Overview

Many people planning to buy a holiday home in Florida are interested in owning a home that will provide them with an income to cover the running costs and help with mortgage payments. If you wish to let a property, you must check before buying that it’s permitted in the area or development (see Rental Restrictions below). Non-residents are permitted to occupy their Florida homes for a maximum of six months a year and many choose to let their homes when they’re absent. Note that in most areas of Florida you’re highly unlikely to meet mortgage payments and running costs from rental income. Buyers who over-stretch their financial resources often find themselves on the rental treadmill, constantly struggling to find sufficient rentals to cover their running costs and mortgage payments. In the early 1990s many overseas buyers lost their homes after they defaulted on their mortgage payments when rental income failed to meet expectations. Note that buying property in Florida (and in many other countries) isn’t always a good investment compared with the return on income that can be achieved by investing elsewhere. Most experts recommend that you don’t purchase a home in Florida if you need to rely on rental income to pay for it.

Location: To maximise rental income, a property should be located as close as possible to the main attractions and/or a beach, be suitably furnished and professionally managed. A swimming pool is obligatory, as properties with pools are much easier to let than those without (unless a property is situated on a beach). It’s usually necessary to have a private pool with a single-family home, but a shared pool is sufficient with an apartment or townhouse. The best rental prospects are with a three-bedroom, two-bathroom home, with a single or double garage and a heated pool. For maximum rental income a property should be located within 20 minutes (preferably 10 to 15) of Disney World.

Note, however, that while it’s the best location for rentals, the Disney World area definitely isn’t the best place to live permanently due to the incessant crowds and traffic gridlock caused by visitors. Other popular areas include the Gulf Coast from around Naples in the south to Crystal River in the north, and the Atlantic coast between Miami and Daytona Beach. Key West is also a popular holiday destination. A property in a coastal location should be no further than 15 minutes’ drive from a beach. Rental demand falls off dramatically outside the most popular areas, although coastal areas within day-trip distance of Disney World also offer reasonable rental potential.

Rents: Rental rates vary considerably depending on the area and the time of year. Rates for a property 10 to 20 minutes from Disney World range from around $800 per week for a two-bedroom, two-bathroom home with a community pool, to around $1,300 a week for a four-bedroom, two-bathroom home with a private heated pool. A ‘standard’ three-bedroom, two-bathroom home with private pool rents for between $900 and $1,250 a week, depending on the area. US source rental income drops dramatically outside the American peak rental season from Christmas to Easter. The season for European visitors is dominated by school holiday periods, including Christmas and the New Year, Easter, summer (i.e. July and August) and the October mid-term break. The off-peak months for European visitors are generally November/December and January to March (excluding school holiday periods).

Occupancy: Don’t always believe a developer’s rental and occupancy rates, which are sometimes highly exaggerated. Note that it’s illegal under Florida law to offer guaranteed rental income (not that this stops some agents from doing it abroad, where they are out of reach of Florida law). You should err on the conservative side when estimating rental income and bear in mind that in some cases your home may need to be available to rent for 40 weeks a year (80 per cent occupancy) to cover all your costs. However, an occupancy level of around 50 to 60 per cent is usually break-even point, although it’s possible to get 75 per cent in a popular area.

A management company may offer a guaranteed number of weeks’ rental occupancy (e.g. 30), which isn’t the same as a guaranteed income. To qualify for a guaranteed rental scheme a property must have a private heated swimming pool (the water can get cold in winter), which can improve bookings considerably in winter. However, a guaranteed rental deal may apply only if a property is available 52 weeks a year and the weeks when a property is used by the owner (or by owner-booked clients or friends) may be deducted from the guaranteed number of weeks’ rental.

Furnishings & Keys: If you let a property, don’t fill it with expensive furnishings or valuable personal belongings. While theft is rare, items will certainly get damaged or broken over a period of time. When buying a new property that you plan to let you should choose hard-wearing, dark coloured carpets which won’t show the stains, and should bear durability in mind when choosing furniture and furnishings. It’s common practice to install a credit card telephone which allows free local calls, but all other calls must be charged to a credit card (installation may be taken care of by a management company). You will also need several sets of spare keys, which will inevitably get lost at some time. If you employ a management company, their address should be on the key fob and not the address of the house. If you let a home yourself, you can use a ‘keyfinder’ service, whereby lost keys can be returned to the keyfinder company by anyone finding them. You should ensure that you get ‘lost’ keys returned, otherwise you may need to change the locks (it’s advisable to change the external locks annually in any case if you let a home). You don’t need to provide clients with keys to all the external doors, only the front door (the others can be left in your home). If you arrange your own rentals, you can mail keys to clients in your home country, otherwise they can be collected from a management company’s offices in Florida. It’s also possible to install a security key-pad entry system.

Rental Restrictions: Short-term (i.e. less than 28 or 30 days, but possibly less than six months) rental restrictions are becoming commonplace in Florida and have increased dramatically over the last decade in areas popular with foreign buyers. There are restrictions in a number of counties, cities and communities and if you wish to earn income from short-term rentals it’s vital to check that they are authorised in the area, development or community where you’re planning to buy a home. You also need to check whether there are plans to introduce restrictions, which can be applied retrospectively. The reason for the restrictions is partly because many full-time residents don’t wish to live in a community or development where short-term rentals are permitted, although the main reason is pressure from the hotel lobby who don’t want the competition.

When researching this section, it was the intention to list the current rental restrictions in Florida’s counties, certainly those in the counties most popular with external buyers. However, it quickly became apparent that this would be both difficult and misleading: difficult because the situation regarding restrictions is in a state of flux and constantly subject to change, and misleading precisely because of this. By the time this book went to print, it was certain that the situation would have changed, perhaps radically. In addition, local rental restrictions are frequently at variance with county regulations, further complicating the matter.

Rental restrictions are a hot topic in some parts of Florida, with discussions ongoing and lawsuits pending regarding both county-wide and local restrictions. The counties within the Disney area are an example of how the rules can vary. Some time ago, Orange County imposed county-wide restrictions, forbidding rentals of less than 30 days, other than in developments or zones where unrestricted rentals had previously been permitted. Therefore, Orange County isn’t ideal for the owner wanting to maximise rental income, because the area attracts a lot of short-term holidaymakers, staying either for 5, 7, 10 or 14 days. Nearby Osceola County also has rental restrictions, but the position is different from that in Orange. There are exceptions to the restrictions, so as to protect not only the many people who already own property there, but also new buyers. It’s a confused and confusing state of affairs and it’s important to check the situation in the area where you’re planning to buy. Many developments are effectively free from restrictions, making them attractive for those who want short-term rentals. But don’t forget that the rules can and do change. Moving to Polk County and Lake County, the situation is different again. Restrictions are few and as further investment is being actively encouraged, they’re unlikely to be introduced in the near future. However, when the region is more developed, it isn’t impossible that they could be imposed.

The foregoing restrictions apply county-wide, but the potential landlord must also take account of much more local restrictions: many condo and co-operative owners’ associations restrict or ban short-term rentals, even in areas where short-term rentals are generally permitted. If there are restrictions in an area or development you should be notified before buying, but must also make your own investigations (and try to find out about possible future restrictions, if possible). It’s important to ask whether a sub-division (area) is zoned for short-term rentals and whether there are any community or association restrictions, and obtain documentary evidence.

Note that Orange and Seminole counties in Florida don’t permit short-term rentals of less than 30 days. However, you can have rentals of less than 30 days as it isn’t possible for owners to compel tenants to stay for the entire duration of their 30-day rental agreement; but the number of rental agreements in a calendar year cannot be more than 12. In some counties, homes built before the introduction of short-term rental restrictions can still be let for short periods (e.g. one week) if they were let prior to the new regulations coming into force (called ‘grand-fathering’), although short-term rentals may be allowed to continue for a limited period only, e.g. five or ten years.

Properties built before the late 1970s don’t generally have any rental restrictions, but may not have the benefits found in modern homes, and many condo apartment blocks also don’t have any short-term rental restrictions. With new blocks and areas, be careful: developers aren’t always inclined to be open about rental restrictions in the original offering documents, for the simple reason that they want to appeal to as many buyers as possible. Local or building associations also often impose or tighten restrictions when the developer has sold and moved on. Court rulings are constantly altering the situation: one from the spring of 2002 makes it patently obvious that those who buy in condo blocks and developments run the risk that their neighbours – usually through majority voting – can radically alter what the average person would consider to be their property rights. Therefore, if the financing of your purchase depends on a certain level of rental income, you must be as well informed as you can be about these potential brakes on your short-term rental income.

However, restrictions can also work to your advantage: if you don’t want to live somewhere that attracts a lot of one or two-week holiday makers – sometimes accompanied by children, who clutter up the swimming pools and annoy all adults except their parents – an area with rental restrictions will protect you against their presence, at least for as long as the restrictions are in force. And even if you’re looking for rental income in an area with short-term rental restrictions, if it attracts a lot of long-term, ‘snowbird’ renters, two or three long-term rentals between October and May could provide for your income needs. In fact, areas that have short-term rental restrictions might be more attractive to older, long-term renters, anxious to avoid the sometimes-noisy, child-owning, short-term holiday crowd. Use any rental restrictions to your advantage, if at all possible. Finally, don’t be under the misapprehension that it’s only homeowners in the state of Florida who are subject to rental restrictions, as they also apply in many other US States.

Licenses & Regulations: A Florida home used for rentals must be licensed annually by the state and county. A property used for short-term rentals must be registered as such with the State of Florida (i.e. the Florida State Division of Hotels and Restaurants) and an annual state hotel (and occupational license in some counties) license obtained. The license and sales tax number (see below) must be clearly displayed in your home. Safety equipment such as approved fire extinguishers, smoke detectors (if they aren’t already installed), and two locks on front and patio doors is also necessary. Fire and safety rules are constantly being revised and extended and the cost of compliance has escalated in recent years to around $1,000. There’s an inspection to ensure that owners comply with fire and security regulations. Note that if you let a home without a license you face stiff penalties, e.g. a fine of up to $1,000 per day, imprisonment and possibly confiscation of your property. Check with the local county hall exactly what’s required as the procedure varies depending on the county. Note, however, that fire and safety regulations are sometimes wrongly interpreted by counties and cities, and you should obtain the latest rules from the relevant state office.

Sales tax must be levied on short-term property rentals of less than six months’ duration and owners must register before starting business. Some counties also levy additional taxes on short-term rentals such as tourist development, tourist impact and convention development taxes. All taxes are based on gross receipts and must be levied on rents by the managing agent or owner. Rental income earned by non-resident aliens is also subject to US income tax, although all expenses can be deducted if you elect to be taxed on a ‘net basis’.

Management Companies: If you’re letting a second home, the most important decision is whether to let it yourself or use an agent (or agents). If you don’t have much spare time then you’re better off using an agent, who will take care of everything and save you the time and expense of advertising and finding clients. However, an agent charges commission of around 15 per cent of gross rental income, plus various other fees for management services. You will need a local management company or employee to arrange for cleaning, maintenance, repairs and the payment of bills (although it’s best to pay all regular bills by direct drafting). If you want your property to appear in an agent’s catalogue, you must contact him the summer before you wish to let it.

Take care when selecting a rental agent, as a number have gone bust in recent years owing customers thousands of dollars. Make sure that your income is kept in an escrow account and paid regularly. Some foreign tour operators undertake to pay owners before guests arrive for their holiday. It’s absolutely essential to employ an efficient, reliable and honest company, preferably a long-established company owned by (or with strong ties to) a local builder or developer. Note that anyone can set up a short-term rental agency in Florida, which doesn’t require a license (although long-term rental agencies need a license). Always ask a management company to substantiate rental income claims and occupancy rates by showing you examples of actual income received from other properties. Ask for the names of satisfied customers and check with them.

Other things to ask a management company include who they let to; where they advertise; whether they have contracts with holiday and travel companies; whether you’re expected to contribute towards marketing costs; and whether you’re free to rent the property yourself and use it when you wish. The larger companies market homes via newspapers, magazines, overseas agents and colour brochures, and have representatives in many countries. Management contracts usually run for a year (renewable) and can be terminated by either party by giving around 90 days’ notice.

Letting agents usually charge set fees for their services (see Management Fees below), which may include cleaning, gardening and laundry; paying utility bills and taxes; organising maintenance and repairs and replacing damaged equipment; and dealing with tenants’ problems on the spot. Companies have someone available at all hours to meet and greet clients, hand over the keys, check that everything is in order and be available in case of emergencies. If required, management companies will provide a welcome pack of groceries and they usually have extra equipment for hire such as roll-away beds, cribs (baby’s cot), high chairs, gas grills and barbecues. Companies also make periodic checks when a property is empty to ensure that it’s secure and that everything is in order.

Owners pay the management company a ‘float’, which is usually equal to around four months’ management fees (from $500 or $300 for a condo) to pay for bills, expenses and repairs. There may also be a separate contingency fund for redecoration, replacements and repairs. All funds must be held in an escrow (trust) account, which is a legal requirement. Management companies provide a monthly statement showing all income and expenses. Check all charges listed in your monthly statement and question anything you think is too high or incorrect.

Management Fees: The typical monthly management fee is around $100 which includes a ‘meet and greet’ service (meeting clients at the airport and accompanying them to your home); key delivery and collection; providing a welcome grocery pack; collection and handling of mail; arranging routine and emergency repairs; routine maintenance of house and garden, including lawn cutting and pool cleaning; arranging cleaning between rentals; advising guests on the use of equipment; and providing guest information and advice (possibly 24-hours a day for emergencies). All bills are extra and there’s usually an additional fee for cheque writing (paying bills on your behalf) and completing tax returns (sales and income tax on rental income). Typical monthly management fees are shown below:

General management - $100
Bill paying service - $40
Sales/tourist tax returns - $15
Grocery welcome pack* - $80 ($40 x 2)
Cleaning & laundry 3 bedrooms* - $300 ($75 x 4)
Garden/grass cutting (standard lot) - $85
Pool maintenance (chemicals, etc.) - $90
Pest control (full service) - $25
Cable TV - $25
Garbage collection - $25
Utilities - $150
Telephone - $20

TOTAL^ - $955

^ The total includes two charges for grocery welcome packs and four charges for cleaning & laundry.

To the above costs must be added mortgage payments (if applicable), insurance and taxes. Note that if a person renting your home is assaulted there, you could be sued for negligence, and therefore it’s important to have liability insurance that covers this eventuality (see Homeowner’s insurance Fact Sheet). Note that a home which is rented must have a ‘short-term rental dwelling’ policy. Maintenance fees are payable for the common elements of a community property and if communal facilities are provided you must also pay an ‘amenities’ fee. Note that electricity bills can easily amount to $200 to $250 per month on larger properties in summer when you’re running air-conditioning 24-hours a day (many owners leave their air-conditioning on a low setting even when a home is unoccupied, as the high humidity can cause mildew and mould in a warm house).

Letting Yourself: Some owners prefer to let a property to family, friends, colleagues and acquaintances, which allows them more control (and hopefully the property will be better looked after). In fact, the best way to get a high volume of rentals is usually to do it yourself, although many owners use a local rental company in addition to doing their own marketing in their home country. If you wish to let a property yourself, there’s a wide range of newspapers and magazines in which you can advertise in most countries (e.g. Dalton’s Weekly and the broadsheet Sunday newspapers in the UK). You will need to experiment to find the best publications and days of the week to advertise. There are also companies that produce catalogues of properties rented directly by owners in Florida, e.g. Private Villas in the UK. You can also advertise among friends and colleagues, in company and club magazines (which may even be free), on TV bulletin boards (e.g. ITV’s Oracle ‘Florida Villas Direct’ in the UK), on notice boards in companies, stores and public places, and of course on the Internet. The more you advertise, the more income you’re likely to earn. It will pay you to have a telephone answering machine, a fax machine, an e-mail address and perhaps even you own website.

To get an idea of the rent you should charge simply ring a few rental companies and ask them what the rent would be for a property such as yours at the time of year you plan to let. They are likely to quote the highest possible rent you can charge. You should also check the advertisements in newspapers and magazines. Set a realistic rent as there’s a lot of competition. Add a returnable deposit (e.g. $150) as security against loss (e.g. of keys) or breakages. If you plan to let a home yourself you will need to decide how to handle enquiries about flights and car rentals. It’s easier to let clients do it themselves, but you should be able to offer advice and put them in touch with airlines, travel agents and car rental companies. Some owners leave a car and/or boat at their home for the use of their clients.

It’s advisable to produce a coloured brochure containing external/internal pictures (or a single colour brochure with coloured photographs glued to it, although this doesn’t look so professional), important details, the exact location, local attractions, details of how to get there (with a small map), and the name, address and telephone number of your local management company (if applicable). It’s necessary to make a home look as attractive as possible without distorting the facts or misrepresentation. You should also provide an information pack for clients explaining how things work (such as air-conditioning); what not to do; where to shop; recommended restaurants; local emergency numbers and health services such as doctors, hospitals and dentists; and assistance such as a general repairman, plumber, electrician and pool maintenance. It’s also beneficial to have a visitor’s book where your clients can write their comments and recommendations.

If you want to impress your guests you may wish to arrange for fresh flowers, fruit, a good bottle of wine and a grocery pack to greet them on their arrival. It’s little touches like this that ensure repeat business and recommendations. Many people return to the same property each year and you should do an annual mail-shot to previous clients and send them a few brochures. Word-of-mouth advertising is the cheapest and always the best. Note that even when you let a property yourself, you will still need a local management company to arrange for cleaning, maintenance, repairs and the payment of bills. A management company shouldn’t charge extra fees when an owner finds his own tenants. Note that when buying a home in Florida for renting, you must plan well in advance so that you’re ready to let it as soon as possible after the closing.

Long-term Rentals: Long-term rentals are generally for at least six months or a year and are often unfurnished. However, it’s possible to let a furnished home for three to six months, particularly during the winter when many retired Canadians and Americans from northern states spend the winter in Florida (known locally as ‘snowbirds’). Rates aren’t as high as for short-term rentals, e.g. weekly, although you can expect to receive from $1,750 to $3,500 a month in the high season and $1,000 to $1,750 a month in the low season for a three-bedroom, two-bathroom home for a minimum three-month rental. There’s also a market for long-term rentals of six months or longer to Americans or foreign residents (many foreigners buying businesses in Florida rent a home for a few years before buying). With long-term rentals, tenants usually pay most of the running costs, including utilities, pool and lawn maintenance, cable TV and telephone.