Investors looking to enter the short-term rental market will find a gem in Florida. Apart from its draw as a tourist destination, Florida offers great prices and a favorable regulatory environment for investment.
Thanks to its year-round warm climate, Florida also offers an investment opportunity that doesn’t have an off-season. With short-term vacation rentals in high demand and strong potential for a good return, it’s no wonder so many property investors are flocking to the Sunshine State.
Florida: A Property Investment Paradise
Investing in the short-term rental market is a popular way to generate passive income for professional property investors and savvy individuals alike. As with any sizable investment, there are many factors to consider when investing in property. However, property in Florida has great potential to boost your income while widening your portfolio or securing a nest egg for your retirement.
Short-term rentals on platforms like Airbnb or Vrbo have a great appeal for tourists. Many families may prefer a home to a hotel as it can provide them with home comforts and the option to prepare meals in the kitchen rather than eat out.
So why Florida, and why invest in a short-term rental property rather than a long-term rental?
Why Is Florida an Ideal Place for Short-Term Rental Properties?
With top tourist destinations like Miami, Orlando, and Tampa, Florida has no shortage of appealing locations for rental properties. There are also many great locations at lower price points all around the state that also enjoy high occupancy rates in peak seasons.
There are several practical and financial reasons why so many investors are looking to Florida for their property investments.
Year-Round Market
In Florida, there’s no such thing as a low season. Though May-October tends to be a slightly quieter time in Florida, its year-round warm and sunny climate means Florida welcomes tourists every month of the year. For vacation rental owners, this means that even in months when occupancy is slightly lower, you can probably count on having guests if you pick your location strategically. Property owners in Florida can also expect extremely high occupancy rates during popular times of the year including holidays and peak season (November-April).
In contrast, many rental properties even in popular destinations like California may see a larger number of quiet periods as tourists flock to warmer climates at cooler times of the year.
Profitability
According to research by Compare the Market in 2022, Miami is the city with the third-highest average monthly Airbnb price in the world. Their data revealed that properties in Miami can command an average of $8,024 per month. This sum may well be even higher in prime locations in the city.
Miami was closely followed in fourth position by Orlando, Florida. According to the same study, short-term Airbnb rentals in Orlando earn an average of $7,298 per month. As a state, Florida can therefore offer unparalleled return on investment for property investors.
Short-Term Rentals Can Be a More Economical Option for Tourists
Despite Florida’s great potential for profit, short-term rentals can be appealing to tourists looking for a more economical alternative to hotels. Hotel prices in Miami reached an average of $322 per night in March 2023 and many tourists require a more cost-effective option. Seeing as vacation rentals can house larger groups, renting an entire property short-term makes sense for families and groups of friends traveling together.
Florida’s Favorable Tax Laws
One of the most tempting aspects of investing in real estate in Florida is the tax benefits this state offers. Before investing in property, be sure to consult an expert about all the financial implications of your investment as tax laws may differ depending on factors such as residency and citizenship.
That said, Florida offers several appealing tax laws that favor real estate investment both in the short and long term:
No State Income Tax
Income earned through renting your property as a vacation rental won’t be taxed at the state level in Florida. Investors in Florida can therefore keep a lot more of their earnings than investors in other states like California.
No Capital Gains Tax
Though a long-term consideration, property owners in Florida can also benefit from no state capital gains taxes. Floridians aren’t however exempt from federal capital gains taxes.
No Estate Tax
Similarly, property owners in Florida aren’t subject to estate tax. This can be especially appealing to investors thinking about the future when making their investments.
Additional Fiscal Advantages of Investing in Florida
Pablo Martell from Florida CPA firm Alpine Mar explains:
“Florida is a wonderful state for operating a business given there is no state income tax charged on earned income, however, when operating a short-term rental, you need to be aware of sales tax and lodging tax that is levied by states, counties, and other local taxing authorities. In the state of Florida, you can expect a minimum sales tax of 6% charged on short term rental income, which is nowhere near the top rate charged by California at 9.5%.”
Strong Tourism Industry
As a tourist destination, Florida has it all. Offering warm weather all year round and world-famous destinations like the Disney resorts and Miami, tourists will always love Florida.
In the first two quarters of 2023 alone, Florida welcomed more than 70 million tourists, representing a 1.3% year-on-year rise.
Investors interested in Florida also have the luxury of being able to choose from a range of different locations as the state has many tourist hotspots. The top locations for vacation rental properties are:
Orlando
With 15 world-famous theme parks in the city including the Disney parks, Universal Studios, Seaworld, and Legoland parks, Orlando will always be a huge draw both for national and international visitors. Orlando was named the largest travel and tourism city destination in America for 2022 by the World Travel and Tourism Council, with an economic contribution of $31 billion.
Miami
Miami has never been more on the international radar with the arrival of Lionel Messi to Inter Miami. But sports is only one of Miami’s draws. Miami received more than 26.5 million visitors in 2022, a trend that doesn’t appear to be slowing down.
With its diverse culture, buzzing nightlife, beautiful beaches, and incredible food, Miami has it all.
Short-Term or Long-Term Rental?
If you’re set on investing in property in Florida but are unsure about whether to let it as a short or long-term rental, you may wish to consider the following:
Pros of Short-Term Rentals
- Higher profit potential. Investing in a high-demand area can earn you large sums per night. In the busiest months, you will earn a lot more than if you rent your property long-term to tenants.
- You can stay there. Renting a property short-term means you can use the property yourself between bookings.
- Avoid problematic long-term tenants. Some long-term tenants can cause headaches. With short-term guests, you can avoid many of the problems associated with problematic long-term tenants.
Cons of Short-Term Rentals
- Less stability. The income from long-term rental tends to be more stable and predictable than the income from short-term rental. When a tenant signs a contract, you can count on their rent for the duration of the contract.
- Challenges with financing. Getting favorable financing may be more challenging if you plan to rent your property short-term because this source of income is less reliable. There are, however, several lenders that provide mortgages specifically for short-term rental properties.
- Higher workload. The frequent turnover of guests in short-term rentals generates a lot of work. Renting your house out short-term requires marketing, cleaning, dealing with check-in and check-out, and inspections when guests leave. Some owners find that it pays to hire a property manager to handle the day-to-day operations.
Florida Is a Solid Choice for STRs
When it comes to property rental, Florida is more than just a pretty face. The Sunshine State offers tangible financial benefits thanks to its favorable tax policies and great prospects for profitability. These benefits become even more appealing when you consider that Florida doesn’t have an off-season.
If you’re looking for the right place to invest in a short-term rental property, Florida is an excellent choice. With strategic planning and expert advice, a lucrative investment in Florida could be right around the corner!
