Vacation homes in the sunbelt

Faced with seven months of winter each year, buying a property in the southern U.S. has always been an alluring notion for Canadians. It's even more enticing when you do the math and figure out what you can make by renting the property out.

While there are some good properties out there, you'll still need a lot more than big dreams and a down payment to end up with a money-maker, says Atlanta-based consultant Christine Karpinski, who bought her first vacation home 12 years ago in Destin, Florida, and now earns a living through her investments.

Investors who do their homework can often find a property where the rental revenue at least covers the mortgage payments, allowing them to use the home at little cost, and profit while the property increases in value, says Karpinski. "It's not unheard of to buy a property and be able to break even on the rental revenue."

First and foremost, find a place you love, even if you're buying it as an investment, says Karpinski, who favours the "sugar-sand beaches and clear, clear water" of the Florida Panhandle. A property you believe in will be much easier to market to renters, she says.

Her rule of thumb for assessing the cash flow potential of a property is to compare the monthly mortgage payment (including taxes and insurance) with the average one-week rental rate at peak season. If the mortgage payment is less than the rental rate for one peak week, 12 weeks of occupancy in peak season will be needed to break even on the mortgage costs. Four to five more weeks' rental at off-peak time should cover other costs, such as cable, utilities and ordinary maintenance, says Karpinski. In a hot area, she estimates yearly rental income should equal up to 10% of the home's purchase price.

The most frequent mistake Karpinski sees buyers make is unknowingly purchasing in an area where short-term rentals are restricted. Other oversights could include prohibitively high home insurance costs, and erosion problems that erase the beach from your oceanfront dream home well before you're ready to retire.

Unwillingness to invest in proper marketing to potential renters is common, even among experienced businesspeople, says Karpinski. To make money, you also have to curb costs. One of the best ways is to take out the middleman and hire your own workers for services such as landscaping and general maintenance. It's a big effort, but you'll save commissions that could eat up as much as half of your rental income, she says.

While there's magic in finding a dream vacation home, it should really be looked at as an investment, not unlike owning a blue-chip stock, she says. "You can't buy and then expect to flip it or sell it overnight and make a whole bunch of money. But you should expect to see it gain in value over time."

(prepared by Lori McLeod/Globe & Mail)