South Florida Investing

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South Florida Investing

In the last few years there has been an increase in interest among real estate investors in purchasing property in South Florida.

With a growth in population contributing to appreciating prices and an increase in demand for vacation rentals it’s no surprise that more people are wondering how to benefit from the short term rental market.

With such rapid appreciation in real estate prices it has become more difficult than a few years ago to achieve an annual return on investment in the mid-teens.

The good news is that despite higher prices and an increase in vacation rental supply, there is still opportunity to achieve returns very real estate investments throughout the country are able to match.

The difference now compared to the late 2010’s is that investors need to be more strategic about how they narrow their property search. It’s important to focus on the right set of factors to pick the best option within the budget parameters to achieve the goal.

Personal & Investments Goals

There are different reasons why people want to purchase property in South Florida with vacation rentals in mind. Whether it’s as a seasonal second home, annual vacation property, or pure investment it’s going to require a tailored research process in order to get the property that’s the best fit for each investor.

Within South Florida, there are so many different types of cities and forms of real estate suitable for short term rentals that it can be difficult for someone just starting to know where and what to focus on.

The great variety of options is good news, there truly is something for people with different combinations of goals, budgets, and risk tolerance. The significance of the tourism industry to the state means they have a very open approach to allowing investment with this purpose in mind.

Location

Even the first time investor knows that location is one of core drivers of value in determining real estate prices. What is much less obvious is which parts of South Florida does the short term rental market (a cash flow based market driven by tourism) over value relative to the real estate market (an appreciation based market driven by local macroeconomics).

The answer to that question is going to be dependent on an investor’s goals and budget. Of course it’s nice to be by the water in a great neighborhood – but will the returns for a specific property justify the premium price.

On the other hand, how far is too far from the water? Is it better to buy a less impressive property in a more expensive postal cost or a more impressive one in a less expensive one? How have different areas appreciated in value historically and what are factors that have led to that in these regions? These are all just a few of the types of questions that investors have to consider when buying property in South Florida.

Real Estate Type

For those who are not committed to a specific real estate type (e.g. houses, condos, condo hotels, multi-family buildings, etc), it’s important to understand the pros and cons of each as well as how to assess the value of the options.

When looking at different real estate types, there are certain characteristics that some properties possess within each category that are going to contribute to a property over performing relative to properties in the same class. These factors can include size, condition, interior finishings, number of bedrooms and bathrooms, outdoor space and many more.

The real estate market often values certain characteristics differently than the short term rental market. Getting good at looking for these characteristics is how an investor is able to find value in the marketplace and increase their return.

Amenities

South Florida is a place many come to have a great time with their family and amenities are a great way to stand out among vacation rental listings. Amenities can come in all different forms and offer varying levels of value depending on their quality, location of the property and real estate type.

They also come with different levels of costs and maintenance responsibilities. Whether you directly pay for upkeep or do so indirectly via a monthly HOA building fee, you have to factor in the maintenance costs of your property. In many cases, it makes sense to pay more for a property that features an attractive amenity that travelers value.

However, there is always a point when the premium purchase cost of the property and ongoing maintenance expenses will not justify the return. Understanding how to identify cases where a higher price makes sense and those where it does not is fundamental to vacation rental investing.

Regulations

The short term rental market has evolved significantly and so have the regulatory frameworks around it. One thing that’s interesting about South Florida is that from city to city there can be a vastly different approach to permitting and regulating vacation rentals. Rules can vary between different real estate types and neighborhoods within the same city.

For a new South Florida investor, understanding how to think about achieving their goal can be daunting even without factoring regulations. Now consider the different rules and regulations that must be followed, and navigating the landscape can feel overwhelming. The good news is that it’s much more clear than a few years ago which cities are friendly towards short term rental operations and which are less accepting. Once an investor understands the regulatory environment it can be more clear what to focus on.