South Florida Business Journal
Brian Bandell - Senior Reporter
Dec 13, 2019
Two of South Florida's hottest real estate sectors, residential and hospitality, have converged in the short-term rental industry to create bountiful opportunities for investors.
Home-sharing platforms such as Airbnb allow residential properties to be listed for short-term stays. Investors in homes located near tourist magnets could see a steady revenue stream from bookings. According to Investment Property Exchange Services, four of the 10 most popular U.S. Airbnb destinations are in South Florida.
After selling most of its long-term lease apartment buildings, Markos Hospitality Group started buying multifamily buildings in Miami's Edgewater neighborhood and converting them into short-term rentals, said Michael Cosculluela, a principal with the Miami-based firm. It worked with Mitash Kripalani of Colliers International South Florida to find neighborhoods that would be attractive to tourists and make sure the booking rates at comparable properties listed nearby were favorable.
At its 26-unit Fortuna House, the typical long-term rent would be $1,200 a month, Cosculluela said. As a short-term rental, it is averaging $2,750 a month, although with 15% to 25% higher expenses.
"In this market, we can do this all day long," Cosculluela said. "There are a lot of events happening in Miami every year that really spike the cost of a hotel room. We provide a less-expensive alternative for people who want to stay in Miami, but don't want the hotel experience."
However, there can be pitfalls. Investors should pay close attention to municipal regulations, license requirements and rules from condo/homeowner associations, said attorney Hal Lewis, co-managing partner of Pathman Lewis in Miami. Running afoul of these rules could result in major fines.
"There is no question short-term users increase the probability of damage and increase the probability of causing a nuisance with your neighbors," he said. "Insurance companies aren't blind to that."
Some things for investors to consider:
Most condominium and homeowner associations have restrictions on short-term leases. Several new condos that not only allow short-term rentals, but encourage them, are coming to Miami.
YotelPad, Smart Brickell and Natiivo are among the developments geared toward short-term rentals. David Arditi, principal and co-founder of YotelPad developer Aria Development Group, said its program will offer unit owners great flexibility. They could either list and manage units on their own through a platform like Airbnb, or sign a rental management agreement with Yotel so it's booked and serviced along with the building's hotel rooms.
YotelPad, which priced units from about $300,000 to $500,000, has sold out.
"The idea is they will rent better on a short-term basis," Arditi said. "From the standpoint of condo sales, it was very meaningful."
Short-term rentals exist throughout South Florida, but only select locations have enough booking volume to justify an investment.
"Today, travelers are looking for experiences," said Santiago Vanegas, CEO of Habitat Group, which is building Smart Brickell. "Short-term rental properties in Brickell, Little Havana and Miami Beach have higher traveler traffic because of what these locations offer.
Areas near the beach in Fort Lauderdale, Hollywood and Hallandale Beach, plus the Las Olas area, are popular for short-term rentals, Colliers' Kripalani said.
It should be noted whether municipal zoning permits short-term rentals. The practice is banned in much of Miami Beach and Boca Raton, but allowed in much of Miami's urban core. Still, property owners must obtain a certificate of use from the city and open an account to pay tourism taxes to the county.
"We are talking to more and more investors who like the concept, "Kripalani said. "It's exciting to have this option when buying a building."
Watch the competition
The short-term rental market has become more competitive, and some properties may be at a disadvantage, said Jack McCabe, president of Deerfield Beach-based McCabe Research & Consulting. Guests pay close attention to furnishings, silverware and wall decorations. Rooms on lower floors or with unattractive views could have trouble attracting premium rates, he said.
"It can have significant returns, but it can also have significant losses," McCabe said. "In this market, it's something of a crapshoot. You really have to do your research."
For someone who primarily has a vacation home, as opposed to a pure investment, making it a short-term rental may be more trouble than it's worth, said Mason Williams, chief investment officer with Coral Gables Trust Co. There's the liability of someone getting injured and how that would impact the insurance.
Many investors who have cashed out of other properties and are looking to defer their taxes through a 1031 exchange are interested in short-term rental properties in South Florida as investments, said Claudia M. Kiernan, senior VP and regional manager for the southeastern U.S. for Investment Property Exchange Services, which specializes in 1031 exchanges. They can also use the property as a vacation home for a few weeks a year.
"The issue is you want someone managing it for you, because it's high turnover with short-term rentals," she said.
Many investors think short-term rentals are easy money, but they don't realize how much work it is, said Benjamin Gene, president of Keyes Property Management, a division of Keyes Co. that manages short-term rental homes in South Florida. Property owners must pay for TV, Wi-Fi, utilities, coffee and common toiletries expected in a hotel. Bed sheets and bath towels must be washed, and the home should be cleaned between guests.
The investor should monitor competitive listings and adjust the price based on demand, Gene said. For many owners, the professional management experience is worth the cost, he said.
"You have to provide a great experience for guests, or they will leave a bad review and hurt your future bookings," Gene said.