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Real estate in Florida focused on rent is one of the most desired global investments in the world. There are two main modalities: 1 – short-term (E.g. Airbnb) and 2 – long-term. In the article where we show Airbnb tips, we show the detailed calculation for the first investment modality (short-term). This time, in this article, we will address the second modality, that is, real estate aimed at long-term rentals.
If you are thinking of investing in Florida, it is essential to read this article until the end and understand the functioning and behavior of the market with regard to long-term rental contracts.
Short Term Vs. Long Term: What’s the difference?
Properties aimed at short-term rental are generally intended for tourists and business travelers. In Florida this modality is highly sought after, since it allows the owner to enjoy the property on vacation (or any other period of the year) and rent it when he is not using it.
On the other hand, long-term properties require longer-term contracts that are usually at least 1 (one) year in Florida.
They are, therefore, properties intended for a public that seeks to establish residence (usually families).
Although properties aimed at short-term rental are the “ball of the time” in Florida, there are also great investment options, with excellent return, in the long-term modality.
Be Careful When Comparing Long-Term Yields Between Brazil and the USA!
It is common practice in Brazil to judge that a good rent return on long-term contracts is between 0.4% and 0.5% per month.
According to the FipeZap table, in April 2024, the average return on long-term residential rental of one-bedroom apartments in Brazil stood at 6.57% per year, that is, 0.54% per month.
This return tends to be lower for apartments with more rooms, so it is a consensus in the Brazilian market that the acceptable range would be between 0.4% and 0.6%, also considering commercial properties here.
In this sense, many can judge that any return below this range would not be interesting.
This is a limited analysis, especially when compared to international investments, in consolidated economies and with strong currency. Other factors should be analyzed.
If we analyze only the indicator “income / amount invested”, we will rarely reach 0.5% per month in real estate in the United States. Does this mean that investing in Brazil is better than investing in the US?
If the answer to this question was “Yes”, it would be difficult to explain why Brazilians, among them large investors, are at the top of the list among foreigners who buy the most in Florida for consecutive years.
And they’re not just Brazilians! The whole world buys real estate in Florida.
Would all these investors be making wrong financial decisions? Of course not!
When I present investment opportunities in Florida on my Instagram profile, or in my monthly newsletter, it is common, and perfectly understandable, that the Brazilian investor questions the monthly income based on the simple “income / amount invested” account.
This analysis leaves out the main factors that make investment abroad considerably more promising than in Brazil. Let’s name some? Here Are:
- Appreciation potential in Florida: Approximately 10% per year
- Devaluation of the Real: The Real is one of the currencies that is most devalued in the world, which by itself would already leave any rental return in reais below returns in dollars.
- Dollarization of Equity: By investing in a property in Florida you will be tying part of your assets to a strong currency / economy and minimizing exposure to the political and economic risks of Brazil.
And there is another factor that few people perceive in the comparison between the two economies (Brazil and the USA).
Brazilian interest rates are among the highest in the world. On the other hand, American interest rates are among the lowest in the world.
To understand whether an investment is good or bad in a given economy, it is essential to consider the Basic Interest Rate of the respective economy.
The impact of the Basic Interest Rate on the comparison between Brazil Vs returns. USA for long-term rental
The basic interest rate of a country is a guide (benchmark) for other investments.
In Brazil, this rate is called Selic and is defined by the Central Bank. It influences all other interest rates such as loans and also financial investments, since it directly impacts the CDI.
Similarly, the U.S. has its Basic Interest Rate determined by the Fed (American Central Bank). It influences the yield of so-called Bonds, which are securities issued by the government or companies. American government bonds, known as Treasuries, are considered the least risky in the world.
The return on the rental of a property is also influenced by the country’s Basic Interest Rate. Generally, this return accompanies the interest rate, since rent is also perceived as a form of passive income, as well as securities and investments in low-risk funds.
The same FipeZap index mentioned above, which brings a rate of return of 6.54% per year for 1-bedroom properties in Brazil, also brings a Real Interest Rate (discounted inflation) of 6.41%. The values are very close.
This parity also happens in the USA!
It is therefore not possible to compare the return of rent in Brazil with those in the USA. The interest rates of these two economies are very different. While the US has one of the lowest rates in the world, Brazil has one of the highest.
It is natural, therefore, that the return on rent in the USA is lower than that experienced in Brazil.
Brazil brings risks and uncertainties that are not part of the American economy. It is reasonable, in this way, that the market requires higher returns to compensate for these risks in Brazil.
Therefore, to analyze only the indicator “income / amount invested” is to close your eyes to all the risks and political-economic uncertainties that the Brazilian economy brings. As already mentioned, there are other factors that, when analyzed from a macro perspective, make international investment a considerably more interesting option.
Real estate leverage
Low American interest rates bring a huge advantage to the global investor.
It is possible to leverage the assets by taking advantage of access to American cheap housing credit.
In the article How to Leverage Your Equity in Florida I explain in detail the strategy that large global investors adopt to multiply their assets.
About AMG International Realty
AMG International Realty is a global real estate company specialized in Florida and aimed at the foreign public. If you want to know more about investment opportunities in Miami, Orlando and surrounding cities, contact me right now and talk to me by WhatsApp: +1 305 761 2655 (Heloisa Arazi).
