Things You Should Know About Buying a Vacation Rental Property in Key Largo

Team Walters September 1, 2022

Things You Should Know About Buying a Vacation Rental Property in Key Largo

A vacation rental property in Key Largo can be a great investment. However, it's also not something you should rush into. Here are some things you should think about.

Do you love Key Largo?

Most people who buy vacation rentals choose to use the property themselves a couple of times a year. At the same time, the kinds of people who will want to rent your vacation home are also going to like Key Largo, or at least the idea of spending time there.
You should consider a vacation rental in Key Largo if:
  1. You love diving, snorkeling, and kayaking. The proximity of John Pennekamp Coral Reef State Park, America's first undersea park, is just one reason why Key Largo is a snorkeling and scuba mecca. This park caters to everyone with youth campsites and beach wheelchairs available. Your guests may prefer to take a glass-bottom boat tour to observe the reef and there are also amazing snorkeling trips you can take.
  2. You love fishing. Key Largo's fishing is another huge draw. You can easily charter boats out on the water and catch dinner—if you’re lucky, of course!
  3. You appreciate the heat. Key Largo has a tropical climate, with "winter" temperatures dropping below 78 degrees Fahrenheit. With 3,000 hours of sun per year, it’s a great place to enjoy sitting on the beach or cooling off in the clear blue waters.
  4. You love nature. Key Largo has a variety of eco-tours and nature-based excursions. You can kayak out to see manatees, which are slow-moving and easy to observe (and with kayaking you don't risk injuring them). Or you can swing by the Florida Keys Wild Bird Center, which houses over 90 non-releasable members of local bird life.
Remember that anyone you rent to is going to be enjoying the same amenities as you. This can allow you to be a front of local knowledge.
At the same time, think about how far Key Largo is for you. Is it a distance you're willing to travel frequently for vacation? If it isn't, then you may find you aren't using the property as much.

Know and understand the law

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The law on vacation rentals in Key Largo varies by county. Not every island allows vacation rentals, so make sure that the property you’re looking at is in an area that’s zoned for it. It’s unlawful to rent a home short-term in improved subdivisions and mobile home parks.
Islamorada and Marathon allow seven-day minimums. Some areas allow rentals of 28 days or more. Make sure that the property you purchase is zoned for the type of rental you want. An experienced realtor can help you navigate this.
You’ll also need various permits and licenses. Having a property manager on the ground is an expense, but can help you keep up with the complexities of complying with the law as well as dealing with maintenance issues, difficult tenants, and so on. Make sure that the property isn’t governed by an HOA that restricts vacation rentals. Some HOAs disallow rentals while others limit them to a short period of time each year to ensure the neighborhood is primarily owner-occupied.

Consider maintenance costs

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Typical maintenance costs on a vacation property are 1-2% of the value of the home. This figure can be reduced by taking care of things yourself; however, this only works if you live nearby and are renting out a home as an investment. If you’re buying a vacation rental in Key Largo to use part of the time while renting it out when you’re not there, you will need professional property management.
Make sure that you budget in these costs when purchasing the property and setting rent, and ensure you’ll be fine if the property stays empty for awhile. Don't forget that there will be stretches of time during hurricane season when you won’t be able to rent.
Make sure your budget also includes the costs of storm-proofing the property during hurricane season. You will need somebody on the ground to do this and to inspect for damages after any storms.
Maintenance costs are often higher than for your primary home simply because you’re likely to have tenants who don't treat the property as carefully. Also, think about high-maintenance items such as pools.

Budget for insurance

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You can't get regular homeowners' insurance on a vacation home. Besides, it won't cover everything you need. You need insurance that covers:
  • Hurricane damage, especially for a beach house.
  • Damage caused by tenants.
  • Liability if a tenant or guest is injured. If you’re renting out regularly, you’ll need a commercial liability policy.
  • Flood damage. Always get flood insurance.
Make sure you know what the premiums and deductibles are and that you’re always ready to pay the deductible. Many things can go astray with a vacation rental.

Budget your mortgage

Mortgages for second homes are different from primary homes. You’ll either need to get a conventional second mortgage or find another way to finance it. FHA loans and similar are not available for second homes or homes that will be rented out. As well, banks generally consider vacation homes to be slightly higher risk, so your interest rates will be higher. Of course, you can pass this on to renters, but always assume in your budget that you won’t be able to achieve 100% occupancy.
If you have a lot of equity in your primary residence, you can take out a home equity line of credit. This is a good way to cover the down payment and if you have a lot of equity and are buying a smaller vacation home—such as a condo—you may even be able to purchase the home outright. Remember that this means borrowing more money against your home, which comes with associated risks.

Understand the difficult choices of high season

One difficult choice is whether you want to stay during high season. If you do, you’ll lose out on the highest potential for rental income. If you don’t, then you may miss out on some of the reasons why you want a vacation home in Key Largo in the first place.
You may want to rotate when you stay so that sometimes you’re staying during high season and other times during quieter months. Of course, you may be the kind of person for whom these quieter months are exactly when you want to visit, or who has the kind of flexible schedule that allows you to use the times when you aren’t able to rent the property.
But if you always want to go during the busiest times, you may find that you’re best off being one of those renters rather than investing in a home.

Know your marketing strategy

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A rental property is only a good investment if people will actually rent it. You love the property, or you wouldn't have bought it. But think before you do buy it about how you’re going to list it.
A property manager may be the best route to go here; if they’re experienced, you can trust them to do the marketing for you and know whether the property you have is best listed through Airbnb or independently. You can even list on multiple sites.
Think about everything you love about the property and how you would sell it to others. It may be worth soliciting your property manager or a marketer's help to write the right kind of copy that will get people to want to rent your home. How close is it to the beach? Does it have a pool? Does it have a great view of a mangrove forest? You should be honest, but also enthusiastic.
Look at the prices of other Key Largo houses for rent so you know what the fair market rent is and how to set your own price.

Talk to your tax advisor

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The IRS doesn't make anything easy. For example, they have a line whether something is a rental property or for personal use. This is complicated. But if you stay here for more than 10% of the days you rent it to others, you can't take a full business deduction. So, if you rent your property for 200 days a year, you start losing tax benefits if you stay for 21 days or longer.
The deductions themselves are complicated and you need to understand clauses like the gross rental income limitation. It's a really good idea to talk to your tax advisor or, better yet, a CPA before you buy a rental property so you understand what the tax implications are.
You also need to work out what your state tax liability is, especially if your primary residence isn’t in Florida.

Consider your retirement plans

Another reason to consider Key Largo is that it’s a great place to retire. If you’re thinking of retiring here, then buying the house you want to retire in now and using it as a vacation property in the interim can be a lot cheaper than waiting until you’re old enough to retire to look for a Key Largo home. Do it right and you may own it free and clear.

If you’re considering purchasing a home in Key Largo with an eye to renting it out, then you’ll need an expert real estate agent, such as those on Team Walters, who can help you navigate the associated zoning requirements and regulations and help you find the right property manager.

*Header photo courtesy of Shutterstock

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