2nd Florida Home versus Investment Properties

Often Buyers are interested in 2^nd properties, and at the same time call them investment properties. Sometimes that is true but more often it is false. A home should always first and foremost be looked at as a home and not as a moneymaker. However, a second home can be both if expectations, understanding the buying process, and downside risks are thought through and understood.

What factors make a property a second home?

If you are going to use it separately from your first.
If it is in a separate market from the first.

What factors make a property an investment property?

Giving off a reasonable ROI
Smaller price to give a better return
Liquidity in selling
Liquidity in rental turnover
Available for owner use at their time of convenience
Long term retirement usage
Knowledge and connections in the area

What are the key elements of each, and how do they differ?

In general the difference between a second home and an investment property is that they are two different products. You might only get enjoyment out of a million dollar property… but the return on investment to lease it out isn’t very good. And the risk of problems, headache, and mentality to lease it out are not worth the trouble.
A reasonable ROI might mean that a home comes close to breaking even when renting it out in seasonal months and using it for yourself for other months. Most buyers want a good “investment” for their second home. There are very few homes where you turn a strong product as a 2^nd home. However, if you are going to have use of the home and may retire there in later years, than even a loss (or where the rental portion pays much of the “carry ”) can be a great investment. You need to add up HOA costs, repair costs, style change costs, maintenance costs, insurance costs, and understand homestead and taxes. I try to switch my clients on to that thought.
Usually the smaller the price of the property will mean the higher ROI. Meaning 3 $200,000 properties will give off a greater return than 1 $600,000 property.
Look for liquid properties that can turn quickly if you need to sell.
Look for properties that are easy to rent. That usually means non club community dues and less restrictions on how often they can rent. Although you will find that some like PGA National in Palm Beach Gardens have no mandatory membership in the club. In some markets like Florida, it can mean first floor units only – as stairs on 2^nd story are harder to rent out. It can also mean the shape the property is in.
If you aren’t going to use it, there might be better returns on your money.
If you are going to use it as a long term retirement home, than you are getting a return while enjoying it, and later enjoying total long term use.
You will want knowledge of contractors and connections to manage and get things done if you are not there.

What are their similarities?.

A second home is something that you get enjoyment out of and get income out of at the same time. It’s a win-win!

Why do these distinctions matter, and to whom?

One needs to know what they are getting into. I know a tenant that cleaned the carpeting with a chemical treatment that the landlord was allegoric to. The tenant thought they were being the good guy in doing this, but it ended up becoming an issue. The investment return wasn’t worth it because the landlord discovered they really just wanted the second home. It goes back to the key elements – and making sure an owner knows what they are getting into.

Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over a 1,000 transactions, and manages over 50 agents in a non-traditional model of real estate that mimics a traditional business model. Some publications he has been quoted in.

Feel free to ask him a question directly at [email protected].