Questions and Answers for Short-Term Rental Investors
Short-term rental properties (aka. vacation rentals) are big business in South Florida and are certainly a contributing factor to the rising prices in many of our single-family and multi-family neighborhoods. Despite efforts to ban them in some municipalities, vacation rentals are here to stay and can actually benefit our local communities if properly managed and regulated. They can also be a tremendous investment if you understand the local market and assemble the right team to locate and manage your property. If you are considering investing in short-term rental property, then you should definitely consult with a local South Florida real estate agent, but here are some frequently asked questions and answers to get you started.
What types of properties are best for short-term rentals?
The most common properties are single family homes because of their availability to investors and desirability to vacation renters. Many people these days like to feel like they are at home and enjoy the privacy of single family living while on vacation. Residential multi-family properties (2-4 units) are also very popular since they provide investors with more options for their renters and they generally provide more return on investment. Some investors are even purchasing larger multi-family buildings (5+ units) and running them as larger vacation rental operations. Multi-family also allow investors to have a “mix” of rentals, some long-term and some short-term, which can provide a more stable income. By the way, forget about condos. Most condominium associations don’t allow short-term rentals and the buildings that do allow them are generally not as desirable as investments. If you interested in a condo that generates income then ask your local agent about options in the condo-hotel market.
What locations should you consider?
Florida is one of the friendliest states when it comes to vacation rental ownership and it attracts a large number of short-term renters year round. South Florida in particular is very attractive to investors and not just because of its long history as a vacation destination. Our local economy is thriving and people are moving here in large numbers for a variety of reasons, including our excellent weather and favorable tax structure. As a result, housing is in short supply and many new residents are renting short-term while the locate permanent housing. Bottom line, short-term housing is not just for people on vacation.
Depending on your budget and target renter there are other factors to consider about location. Generally speaking, properties located closer to the beach are better investments and will demand higher rents. Walkability is very important for some renters and they will usually pay a premium to walk to shopping, restaurants and the beach. Many of our local towns in the Fort Lauderdale area are desirable for vacation rentals, including Pompano Beach, Lauderdale-by-the-Sea, Oakland Park, Wilton Manors and Deerfield Beach.
What amenities and accommodations are important for short-term renters?
If your primary target is vacation renters, then by far the most important feature is a swimming pool, especially if the property is further from the beach. Bicycles and beach chairs are also nice additions depending on the location. Otherwise, your rental should be equipped just like any primary residence with a fully equipped kitchen, smart televisions with cable or satellite, board games, proper furnishings, linens, towels, pool floats, etc. You should also consider offering concierge type services for your vacation renters, providing them with information on local restaurants and tour operators. Vacationers like the “at-home” feel of vacation rental properties, but they also like to be treated like they are staying in a hotel, so the little things do matter. Finally, if you want to maximize your rents then the more beds the better, within reason of course. Think about sleeper sofas and murphy beds for smaller spaces. Bottom line, if you take care of your guests and give them what you advertise then they will return year after year, which is key to a successful operation.
Do I need a license to operate a short-term rental?
Yes, most municipalities require that you have a short-term rental license that is typically renewed on an annual basis. Some cities like Fort Lauderdale and Lauderdale-by-the-Sea require annual inspections to make sure you maintain your property so it is safe for transient renters and aesthetically pleasing for the neighbors. It is important that you follow the rules outlined by the license authority to avoid fines and penalties. Most importantly, you will have to have a sales tax account so that you can collect and pay sales taxes on your short-term rentals. All rentals 6 months or less are subject to state and local sales taxes.
Do I have to manage my vacation rental myself?
This is a common question and many investors are turned off by the work involved in managing reservations and short-term tenants. The good news is you don’t have to do it yourself. As the vacation rental market has evolved over the years, so have the management companies and many of them offer excellent services at a fair price. Typical commissions range anywhere from 15-30% depending on the services provided. As long as your management company hits their target occupancy rate, then the high commissions are generally worth it. Investors can often have a completely “hands-off” approach and still generate significantly more income that they would on traditional long-term rental investments. Choose your manager wisely. Short-term rental management is very specialized and should be a full-time job for any manager. Beware of smaller companies or individuals who offer management services part-time.
Self Management – If you are local and you choose to manage your own vacation rentals, then you can save commissions and have more control of your property. Websites like Airbnb and VRBO make advertising affordable and provide booking and reservation systems as part of their service. If you have the time and want to maximize your income then managing your own rentals can be a fun and rewarding experience. In the case of a multi-family property, you may choose to live in one unit and act as the on-site manager for the entire property.
Can I use my short-term rental myself?
Of course you can, it’s your home. In fact, this is one of the reasons vacation rental homes are so popular. When your property is not rented, you can use it yourself. With the growing cost of housing in South Florida, many owners are renting their second homes to vacation renters when they aren’t using the property themselves. However, if you are utilizing the services of a management company, they may want to limit your personal use so they can maximize their occupancy and commission income. Make sure you read the fine print before signing up with a management company.
How can I get started in vacation rental investment?
First things first. Talk to a local real estate professional in the area you are interested in. Understanding everything about the local area is very important. You should know the local attractions, restaurants and shopping, and the access and distances to everything. Your agent should be able to help you with the best locations for short-term rentals, typical rents throughout the year and the local laws and license requirements. Finally, when it comes time to choosing a management company, your agent can help with referrals and choosing the right company for your investment objectives.