Short term property rental websites, such as AirBNB.com and Homeaway.com, have not only been market disruptors for the hotel industry, but have quickly become a monetization gold mind for property investors. Vacationers are turning to AirBNB because nightly rates are lower than hotels, guests can live like locals, and online reviews offer a level of transparency that the savvy consumer prefers. Investors are turning to short term rental investments because daily rates are higher than monthly rents. Where as a typical South Beach 1 bedroom may rent for anywhere between $1600 and $2000 per month to an annual renter, AirBNB or Homeaway can bring in over double the gross income ($3700 as of 3/13/2013). However, here are 4 hidden costs and pitfalls to avoid when seeking an investment property for the purpose of short term rentals in South Florida.
- Resort Tax
Properties rented for under 6 months in Dade County are subject to additional taxes. Vacation rentals in Miami Beach incur a 3% Miami Beach resort tax, and a 3% Dade County resort tax, in addition to the standard 7% Florida State sales tax (13% in total). Vacation rentals outside of Miami Beach incur the Dade County 3% resort tax, totaling 10% with the Florida State sales tax. These taxes do not account for the annual property taxes, which will be recalculated upon the purchase price once you close on the property.
2. Cost of Maintaining the Rental’s Furnishings
When renting a unit on AirBNB and HomeAway.com, much of the success of the vacation rental depends on the property’s quality, comfort, and cleanliness. You can always add a cleaning fee to each stay, covering the cost of maintaining the unit. However, if the furniture, plates, dishes and towels aren’t in excellent condition, your guests have an open forum on the website to voice their concerns. Several bad reviews can decrease the rate at which your unit remains occupied. Remember, you are competing with hotels and other rental properties, so treating the unit like a serious business is imperative. Don’t cheap out on comfortable mattresses and furniture. Ensure that the kitchen is fully stocked with plates, dishes, pot holders, glasses, wine openers, and pots and pans. Provide extra CLEAN blankets, sheets, pillows and towels. And, if you’re property is close to the beach or pool, consider providing beach chairs, bicycles and beach towels. These little items may add up, but the long term effects of happy guests will mean more return on your investment.
3. Hiring a Manager
If you are an out of state or out of country investor, managing the rental property between guests is clearly not possible. There are several management companies and professionals that, for a flat fee, oversee the property, ensure it’s in optimal condition between guests, oversee the cleaning crew and deliver the keys at the beginning and end of each stay. This is an additional cost to keep in mind when calculating your profitability.
4. Penalty Fees – Condo Board Nightmares
Miami has thousands of condos for sale at any given time, many of which are ideal for vacationers. This doesn’t mean that every condo association wants short term rentals in their building. In fact, most Miami condos have strict by-laws on the minimum amount of time a unit can be rented for, ranging anywhere from 30 day minimum stays, to only one rental per year. Enforcement of this can mean heavy fines, and huge headaches for the property owner. However, hiring a seasoned real estate agent is your best tool for selecting properties that allow short term rentals. Even more enticing, there is no costs for the buyer in working with a real estate agent, as the seller pays all agent fees. Real estate agents have access to all Miami Dade properties, and can filter based on the length of time condo boards allow for rentals. Selecting the ideal property is THE MOST critical step, and choosing the right agent can make the process seamless and more efficient.
With investors like Ashton Kutcher and Jeff Bezos, AirBNB’s popularization is only getting hotter, and increasingly more acceptable to late adapters. Hiring the right Miami realtor can provide a local perspective for the desirability of a unit, as well as common issues to avoid when selecting the property. AirBNB rentals are an extremely lucrative business, but take experience and research for the initial purchase and setup. After that, your property manager will allow you to put your investment on passive-income auto-pilot, while your guests create life-long memories during their South Florida vacations.