $24,000 to the original $300,000
sales price and you have a new market value of $324,000. Now divide
the $24,000 of appreciation by the money invested ($75,000) to
get 32% (see fig. 2). So, if you sold the Vacation Home Disney World for $324,000, you
would realize a 32% gross profit. Naturally, this example is very
simplistic and
does not take into consideration several factors that may reduce
the sales profit. For this example, we are imagining the unlikely
occurrence of a quick resale. Real estate is considered a better
long-term investment. When we subtract the additional expenses
of having to negotiate a reduced sales price and the costs associated
with selling the Vacation Home Disney World (closing costs, real estate commission,
and
capital gains tax), the return is less, but still attractive over
a number of years in comparison to other investments. Think about
it. Your Vacation Home Disney Worldonly needs to appreciate 2.5% per annum
for you to realize a 10% return on your money invested, provided
that your monthly expenses are all covered by the rentals. This
is the big advantage of investing in real estate. You invested
$75,000, but your appreciation is calculated on $300,000. Now
do you understand why investors are satisfied just to break even
on the monthly expenses?
Finally, what is this significant, third return on your money
invested that I promised to tell you about? It is the memories
that you will deposit as you enjoy your Vacation Home Disney World with your
friends and family, year after year. It is Kissimmee Florida Vacation Home away from home.
It is that place in Orlando where fun, sun, and relaxation are
the daily priorities. It should be the real reason that you buy
your Vacation Home Disney World, because it is certainly the most important.
©2008
Vacation Capital Real Estate, Inc.
