Own Vacation Rental Investment

Short Term Vacation Rentals have become big business in the United States, creating an investment opportunity in the tropical paradise which is Fort Lauderdale, Broward County and South Florida, one of our country's premier resort destinations. Popular Vacation Home Rental websites like Airbnb and VRBO all feature hundreds of listings in Fort Lauderdale and its surrounding communities.

Many real estate investors are taking advantage of this to generate returns, while others wonder how this process works, exactly how much money is in it.

How Much Money Can I Make?

Hey, let's not beat around the bush, right? That's the Number One Question. Trouble is, we must go through all the answers to all the other questions before you can start making any intelligent projections.

The quick answer is – that depends. On many factors. The approach you choose. The choices you make. Any intelligent real estate investor knows that's the only answer I could offer.

To start letting you get a handle on the numbers we have outlined several theoretical scenarios, which you can view by clicking on the "Scenario" buttons below.

One important factor to remember: think beyond the money you can make operating a property as a short term vacation rental. Do not ignore potential appreciation, which in Fort Lauderdale can be significant. Some Real Estate Investors only keep these properties for three to four years, after which they sell, lock in their profits.

How Often Will It Be Rented?

The Number Two Most Important Question. The crux of the entire equation. Once again, it all depends. The standard within the Vacation Home industry is an average of 60%. But remember, that's an average, which means some properties will rent more frequently, some less. That depends on factors such as location, features, how nice of a property it is. A house by the Beach will rent more frequently than a home further inland. A house with a pool will be rented more often than a home without.

Generally we like to think a Vacation Rental in Fort Lauderdale is likely to be rented more frequently than similar properties in Cleveland, Detroit or Dubuque. You might be able to research a projected occupancy rate by going to some of the vacation rental sites, finding a comparable property to the one you may be considering, checking its availability.

As you start crunching numbers you might slso work up a spread, projections based on the property being rented 50% of the time, 60% of the time, 70% of the time, etc...

What Kind of Property Should I Buy?

Another key component, the typical vacation rental around Fort Lauderdale is usually a Single Family Home. They certainly offer the best capital appreciation. In South Florida, most Condos do not allow Short Term Rentals. Any prospective tenant in a Condo which is being rented must apply to the Association. You can't do that every week. In addition, Condominiums across South Florida might have restrictions governing how they can be rented. Many require the Condo must be owned for a year before they may be rented. Some may only be rented once in a calendar year. Some have 3-4 month minimum terms. Townhomes might be a viable option. A Townhouse (or Villa) are either a Condo Unit or a Fee Simple Property. You might be able to do a Vacation Rental with a Fee Simple Townhome. In addition, multi-family properties like a Triplex or Fourplex can often offer extremely lucrative returns when operated as a Vacation Rental.

How Much Can I Rent It For?

To arrive at the proper number you must either do research, see what comparable properties in the same neighborhood are renting for, or consult an expert in the field. The fact of the matter is you must have a handle on what the proper market rent of a property should be before you start coming up with projections.

Who Takes Care of It?

To me, this may be the most important question of all. Operating a Vacation Rental is not easy, and the vast majority of Real Estate Investors contract the services of a professional vacation rental management firm who oversees the entire operation. You are basically in the hotel business. The big websites will rent the property, take their fee, but you still need some way to give your tenants the keys, get them back when they leave. The property must be cleaned between tenants, linens and towels washed.

A professional vacation rental manager can also give you an idea what the property should rent for, and they will make sure your vacation rental is totally turnkey. You need sheets and towels, dishes and glasses, silverware, pots and pans and coffee makers. In addition, they can help with interior design so you can get the maximum rental rate, do light maintenance (light bulbs, remote batteries and A/C filters), and be there to oversee any other more involved maintenance issues which might occur.

How Do I Find the Right Manager?

This is why God created Google. Vacation Rental Management has become quite an industry in South Florida. Search Engines results will return a number of these companies. You should probably contact a couple, see which feels like the best fit.

What Does That Cost?

These Vacation Rental Management companies charge between 15 and 25 percent of the gross revenue. Ask what services they provide, if there are any costs over and above their percentages. Some may try to nickel and dime you with extra charges for day to day versus week to week management. You can consult them when considering a property. They can advise how much you can ask for in daily and weekly rent, and any repairs and/or capital expenditures the property might require, such as furniture and design, to maximize your investment. They can help you outfit your Property with linens, towels, plates and silverware, anything else which may be required. Of course, any supplies, remodeling or repairs will be paid by you.

How Much Will Property Taxes Be?

You can find a Home Buyer's Property Tax Estimator on the website of the Broward County Tax Appraiser at BCPA dot net, which you can access by clicking on the button below.

The BCPA (dot net) website is a great resource for anybody interested in Real Estate in Broward County. You can type in the address of a property, call up the Tax Records, see a map demarcating property boundaries, check what other homes have been selling for in the neighbrohood.

How Much Will Insurance Be?

Another simple questions with a difficult answer. Homes in South Florida require Homeowner's (Liability) and Windstorm Insurance. Some may require Flood Insurance if they are in a designated Flood Zone. Only you can determine how much Liability Insurance you wish to carry. How much you pay in Windstorm Coverage depends on structural features of your property. If the property has Impact Windows and Doors, Garage Doors, it will save you money. When you Inspect the property during your Due Diligence you will get a 4-Point Inspection from your Home Inspector. This will affect how much you pay.

I have a list of Insurance Agencies I give to customers when we start making offers. I will be more than happy to forward that to you once we start shopping.

How Much For Electric, Water and Trash?

Trash (and Municipal Sewer) is included in your Property Taxes. I'd add in at least $400 per month for Electric, and $125-150 per month for Water in a Single Family Home. These numbers should be considerably less per unit in Multi-Family.

How Much For Lawn and Pool Maintenance?

Somewhat negotiable, but for your budgets and projections I would add in $100 per month for Lawn and $175 per month for Pool Cleaning. Pools require more than Cleaning. Pools filters and pool heaters run constantly and will require occasional repair. To be thorough I'd either add in another $1,000 annually or add another $100 to your monthly.

Is There Any Special Permitting?

Yes. There is paperwork. This may vary in different municipalities. Fort Lauderdale requires: Proof of property ownership; A current license for a transient public lodging establishmen from the Florida Department of Business and Professional Regulation (DPBR; a current license with the Florida Department of Revenue for Sales Tax collection; A current Broward County Business Tax Receipt; Proof of registration for Broward County Tourist Development tax collection; A City of Fort Lauderdale Business Tax application submitted to the Vacation Rental department.

Most Vacation Rental Management companies will assist you with the paperwork. You must pay any fees. These are fairly nominal. For instance, Fort Lauderdale's Vacation Rental Registration Fee (up to four units under the same roof) is $350. Renewal is $160. A Business Tax Receipt ranges from $27 to $150. Whether of not their assistance in included of costs extra is another question you should ask when interviewing potential management.

Below is a link to the Vacation Rental Program page on the City of Fort Lauderdale's website.

Tourist Taxes?

Last we checked Vacation Rentals pay a total of 13% in taxes: a 6% state-mandated tax on transient accommodations, which applies statewide; a Broward County Tourist Development Tax (TDT) of 6%; and Broward County imposes an additional 1% local surtax. These are usually pass-throughs collected by the Booking Website when the property is booked and many of the Management Companies will send collected taxes to the appropriate entity as part of their services. This is something else you should discuss with potential management as you interview them.

Will My Property Appreciate?

Here is a chart from the S&P Dow Jones Home Price Index from 1988 through 2022 illustrating the performance of the South Florida Real Estate Market versus the United States.

They say one picture's worth a thousand words. Or millions of dollars.

S&P Dow Jones Home Price Index

South Florida (Red) versus United States (Blue) from 1988 thru 2022
Shaded areas indicate U.S. recessions

Ball Park Scenarios