I originally wrote about the potential rewards and perils of buying a vacation home abroad in three parts about two years ago. Many events have occurred since then but the message remains the same. I have amalgamated everything and brought our experiences up to date (it is a long review) and offer this warning story to anyone else tempted to follow in our footsteps. Hopefully Buyer Beware is the most appropriate section.

I’ve been coming to Florida for 20 years. I love the people, the place, the climate, the Mouse, the wild side. The family seem to agree with me – my daughter (now 14) has made eighteen return trips across the pond in her time. Why then, they ask, don’t we get our own house here? Why not indeed? O.K. then, sounds a good idea. Come to the Sunshine State when you like, no hotel bills to pay, somewhere to store your personal effects, live the dream and travel light; let’s get started then…

CHAPTER 1. PLANNING (January 1998 to January 1999)

When you actually get down to it, buying a house in a foreign land is a leap into the unknown. For a start, you are 4500 miles away from where you want to be. The laws are different. The ways of doing things are different.

There are a whole series of choices to be made:

- Do we buy near Orlando or elsewhere?
- Buy for our own usage or for investment?
- If we rent, will it be short term vacation, seasonal or long term?
- Is there a neighbourhood association that will dictate these terms?
- Build, buy new or pre-owned?
- Furnish or leave unfurnished?
- Who will look after the property while we are away?
- What happens if anything goes wrong?
- Mortgage short or long term?

We were in desperate need of some objective advice. Open any Sunday newspaper and you will see column after column of advertisements for properties for sale all over the world, Florida included. Most weeks there are notices of exhibitions of villa sales where you can meet all the people necessary to complete every stage of your transaction. You can read sales promotions describing the Eldorado of profit in years to come as holiday makers buy your dream palace in the sun for you! You can scan the package holiday brochures and drool over the photographs of the sun baked lanais and luxury villas awaiting you for your annual two weeks in the sun.

Our first decision was where to buy. We knew Orlando very well because of our many visits to DisneyWorld. I was personally not keen on being too close to the ‘tourist alley’ and preferred to choose a different venue. We had travelled around most of Central and South Florida (including The Keys) but a tourist’s eye view is not necessarily the same as that of a resident. We had already booked our Summer vacation for that year and we arranged an inspection tour with a rental company that had associations around the Orlando area, Burnt Island Marina and Naples. We chose Naples.

The holiday visit was very straightforward and pleasant. No strings attached, you pay the five day accommodation charges and get back to the company if you remain interested! During your stay you are shown the properties available, can discuss your requirements with the construction firm, meet with the mortgage broker, sign on the dotted line and, hey presto! There’s your house.

AUGUST 1999: Our rental property was on phase V of a private gated community development. As it turned out, we were the first people to use it. We were met briefly by the company representative (busy man! He turned out to be the CEO and was arranging to expand the business into Spain and South America). We also met a representative from the construction company (who was due to move to another site in another town imminently). We liked the house, we liked the standard of décor, we liked Naples – but we thought it may be too far away from the main centres of action. We said “thank you”, took away the brochures and moved on to DisneyWorld.

Over the next ten days we discussed and agonised over whether we should go ahead. We met the “CEO” again (briefly) who came up with a profit and loss spreadsheet projection: 32 weeks occupancy through the year was the break-even point. Naples is the growth destination in Florida and demand for rental properties outstrips supply. Phase I to IV were fully occupied (80% resident owners) and villas were in demand on the resale market. Phase V was almost complete – we could have a house built on a road but if we wanted a lakeshore plot we would need to put our names down for Phase VI (which was just being opened to the market)

This presented us with our first dilemma. We became rapidly aware that the “CEO” was a realtor, a property manager and a vacation rental organiser. In the first role he would be acting for the construction company, in the second for us and in the third for both us and the tour operators. We discovered that the realtor in the US combined the functions of estate agent and solicitor in the UK. We had little choice and went with this arrangement. We decided that we would put a deposit down on what looked to be the prime site in the new development. We were assured this would be refunded if we could not raise finance. We also said “no thank you” to an introduction to a mortgage broker. We would try to find our own.

Then came to next difference. The construction company in Naples only builds to order so we had to go through our specifications (style of house, number of bedrooms, number of bathrooms, size of pool, size of lanai, irrigation well, colour or décor, fixtures, flooring) from plans, brochures and the model homes and then went home.

Over the next months faxes flew backwards and forwards across the wire. We talked to the builder – “CEO” was always ‘away on business’. Completion was set for the end of December. The design of the house had to be modified for fire regulations. The designs were lost in the post. I faxed back a faxed copy – the electronic signature disappeared in transmission.

Difference number 3. Unlike the case in the UK, most mortgages in the US tend to be sold on (and refinanced) at regular intervals according to prevailing economic circumstances. We approached a local Florida bank and asked about mortgage facilities. No problem! In fact they had a special offer for non resident aliens – please sign here. All the paperwork could be completed by fax or email. The bank locked in the mortgage rate for us on October 1st when there was a rumour that the rates were going to rise. No problem either transferring the remaining deposit from the U.K. We got that out when the exchange rate was $1.70 to the £1.

Time sped by. Still no formal paper work. Eleven days before completion a large envelope arrived from the Title Company by Fedex. Would we please urgently arrange to sign in the sixty marked places on the forty pages of documents in front of a Notary Public and return. Notaries may be two a penny in the US but there is only one practicing in the North East of England. Would a solicitor do? Sorry – no. We duly signed, and paid him, and sent them off.

Eight days to go, frantic phone call – “you forgot to sign one document”. It does not need to be witnessed. The Title Company would fax me a copy but I would have to send back an original signature. I telephoned ‘a well known world wide delivery service!!’ who picked up my envelope within two hours. I decided to track it on the internet. The trail went cold when the packet left Stanstead. We never did find it.

Five days to go, another frantic telephone call. I have signed a second copy of the document. This time I give it to Royal Mail. Two days to go. It arrived in Miami but onward travel was held up because of morning fog! We never found out where this packet went to either.

Two days to go. I sign a third copy and arrange with Fedex this time to collect it. I track the packet to their Fort Myers depot and on the last afternoon receive a confirmation e-mail from the Title Company that the package is complete.

New Year’s Eve. We’ve made it. We have bought a house, we’ve arranged the finance, we know what its going to look like. We are going back to Naples at Easter to oversee the construction and to choose the decorations and furnishings. Happy New Year!!!

CHAPTER 2. CONSTRUCTION. January to September 1999

January 1999. We’ve bought our dream house!! Well, not exactly - we’ve bought the plot and put down the down payment.

We have also decided that we shall be renting out the property when we are not there. We face another series of dilemmas:

- Do we accept a guaranteed rental scheme (we receive a fixed sum per year but have little control over when we can go or who can use it) or float?
- Do we actively advertise and manage the bookings or leave that to a management company? Would there be a conflict of interest?
- Who do we want to attract to our property? The American or European market? The short vacationers, the seasonal rentals, the long term tenants?
- What extras to we want to provide? Premium cable? Maid service? Provisions?
- How do we furnish the house? Ourselves? An agent?

Undaunted I went to see Dave, our local travel agent who had catered for our needs over many years, to book our flights for a two week visit at Easter. I also make tentative arrangements for our travel itinerary for the summer. He had developed his own web site and internet booking agency specialising in villa holidays. We drew up a mutually acceptable booking scheme that would complement the Florida organisation.

We were introduced to representative 2 from the construction company who, we were told, would look after our every query and oversee the building of the house from the pouring of the slab to the hand over of the keys. By mid February, the plans were “coming on strong” and were well on schedule.

Three days prior to departure we hear from Ann that there were problems with the house that we were due to rent. We would be accommodated but she could not tell us exactly where – yet! Just come to the office when you arrive – “we’ll see you right”.

EASTER 1999. We arrive in Naples. There is extensive building works on the approach roads – there is extensive building work everywhere. We go to the office to be given the keys. We have been placed in the same house that we had last year. Coincidence! The house was also only 200 yards down the road from our own plot.

Plot! Yes, it was still a plot. Sure the lake had been dredged but that was as far as it went.

In the first two days after many telephone calls we make arrangements to meet “CEO” to discuss progress in general and our forthcoming business venture in particular; “CEO”’s wife – who just happened to run a house furnishing business; and representative 2 who arrived hot foot as we were sitting down to lunch to apologise that works were not as far progressed as they had hoped. However we were certain to see action during our stay and may even see the roof trusses go up.

At this juncture, I should perhaps give you an idea of what our dream house would look like. It is a four bedroom, three bathroom single floor villa with its own pool and enclosed lanai on the edge of a lake. As construction had not started, representative 2 came back the next day and spent an afternoon with us, showing us colour schemes for paint, carpeting, cabinetry, bathroom fitments etc. You may remember that we had had to agree most of these items from afar by fax and mail with representative 1 well before the contracts were signed.

At the end of the session we had an agreed change list of items that were at variance from the original model. These included:

- The external colour scheme of the house: to match a particular property in the next street
- An owner’s lock off cupboard
- Internal fans to be controlled by wall switches only
- Colour of the carpets, floor tiles, bathroom suite and cabinets were specified
- Specific additional planting to be carried out

The check was written. The construction time scale was agreed. We said “We’re coming again in the summer. We want to be the first people to stay. Isn’t the timetable a bit tight?”. He said “No problem, it’ll be ready on time!!” He was also proud of the latest innovation from the company: a web site with web cams trained on each of their construction sites. “Tune in and you’ll be able to watch the progress”

“CEO”’s wife was very pleasant. She came armed with catalogues of interior and exterior furniture and swatches of materials. She also indicated which suppliers we should visit to make our own choices for room settings. We also were looking for other items with which we could personalise the property. After some further discussion we arranged for one of the local artists from “Tin City” to come and produce some small murals for each of the bedrooms.

We spent several happy afternoons going the rounds of Rooms-To-Go, Linens’N’Things, Target and Circuit City. We arrived at an overall colour scheme that matched the subtropical ambience but fitted the overall theme of the house. We also decided that our bedroom would boast a four poster king sized bed.

We visited Ann (“CEO” was in Costa Rica and Miami this week) to arrange the services, utilities and management arrangements. They would keep the bookings diary and process all the necessary paperwork. We also agreed how we would incorporate bookings from Dave into their own scheme of things.

On the last day, a dozer arrived to scrape off the top soil and level the site. After two exhausting weeks (not a holiday really) we were ready to return to the UK. As we were leaving the first of the surveying flags were being put in place.

CALAMITY 1!!!. We get home to find that Dave’s business has gone bust. Not only have our business plans gone down the tubes, our travel arrangements for the Summer are now in disarray. I manage to contact an internet travel agent (thank you, Expedia) who, with a little ingenuity, were able to transfer our flights and car hire and obtain new tickets. This was to be our annual holiday: two weeks in our new home and two weeks in DisneyWorld.

CALAMITY 2!!! Representative 2 telephoned at the beginning of May. There was a state wide shortage of building materials. The completion date would have to be put back three weeks. Three weeks? Disney is fully booked: there is no chance of changing our reservations. The flights are booked. However for a small arrangement fee, yes – it is possible to leave and return two weeks later. (Thanks again, Expedia). So, we go to Orlando first and then move on to Naples.

That web site? Technical difficulties – never got it to work. We did get one Polaroid of the first stage of building. We are however introduced to Chief Representative who will oversee the final handover of the property.

SUMMER 1999. We spent a pleasant ten days at DisneyWorld. As soon as we arrived we telephoned Chief Representative who, even at that stage, was guarded as to whether everything would be completed in time. We also heard from “CEO”’s wife who told us that everything that was ordered was ready for delivery, but that it could not be put into the house until the property had been signed off to us. (Remember? The house is not ready – so we can’t have it signed over; because it isn’t signed over, the furniture and furnishings can’t be completed; we are coming to stay in the house!!)

At the end of the first week we were notified that everything was now complete. We had to sign an affidavit before a Notary Public (where had I heard that before?) that all financial instruments were in place and construction was completed to a level satisfactory to allow release of the final funds. DisneyWorld, of course, can provide anything. Please apply at the front desk of the hotel. We sign; we arrange for Fedex to deliver the papers.

Two days later, we get a frantic call from Chief Representative asking where the papers were. How should we know? We find that some mix up had occurred and the papers were still awaiting collection. We make a mad dash to pick it up, catch the last mail from Sand Lake Post Office and thankfully the paperwork is complete. The last three days at Disney are full of nervous expectation and apprehension. We decide to leave two days early and set off for Naples. After all, we are house owners now.

IT’S THE WRONG COLOUR!

Yes, we arrived to find the house outside has been painted a dull apricot colour – not, as we expected, like the house around the corner. Undaunted we went inside. More was to follow: the internal colour scheme was the old one, the electrics for the fans had not been implemented, the carpets were cream instead of green, the bathroom was white marble rather than pink. On top of that there were double doors leading from the dining room into the main bedroom.

Two weeks of relaxation turned into two weeks of telephone calls, arguments, apportionment of blame and fixing what could be fixed. It transpired that the Change List, agreed at Easter, had been overlooked by an administrative error. Chief representative confirmed it was representative 2’s problem and that he (representative 2) would fix it. We had a gang of electricians working throughout a whole day rewiring the lights to our particular specification. Many of the items were too fundamental to do anything about (we couldn’t really have the bathroom suite changed or the tiled floor dug up again). One item, the double doors, could not be explained. It did not even figure in the construction company’s list of approved alternatives.

The additional planting was not carried out. We came to a partial compromise and agreed that some extra plants would be added in recognition of the problems. Chief representative also confirmed that he would make sure that representative 2 would repaint the house the correct colour.

We did take the opportunity of starting our personalisation of the house. Initially we thought we would put away particular items and bring them out for own personal stays. We ordered a rug from a local manufacturer matching the predominant colours – to be collected on our next visit the following Easter. We bought a china cat – that reminded us of our feline friend at home. We collected a mass of pamphlets, tourist guides and attractions and restaurant menus from the Naples area and further afield which we collected together into an information file for our prospective guests. We left behind us a visitors book.

At the end of the month, we packed away our personal effects into our lock up. We had arrived. We were property owners. We now looked forward (despite the hiccoughs and the restoration work that still needed to be done) to many happy return visits and a prosperous rental future.
CHAPTER 3. Profit and Loss. October 1999 to September 2000

Initially we heard very little from Ann. We were entering the quiet period and there were few booking to be had in the Autumn (Fall) months. We were assured that bookings would pick up over Christmas and the New Year; and houses in Naples was always full though the winter months.

We heard a lot from CEO’s wife. The outstanding items of furniture and soft furnishings were installed. The security was fitted (alarms and boxes, emergency lighting, dead bolts to all the doors). We had sent a fax as soon as we had returned home listing all the building problems we had left behind and were reassured that these outstanding items were being chased up and supervised by Chief Representative.

Without further ado a family holiday was planned for Easter 2000. At least, we felt, we could take a well earned break, knowing that, at last, all our hard work and planning would be justified.

EASTER 2000. We were delayed in flight and had to drive over from Miami. We arrived at 11:30 pm after a nineteen hour travel day, opened the front door, and … set off the burglar alarm. Oh fun! The alarm had been installed after we left last time, we didn’t know the code. The alarm company rang to find out what was happening, but we could not remember the password. The answerphone answered the emergency number from the vacation rental company. The local constabulary arrived – night sticks at the ready. Eventually, somehow, we entered a number that worked.

Saturday and Sunday were bliss. The weather was fine and warm. The houses on either side of us were almost finished building.

Monday Morning 6:30 am – the sleeper’s are rudely awakened, peace is shattered and all hell breaks loose. There is major construction going on on the other side of the lake. There was a mechanical crusher breaking down vast quantities of earth and bedrock fed to it by a chain of excavators. There was a road crew excavating a new culvert from one corner of the lake. Adjacent to and outside the perimeter of the estate work was proceeding building a new four lane highway.

This goes on non stop for the next ten days – each day 6:30 am to 6 pm. Glance back, dear reader, to the previous chapters. Did I warn you of this eventuality? No, but then neither were we in the previous two years of negotiations. Indeed the major grinding operation – and main source of the noise – lasted for four weeks in total.

Ann tells us that bookings have been very slow because of the construction around the house. They had been reluctant to put anyone into it because of the noise. When will it end? Don’t know – but hopefully by the Summer of 2002!!

Oh yes! The house is still a pastel apricot colour. “No”, Chief Representative says, ”We haven’t been able to catch up with it yet. Representative 2 said he would do it, but he has now left the company.” The lawn was looking decidedly seedy and unkempt. Many of the plants and shrubs had died. The well and sprinkler system was not working. Stern woods again had to be voiced in strategic ears.

Still not everything was bad. The rug was nice, it matched the furnishings and it was waiting for us when we arrived. We arranged for extra televisions in the kids’ bedrooms “for a special offer one off installation fee. No additional monthly cable charge”!

And we saw Tina Turner in concert at the Tampa Ice Palace Arena.

We returned home to the UK for a rest. I immediately started looking for other ways to improve our chances of rentals. I signed up with an internet organisation. I also contacted other vacation rental companies. We made arrangements to travel back to Florida during the Summer.

JULY 2000. It is now nearing the end of our first year of ownership. We have the final snagging list to complete under the builder’s warranty. House colour? Still pastel apricot. Other minor defects also needed correction. Given our previous experiences we were concerned to have this finalised during our stay. Letters are exchanged between Chief representative and CEO. Promises are made. Watch this space!

Building work was still going on around the lake – new houses were springing up almost on a daily basis. The relief road proceeded at a pace but at least the construction noise had disappeared.

Still our warnings about garden care seemed to have borne fruit – well, flowers at least. We decided to have further planting carried out and arranged a landscaper to put in some tropical trees (Royal Poinciana, frangipani, bourganvillea – that type of thing) We continued to add our own personal touches with the interior décor and furnishings. We were happy to read the comments that our guests had left in the visitors’ book.

After two weeks, we left again – with the distinct feeling that we were very little further forward than we had been a year before.

Dramatis Personnae:

“CEO” – Chairman of Realty Company, Property Management Company, Vacation Rental Company
“CEO” wife – Wife of “CEO”; Manager of Property Furnishing Company
Ann – Property Manager 1
Bee – Property Manager 2
Representative 1 – Agent for construction company (left before end of Act I)
Representative 2 – Agent for construction company
Chief Representative – Boss of Representative 1 and 2
Dave – Our travel agent

THE BALANCE SHEET. So, how does the money work? Or should I say how is it supposed to work?

The vacation rental company does all the advertising, the negotiations and bookings. It maintains the availability calendar. It also pays the sales taxes on the income. After it has paid its various other overheads, it then pays me my owner’s dues. Our particular rental company bases this on a high or low season daily rate. At the end of the month, I will be credited with this amount.

The property management company (separate arms of the same parent organisation) takes the responsibility of cleaning and maintaining the house, paying the bills and negotiating with other agencies. Each month, I will be charged for the following:

A clean up fee (one for each length of stay: so four separate stays equals four clean up fees), A management fee, Weekly pool cleaning, lawn care; two weekly pest control fees, Utility charges (Electricity, water, sewerage, telephone), Cable rental, Security fees, Quarterly home owner’s association dues, Any repairs or replacements.

In an average month this will total $800 and will also be deducted from my owner’s account. In addition to this I will need to pay the following: Mortgage and county taxes, Property insurance premiums (hazard, flood, contents), Professional indemnity insurance premiums, Accountancy fees

I will also have to take into account my own travelling, accommodation and living costs when I come over from the UK on maintenance visits.

We had been led to believe that we would ‘break even’ (cover our costs including mortgage expenses) if we achieved an occupancy of 32 to 34 weeks in the year. In our first year of operation we managed seventeen – of which five were our own. We have barely broken even on our operating expenses and have paid ten of our monthly mortgage payments ourselves.

CHAPTER 4. CONSOLIDATION? (September 2001 to present)

During the Winter of 2000 it became very clear that our occupancy rate was not going to improve. Construction work in our part of the estate went on apace but the area adjacent to our villa was never finally completed. One cul de sac on the opposite side of the lake was completely occupied by absent landlords and it was plain that during our Easter visit their booking rates were similar to ours. We were the only visitors during the summer of 2001.

By that time we had decided to change our ploy. It is clear that the Winter is the most popular time in southern Florida. As mentioned above, this is the high season for snowbirds – the northern Americans and Canadians who get away from the harsh climate in their home states. Rental rates are lower but with just one three month seasonal rental, the profit and loss account becomes much more secure.

We changed our agent. We are now serviced by a local realtor – American owned and operated. The management change is somewhat higher but is only applied to confirmed bookings. We have our own manager who looks after nothing but property rentals and who is immediately available every weekday by telephone and email. The prospects are already brighter.

THEN CAME 9/11!

For the last twelve months the bottom has dropped out of the vacation rental market. We now advertise on three internet sites (two American, one in the U.K.) and requests for information have been down by 60 to 70%. Rental rates too have plunged.

A further complication of the terrorist alerts is that the Immigration Service has been tightened up considerably. It was relatively easy for a non resident alien to stay for up to six months on a visitor’s visa particularly if he owned a second home in the State. Last winter our realtor eleven of his absent rental clients had sold up. His stock of rental properties had shrunk alarmingly. Jeb Bush (Governor of Florida and brother of the President) has gone on record expressing his concern for the long term effects on the State’s economy.

We have reached a status quo (sort of!!). Our rental income covers the monthly outgoings but I continue to prop up the mortgage payments on a regular basis. I remain a perpetual optimist and continue to hope that brighter times are just around the corner. America in general (and Florida in particular) continue to experience house price inflation at least as intensive as that in the UK. This Summer our builders confirmed that a similar house to ours on an identical plot would sell for $90,000 more than we paid.

CONCLUSIONS:

“Own your dream home in the sun while holidaymakers pay your expenses”

Is owning and renting a holiday property a get rich quick scheme? The probability is ‘Yes’ but, unless you are very lucky, not for the owner. There are plenty of other parties who can and will get rich from the project far quicker than you will.

Owning and renting, particularly abroad, is not for the faint hearted. It has to be looked at as a long investment especially if you have to part fund it on a 15 or 30 year mortgage. Of course you will slowly acquire a larger percentage share of the equity in the property as the years go by and house price inflation should also guarantee a slowly increasing value.

Owning has its obvious rewards. It is your place in the sun. You can use it whenever you want to. You can decorate it to your own tastes. You will have to decide how much ‘hands on’ you want to take with the arrangements. You will have to trust people and organisations thousands of miles away.

We weighed up all the pros and cons and although things have not gone smoothly and according to plan, we do love our home away from home. It is still our little bit of paradise.

EPILOGUE

I’ve been coming to Florida for 20 years. I love the people, the place, the climate, the Mouse, the wild side. At this point I have to make an admission here. I did have some prior experience of the Florida property market and although that experience did not prevent the pitfalls and delays, at least it did help us with some of our choices.

Our primary reason for staying aware from the Orlando area was that we were members (since 1992) of Disney Vacation Club. We wanted our base to be at a distance to facilitate our own two centre vacations.

I have bought an investment property before. This was a model home – so, what we saw was what we got. The area had a very strong home owner’s association which vetted tenants and insisted that leases had to be of at least one year. The property was unfurnished, so we were unable to use it for our own vacation purposes.

I had prior experience of the way the American mortgage market worked. My first mortgage was sold on three times in the first twelve months making it very difficult to manage from a distance automatic debits that were automatically cancelled in the move.

I acquired a bank account, a very helpful bank manager, a credit card and a credit rating and history. I got to know a property management company very well. I found a very helpful accountant. I learned the different tax regimes between the IRS and the Inland Revenue. I found out about rolled up tax losses (gee I’ve needed these with the Naples adventure). I have learned about the differences in inheritance laws between the US and the UK and ways of coping with these.

I do have a long term solution of sorts. However, this is subject to business secrecy at the moment. Maybe I will write a sequel in a year or so and tell you how it went. It is obvious that our Naples experience has a very long way to go before we start to break even. I was aware that it might before we embarked on it. However it should still prove to be a sound investment from a financial point of view in the long haul. And we still have our paradise home from home.

If you are thinking of embarking on such a venture; think, think, and think again. Take advice from anyone who offers it but sift it and don’t believe it all. Talk to a lawyer, a banker, an accountant. Talk to people who live in the place you are looking at; talk to other owners and renters. Only then can you listen to the blandishments of the people who would sell you your dream home.

(PS - The title is from a 1948 Gary Grant movie. A man and his wife decide to buy a house in the country and get more than they bargain for. Quite a funny film - I've seen it on video I hasten to add!)