How To Buy A Vacation Rental Property In Florida
⚠️ Disclaimer: This article is for informational purposes only and is not financial or investment advice. Real estate investing carries risks. Always do your own research and consult professionals before buying a property.
Today, we’re going to talk about how to buy a Vacation rental property in FL. One question I get asked all the time is how do you buy a vacation rental property in Florida? That’s a great question and one that deserves some attention.
Why Own a Vacation Rental?
So, why would you want to own a vacation rental? Vacation rentals are usually located in stunning locations anywhere in the world. And they can be unique properties that make money every month. But they allow you as an investor or owner to be able to travel there and visit there and live there yourself if you ever want to.
Step 1: Doing the Research
But first, the first step is to buy a vacation rental property in Florida or another state. I’m going to show you exactly how to do the research. And you need to do before you even think about buying one. Then, I’ll give you the data and numbers you need to see to make sense of your ownership. And finally, I’ll give you information and results about their financing along with some hacks that can help you bypass traditional financing.
If you’re ready, let’s go. So, what research is actually needed before you even think to buy a vacation rental property in Florida?
Finding the Best Areas
So, the first thing I did was I went and I looked and I searched on Google for the best places to buy a vacation rental property in Florida. I looked at a bunch of publications from a whole bunch of different places. And I started looking at these publications and seeing what properties, what areas were in the top 10 for each of these different publications. Obviously, I started in the United States first because it was a little easier. And I knew that as far as getting financing for it, it would be a lot easier to do that within the United States.
So, as I started looking at areas within the United States, there started to be certain areas that started to bubble up more than others. Once I had the areas I liked, I started comparing those areas to the data I found on AIRDNA.
Using AIRDNA for Data
Now, AIRDNA is a site that compiles all the data for short-term vacation rental properties and puts it in one place. The website is airdna.co, and there are paid versions, and there are free versions. But what AIRDNA does is it allows you to look at the data for the area that they pull from the people who actually live there. From hosts, from property management companies. And it gives you three main things that I like to look at:
- Occupancy rate
- Average nightly rate
- Average monthly income
There’s another factor that you can get from AIRDNA that’s also really important, that most people don’t talk about, and it’s called RevPAR. RevPAR is revenue per available rental, and it’s calculated by dividing the number of available listings by the total revenue earned. It’s used a lot in the hotel industry or the hospitality industry. But it’s a figure that you need to look at when you’re on AIRDNA.
Understanding Regulations
Another thing that’s important is regulations. So, in one area we bought a short-term rental. There’s a big discussion going on right now in city meetings, county meetings, where they’re talking about how many people you can have with a certain amount of bedrooms. And right now, you have some cabins near Yellowstone where we have vacation rentals where we’re allowing 15 people to stay in a two-bedroom, two-bathroom or three-bedroom, two-bathroom because they have a huge loft upstairs with bunk beds all over the loft. Now, the challenge is that it’s putting a lot of pressure on the septic and sewer systems in that area. Because when you have 15 people living in two bathrooms, it gets a little overcrowded.
So, they’re saying listen, we need to limit the number of people that can stay in these vacation rentals and align it with the bedroom count. So, they’re saying three people per bedroom are allowed to stay in them. But you’ve got a lot of vacation rental owners who are in a big uproar. And it’s understandable because they bought the property thinking they had a rental that could accommodate 15 people. So, there’s a big debate going on right now. Luckily for us, we bought a property that had seven bedrooms. So, the reality is, if they take it down to three per bedroom, we’re still fine, we always advertise being able to host 20-21 people on our property.
Proximity to Attractions and Visitors
The other thing you need to look at is the proximity to attractions and the number of foreign and domestic tourists each year. How many foreign and domestic visitors come to the area that you want to buy. If you take the Smoky Mountains for example, right? Every single year for the last 20 years, about 12 to 13, 14 million people visit the Smoky Mountains National Park every year. So, that tells you consistently, you’re going to have a good number of people who will be able to fill your vacation rental.
Seasonality
It’s really important to research how many visitors there are annually. Part of that, you have to consider seasonality. The house we own near Yellowstone, obviously during the spring and fall, it starts to die down a lot. The summer is amazing. The winter is great there with snowmobiling and other attractions. But it’s seasonal, and when you’re looking to buy a vacation rental property in Florida, you get an element of seasonality. You can’t just take the best month of the year and say it’s going to be like that all the time. You have to be able to factor in those times when there are low periods as well.
Supply, Size, and Property Age
And you also have to look at established markets with short-term rentals that are available in that market. Too much supply can mean a challenging market unless you do something to separate the years so that it’s unique and different from all the others out there.
Vacation Rental Property Size
Another area to look at is the best size. How many beds? How many baths? What’s mostly rented in the area? If you buy a property, it’s probably a one-bed, one-bath home. And traditionally, it’s a family that moves near a national park and goes there. You’re probably going to miss out on a lot of opportunities when you could have spent a little more money to get a slightly larger vacation rental. So, understanding what’s typically rented out there when it comes to home size is key when you’re doing your research. Bedrooms and baths will be key when you’re doing your research.
Property Age
Another thing I like to look at is the year it was built, right? Because, if it was built many, many, years ago, you have to consider that, you’re probably going to have to pay more maintenance every single year than you would on a property that’s fairly new. When I bought my property in Miami, Florida, it was a fairly new property, about 2 years old. I knew I wasn’t going to have to spend a lot on that property.
Whereas when I bought my house in Tampa, Florida, it was my vacation rental. It was built in 2002. I knew it was going to cost a little bit more. And sure, we also put in new railings on the deck, and there were a lot of things that we had to fix as we went along. But it wasn’t a ton of money and it gave us the opportunity to make the cabin a little more unique and updated than the others out there.
Understanding Your Guest Profile
And the last piece of data you need to understand is your guest profile. Who are you attracting? What types of people are you trying to attract to your vacation rental in Florida? Who do you want to cater to?
Financial Analysis
So, once you’ve looked at all this research and you’ve got the answers to these questions, that should help you determine where and what to look for. And if that’s a good starting point for you to start a vacation rental business or buy a vacation rental property in Florida.
General Rule of Thumb for Income
Let’s talk about the financial numbers, okay? Now, here’s a general rule of thumb that’s a quick analysis when it comes to vacation rentals, short-term rentals. And that’s something that I always look at that kind of gives me an initial analysis that says, hey, put some time and effort into researching this, stay away from this and that’s it. The annual income should be at least 10% of the purchase price, whatever it is.
So, if you’re buying a house for $500,000, it needs to generate at least $50,000 in annual income to start researching it. If it’s below that, I don’t know if I’d consider it, right? If it’s at least 10%, you can start looking at ways you can increase the income or increase the occupancy rate, but that’s a general rule of thumb and if the annual income is 15% of the purchase price, that’s a pretty good deal. That’s what you want to consider pulling the trigger on. And if the annual rent is 20% of the purchase price of a vacation rental, that’s not a deal to do in most scenarios. Now, you need to do all the research on that. But they’re hard to come by, they’re really hard to find. So, if you find a place where you’re getting 20% of the purchase price in annual rents.
Appreciation
And with vacation rentals, that’s another financial aspect that you need to consider is appreciation, right? If it’s in a high-demand area, that’s something that can immediately add value to your property. The first vacation rental that I bought was near Yellowstone. It was the first one that I ever bought. And in just a few years, the value of that property had probably gone up 20-30% in just a few years because the demand for that area was growing where there were a lot of people looking to buy vacation rentals or second homes, and there wasn’t a lot of supply on the market.
In-Depth Financial Analysis
Now, when it comes to the financial analysis of it. Obviously, this is a general rule of thumb. It’s a quick analysis that will allow you to say yes or no to more due diligence. If you really want to do a financial analysis, I would recommend a short-term rental calculator, a vacation rental calculator where you can put all the numbers in, right? You can get insurance, taxes, expenses, utilities, maintenance, capital costs. Plug them all in, and it will spit out for you whether it’s a good deal or not. This is probably the in-depth analysis that you need to do. I want you to do a basic analysis to determine if it’s worth exploring further.
Financing Your Vacation Rental
So, let’s talk about how to finance your vacation rental. Now, obviously, there’s a traditional way, right? You go to the bank and say I want to buy this property. And if it’s an investment property, they’ll probably ask for a 20 to 30 percent down. Now, there are programs out there where you go and say this is my second home and it’s really a second home or it can be shown as a second home, you only have to put down 10 percent. So, we were able to just put down 10 percent and leverage the rest. They’re doing amazing cash on cash returns. Because the little bit of money that we put into these properties and we’re able to leverage them. But traditional bank financing, they’ll ask you for a lot of different information to make sure that you can service the loan.
DSCR Loans
Another loan is what is called a DSCR loan, and these are specific to investment properties, especially vacation rentals or short-term rentals. And DSCR stands for debt service coverage ratio, or they are looking at the cash flow of the property to the debt service. And these are for residential income-producing properties as I mentioned. So, instead of looking at the income of the borrower, they look at the income that the property is producing. So, the good thing about that. They don’t need any verification of income. They just need verification from the property that it is producing the kind of income that can provide the loan for the property. And oftentimes as a general rule of thumb, they look for 15% down and at least 12 months of rental history to show that the debt service can be covered by the income.
And that’s great, this property is a potentially great opportunity for refinancing.
Alternative Options and Hacks
So, what if you don’t have the money to put into a vacation rental? Are you completely out of luck? Are there any hacks you can do that will allow you to participate in this great industry? There absolutely is.
Partnering with Investors
The first thing I would say is find a partner. If you find a property that is generating cash at a cash return of at least 20%, I can’t imagine there isn’t someone out there who would put up the money to generate that kind of income. Most people I know usually know someone they trust, love, care about, as long as it’s a real asset that’s generating income, willing to invest money.
Airbnb Arbitrage
The second one is very easy, no money required, no partnership: Airbnb Arbitrage. Basically, it’s finding a long-term rental that has rules and regulations that allow you to rent it out at short-term rates. You secure that lease for a long time and you rent it out nightly. I know of a development in Florida near Orlando. They have a lot of Airbnb arbitrage rentals there. They secure them with long-term rentals, and they rent them out nightly. Paying about $1,500 to $2,000 a month for each rental, and probably about $200 a nightly rent. 50, 60, 70 percent of people in that area are making an average of $3,000 to $4,000 a month and paying a long-term lease of $2,000 a month.
So, make $1,000 to $2,000 from this property and don’t spend any money other than first and last month’s rent. Now if you want to present. Obviously, you have to put furniture in there. You have to pay for a cleaner. But it pays for itself and it’s a way to get into this industry with very little money out of your pocket.
Conclusion
To wrap it up — buying a vacation rental property in Florida isn’t something you just jump into without a plan. You need to do your homework — research the market, run the numbers, and understand local rules and guest demand. Look into the right areas, property sizes, and seasonal trends before you make any move. Once you’ve done that, you’ll have a clear picture of what can actually bring both joy and profit. And whether you go with traditional financing, DSCR loans, or even creative routes like partnerships or Airbnb arbitrage — there are plenty of ways to step into the vacation rental game and turn it into a solid income stream.
