Is Buying a Vacation Home in Florida a Good Investment? [Pros & Cons]

Potential for Rental Income
Since you’re in the market for a vacation home in Florida, you probably already know that it is a major vacation destination. During spring break alone, more than 31.2 million people visit the state, meaning your vacation home could turn into a major money-making opportunity. Listing your home on sites like Airbnb or VRBO would allow you to earn an income without investing too much time or effort into property management.

If rental income is a factor in your decision to buy in Florida, look for a home in more popular vacation destinations, such as Siesta Key, Clearwater Beach, Orlando/Kissimmee, Naples, Key West, Destin and Miami.

Appreciation Potential
Even though this would be a vacation home, real estate is still an investment. And in the Florida housing market, owners are seeing consistent investment appreciation in both their primary and second homes. A recent report that utilized data from the Zillow Home Value Index found that Florida home values have more than doubled in the past decade.

Numerous factors have contributed to this growth. The nationwide real estate boom during the COVID-19 pandemic was certainly a factor, but there are other variables that are specific to the local Florida market that might make it even more appealing for a vacation home purchase, such as:

1. Appealing income tax laws
2. Popular retirement location
3. Growth of vacation rental demand
4. Below-average property taxes

Personal Enjoyment
Most importantly, you should consider buying a Florida vacation home for personal enjoyment. Having a personal getaway in a highly sought-after location has numerous benefits:

1. Always having a place to vacation
2. Having a place to stay near your favorite activities or attractions
3. A secondary location to host holidays and special occasions
4. Make taking a vacation less burdensome

Additionally, owning a Florida vacation home can be financially beneficial, offering potential for income and long-term investment growth. You may have access to many tax advantages – think the Homestead Exemption, Mortgage Interest Deduction, Rental Income Deduction, 1031 Exchange for Invest Properties, etc. – that will make buying a second home in Florida more appealing, especially for your wallet.

High Initial and Ongoing Costs
If you purchase a vacation home, there will of course be initial costs associated with the investment. Aside from the purchase price, consider that your down payment will likely have to be a bit higher as required for a second mortgage. In addition, you may have private mortgage insurance (PMI), as well as taxes and insurance fees you will have to pay on an annual basis.

There are also ongoing costs to keep in mind as you consider your total investment. Maintenance costs and property management fees (in case your primary residence is too far to do the work yourself) will contribute to your overall payments. It is important to note that home insurance in Florida is currently the highest in the country, so you will want to shop around for the best rates.

Vacancy and Rental Management Challenges
If rental income is a key motivator in your decision to buy a second home in Florida, there are a few risk and cost considerations to note. First is the variability of occupancy rates during off-peak seasons, which can mean less cash flow to help cover mortgage or maintenance costs. Remote management of the home might pose additional challenges, as it could be difficult to stay on top of immediate maintenance issues or guest complaints.

Market and Economic Risks
Florida is a vacation destination, but owning a home there also comes with a few risks. As we have seen year after year, there is a real risk of property damage from hurricanes, flooding, and other natural disasters. This not only causes initial property issues, but it will also impact your home insurance costs and potential property value down the road.

There is also some volatility in the Florida housing market. A recent U.S. World & News Report highlighted price decreases, slowing demand and increasing inventory in areas of Florida that were once very competitive housing markets. The report points to higher prices and mortgage rates as potential negative impacts on the market. The good news is that those factors are not likely to cause any broader market slowdown.

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Aside from the pros and cons of buying a Florida vacation home, you should also consider your personal situation and goals. Look at your finances, investments, retirement plans and any other major financial factors that might influence your purchasing power and decision.  Weigh long-term versus short-term rental strategies if you’re hoping to earn any money from your second property. If you are, location and the availability of property management support should be an influencing factor as you shop for a second home.

Q: What are the best areas in Florida for vacation rentals?

A: Some of the most popular Florida vacation home locations include:

• Clearwater Beach
• Orlando
• Naples
• Key West
• Sarasota
• Destin
• West Palm Beach
• Miami Beach

Q: How can I protect my investment from natural disasters?

A: The first thing you should do is get comprehensive home insurance that covers hurricanes, flooding and other natural risks. Make upgrades that will protect the home’s structure, like adding storm shutters, reinforced doors and roof enhancements that can withstand high winds. Also consider investing in a generator for power outages.

Q: What is the average return on investment for Florida vacation homes?

A: The most recent reports estimate that the average ROI for a Florida vacation home is somewhere between 8% to12%.

Q: How do I find reliable property management services?

A: We recommend following these steps to find a property management company for your Florida home:

1. Research Online: Look for property management companies in the specific area you’re interested in. Websites like Yelp, Google Reviews, and Angie’s List can provide insights from other property owners.
2. Check Credentials: Ensure the company is licensed and insured.
3. Ask Your Realtor: During your home-buying process, ask your realtor for their recommendations as they will know the local area and market best.

Buying a vacation home in Florida could give you and your family access to the vibrant culture, diverse activities and pleasant climate that the Sunshine State is known for. With the help of the Blue Water team, buying a second home in Florida might be more realistic than you think. Contact us today to start a conversation and get begin your journey to owning a second home!