Rental arbitrage is the practice of renting one or more properties and then renting those out as short-term vacation rentals. You may choose to list on booking channels such as Airbnb and VRBO or stick to direct bookings or do both. As housing prices continue to rise, it has become more difficult than ever to purchase a property outright. The rental arbitrage model allows vacation rental entrepreneurs to engage in the short-term vacation rental business without having access to significant amounts of capital.
Rental arbitrage offers several advantages
Known as Jax by locals, Jacksonville is a tourism growth city, ranking in the top five in tourism figures in the Southeast United States.
The ideal Florida destination to explore the best of nature’s offering in the state, it is a more relaxed offering compared to a bustling city like Miami. Jacksonville offers eco-adventures, world-class fishing, and an extensive park system. The city is home to historic neighborhoods, eclectic museums, vibrant street arts, inspired cuisine and craft beer. The waterfront destination is also replete with 22 miles of beaches for visitors to have fun and frolic in.
According to AirDNA, the world-leading provider of short-term vacation rental data and analytics, Jacksonville continues to be one of the five markets that would earn the highest rental arbitrage premium. Listings in Jacksonville grew by over 40% in the second quarter of 2021 in comparison to the same period in 2019. Jacksonville is also the only city (of the 34 markets analyzed) that has seen significant gains in multifamily listings since 2018.
According to AirDNA 2021 data, in Jacksonville
Effective rent is $1,231
Monthly revenue is $3,164
Short-term rental premium is 157.0%
Average daily rate is $175
As the pandemic eases and tourism continues to pick up, Jacksonville is already enjoying occupancy of 59.6% with it taking just 7 nights to cover the rent.
Furthermore, 2 and 3+ bedroom listings earn the highest monthly revenue, over $3,000. However, 1 bedroom listings are up 11 BPS, laying claim to a premium of 121.7% and above-average occupancy of 63.4%. Studio listings are also growing, up 37 BPS and earning monthly revenues of $2,081.
According to AirDNA, the best submarkets for short-term vacation rentals in Jacksonville are Northside which claims an average monthly revenue of $5,053, and Jacksonville Beaches which averages revenue of $4,468 per month.
While there are no rules and regulations covering the practice of rental arbitrage in Jacksonville per se, as the person operating the short-term vacation rental you are recognized as the licensed agent by the state of Florida. As such you are responsible for ensuring the property you manage in Jacksonville follows all the rules and regulations governing short-term rentals in the city and state.
Florida law defines a vacation rental as:
“any unit or group of units in a condominium or cooperative or any individually or collectively owned single-family, two-family, or four-family house or dwelling unit that is also a transient public lodging establishment but that is not a timeshare project.”
As the licensed agent, you are expected to hold a vacation rental license from the Department of Business and Professional Regulation (DBPR). There are two types of licenses:
A Group License covers all units within a building or group of buildings in a single complex that are licensed to a licensed agent. (Multiple group licenses may be issued to different licensed agents for units located on the same property.)
A Collective License is issued to a group of houses or units found in separate locations that are represented by the same licensed agent. (A collective license may have a maximum of 75 houses or units per license and is restricted to counties within one district.)
However, because the state of Florida defines condominiums and dwellings as separate types of short term vacation rental housing, you cannot combine the operation of both a condominium and a dwelling in one license.
Licenses must be renewed annually and displayed prominently in the vacation rental or made available when requested.
If you are listing a short-term rental such as a single room or rooms other than the whole unit while the host remains in the home, you are not required to obtain a license from DBPR.
Once the property is registered with the state as a vacation rental, you will be held responsible for meeting all applicable health and safety rules as well as any violations. These range from ensuring hygiene and cleanliness, providing a safe, sanitary and comfortable environment to guests, as well as scheduling and passing regular inspections.
Short-term rentals are only permitted in two zones in Jacksonville: General Commercial and Historic Core. Rentals have to be 30 days or longer to be permitted in other zones (residential, multifamily, etc)Bed & Breakfast establishments can obtain a conditional use permit if they are owner-occupied residences on the Jacksonville Contributing Historic Landmark list, subject to review by the city’s Planning Commission.
You are required to apply for a land use permit with the City of Jacksonville Planning Department before you list your rental. The Planning Commission will evaluate the potential impacts of your short term vacation rental business on city facilities and neighborhoods. Once you gain land use approval you must apply for a business license from the City of Jacksonville.
Inform the owner of the property that you will be using the rented property as a short-term vacation rental. You will need a legal document documenting the owner’s acquiescence. Include all the rules of hosting that the two of you have agreed on. Also consider incorporating liability insurance provided by platforms like Airbnb and VRBO in your agreement.
Check on Homeowners Association, condo-board, or co-op rules that govern your property and/or neighborhood to ensure you are permitted to run a short-term vacation rental.
For a detailed look at managing the homeowner relationship, check out our blog here.
As the owner of the vacation rental business, you are responsible for submitting all state and city taxes to the relevant authorities in time. Both Airbnb and VRBO collect some taxes on behalf of hosts and remit them directly to the government. These include the Florida Transient Rental Tax and Florida Discretionary Sales Surtax. The city of Jacksonville also imposes a Transient Lodging Tax.
Rental arbitrage is a fast-growing business model in the short term vacation rental space, allowing more players to enter the market and operate at a swifter space without being bogged down by the obligations of large capital outlays. As one of the markets continuing to earn a high rental arbitrage premium in the US, Jacksonville offers considerable potential for rental arbitrage. Check out our other articles on rental arbitrage in markets worth investing: Orlando, Nashville, Houston, Austin, Myrtle Beach, Fort Lauderdale, and Montreal.