Does a 6 percent cap rate in Fort Lauderdale still hold up once you add hurricane insurance, flood coverage, HOA dues, and a likely tax reset? If you have looked at several properties and seen the numbers swing wildly, you are not alone. The right underwriting process helps you compare deals on equal terms and avoid surprises after closing. In this guide, you will learn how to model cap rate and cash flow the right way for Broward County rentals, with local expense tips, submarket nuances, and a practical worksheet you can use today. Let’s dive in.
Why cap rate alone is not enough in Fort Lauderdale
Cap rate is NOI divided by price. It is a quick gauge, but it is only as good as your expense lines. In Fort Lauderdale, insurance, property taxes, flood exposure, and HOA fees vary a lot by street and building. If you understate any one of them, your NOI and cap rate will look better than reality.
You can pull tax history from the Broward County Property Appraiser and check flood zones on the FEMA flood maps. For insurance, review statewide market dynamics through the Florida Office of Insurance Regulation and the role of Citizens Property Insurance. These sources help you set realistic line items before you ever write an offer.
The core math you need
Cap rate and cash flow rest on a few simple definitions. Keep everything on the same basis, such as annual dollars per unit.
- Potential Gross Income (PGI) = market rent × units
- Effective Gross Income (EGI) = PGI − vacancy and credit loss + other income
- Net Operating Income (NOI) = EGI − operating expenses
- Cap Rate = NOI ÷ Purchase Price
- Cash-on-Cash Return = Annual Cash Flow Before Taxes ÷ Equity Invested
For apples-to-apples comparisons, always use NOI after all operating expenses and vacancy, not just gross rent. Model a 5 to 10 year hold and add reasonable annual increases for rents, taxes, insurance, and utilities.
Model the big three costs in Broward
Property taxes: estimate the reset
Property taxes are based on assessed value and millage rates from county and municipal authorities. Start with the current tax bill for the property, then model taxes on your purchase price or projected assessed value if you expect a reassessment. Pull the tax history and assessed value from the Broward County Property Appraiser so you can see how the bill behaves over time.
- Normalize to annual dollars per unit or per square foot.
- If you are an investor buyer without a homestead exemption, model both “current bill” and “purchase-price” scenarios.
- Add annual escalation to account for millage and reassessment changes.
Insurance: separate building, wind, and flood
Florida’s coastal risk means insurance can be a large and volatile line. Treat insurance as its own category, not part of a generic maintenance bucket.
- Obtain quotes from local brokers who understand Fort Lauderdale’s ZIP code and flood zone differences.
- Verify flood zone using the FEMA flood maps. If a lender requires flood insurance, add a separate flood premium line.
- Review overall market conditions at the Florida Office of Insurance Regulation and understand the backstop role of Citizens Property Insurance.
Modeling tips:
- Break out building insurance premium, wind or hurricane deductible exposure, and any flood premium.
- For condos, confirm what the association’s master policy covers and what falls on the unit owner.
- Add a conservative annual increase and consider a sensitivity test with higher premiums.
HOA and condo specifics: dues and assessments
Condo and HOA dynamics can swing your NOI more than small rent differences. Request the association budget, recent meeting minutes, reserve study, and declaration documents from the seller or manager. If short-term rentals are part of your plan, review the City of Fort Lauderdale’s rules and licensing guidance before you underwrite revenue.
- Convert monthly dues to annual dollars per unit and note what they include, such as building insurance, flood or wind coverage, water, sewer, cable, elevator, security, landscaping, and reserves.
- If the reserve study shows a shortfall or major projects, model special assessment risk.
- Adjust your vacancy or leasing timeline if rental caps or waiting periods exist.
Other operating lines that move your NOI
Maintenance, repairs, and management
Use local vendor input for landscaping, pest control, pool service, HVAC service, and common repair items. Separate routine maintenance from capital expenditures.
- Property management: 6 to 10 percent of monthly rent for long-term rentals; 20 to 30 percent or more for short-term rentals.
- Maintenance and repairs: 5 to 12 percent of EGI, higher for older or coastal buildings.
- Keep CapEx as a separate reserve line and do not bury it inside maintenance.
Utilities, trash, and services
Decide who pays what. If tenants cover utilities, market rent often reflects that. If the owner pays, include realistic monthly amounts and consider seasonal electricity spikes from summer air conditioning.
- Water, sewer, trash, electric (if landlord-paid), landscaping, pool, cable, and internet should each have a line.
- Normalize per unit per year and apply an annual escalation.
Vacancy and credit loss
Vacancy reflects turnover, nonpayment, and seasonality. For stabilized long-term rentals in healthy areas, many investors model 5 to 8 percent. Short-term rentals can be profitable but vary more by month and by submarket, so they require tailored occupancy assumptions.
- Use building history if available and triangulate with local rental data.
- Increase vacancy if a property has rental restrictions or a location with swings in demand.
Submarket adjustments across Fort Lauderdale
Fort Lauderdale is a cluster of micro-markets. Costs and rents shift quickly by neighborhood and even by block.
- Fort Lauderdale Beach, Las Olas, Harbor Beach: High rents and values with ocean proximity. Expect higher wind and flood exposure, higher insurance premiums, and often higher HOA dues. Check rental rules and association reserves for condos.
- Downtown, Flagler Village, Victoria Park: Urban mix with strong renter demand. Insurance can still be meaningful, but flood exposure may be lower than barrier islands. Factor in parking policies and condo rules when relevant.
- Coral Ridge, Rio Vista, Middle River, Sunrise area: More single-family rentals and canal-front pockets. Plan for lawn and pool maintenance, and check flood risk case by case.
- Lauderdale-by-the-Sea, Oakland Park, Pompano border areas: Often a lower basis with upside potential. Underwrite flood and insurance carefully and confirm local amenity and demand trends.
Increase insurance and flood line items near the coast and for older buildings. Increase CapEx reserves for properties exposed to salt air or with aging roofs, HVAC systems, or balconies. Raise vacancy or vary occupancy for areas with stronger seasonal swings or short-term rental focus.
Build an apples-to-apples worksheet
Your worksheet should let you compare any two deals using identical assumptions. Keep inputs at the top so you can run quick sensitivities.
Key input lines:
- Purchase price, units, unit mix, and total square feet
- Market rent per unit and other income (parking, storage, laundry)
- Vacancy and credit loss percentage
- Annual rent growth assumption
- Financing terms and closing costs
Operating income and expenses:
- PGI, vacancy, EGI, and other income
- Property taxes, insurance (building, wind, flood), HOA dues, owner-paid utilities
- Property management, maintenance and repairs, advertising and leasing, legal and licensing, admin and miscellaneous
- CapEx reserve
Core outputs:
- Total operating expenses and NOI
- Debt service and cash flow before taxes
- Cap rate and cash-on-cash return
- Break-even occupancy
Formulas to implement:
- NOI = (sum of monthly rents × 12 + other income × 12) − vacancy − sum of annual operating expenses
- Cap rate = NOI ÷ Purchase Price
- Cash-on-cash = (NOI − Debt Service) ÷ Equity Invested
Starting assumptions to test
Use local quotes and documents to refine, but these ranges help you build a first pass:
- Vacancy: 5 to 8 percent for stabilized long-term rentals; model monthly seasonality for short-term strategies
- Property management: 6 to 10 percent of rent for long-term; 20 to 30 percent or more for short-term
- Maintenance and repairs: 5 to 12 percent of EGI
- CapEx reserve: 250 to 1,000 dollars per unit per year or 3 to 6 percent of collected rent
- Insurance: obtain quotes and model as a stand-alone line, especially for coastal properties
- Property taxes: model a potential reset toward your purchase price and add annual escalation
- HOA dues: base on actual budget and note which services and policies are included
Due diligence checklist and sources
Validate income and right-size expenses before you make a final offer. These steps and sources are your starting point.
- Rents and demand
- Pull recent rent comps from local MLS data or third-party reports. Confirm current leases, concessions, and turnover history.
- Taxes
- Review assessed value and tax history on the Broward County Property Appraiser. Confirm any exemptions and whether a reset is likely.
- Insurance and flood
- Verify flood zone and elevation on the FEMA flood maps. Request written quotes from at least two local insurance brokers for building, wind, and flood coverage. Review statewide insights at the Florida Office of Insurance Regulation and the backstop role of Citizens Property Insurance.
- HOA and condo
- Request the association budget, reserve study, meeting minutes, litigation disclosures, and rental policy. Verify master policy coverage and any pending special assessments.
- Property condition
- Order a full inspection and obtain contractor quotes for any deferred items. For coastal buildings, look closely at roofing, balconies, and corrosion.
- Local rules and licensing
- Confirm the City of Fort Lauderdale requirements for short-term rental licensing, inspections, and occupancy limits on the city website.
- Financing
- Speak with lenders early, as coastal properties can have unique insurance and deductible requirements.
Quick sensitivity tests
Small changes in one expense can reshape your outcome. Build toggles in your worksheet so you can see the impact within seconds.
- Increase insurance by 15 to 25 percent and review the cap rate and cash-on-cash change.
- Reset property taxes to a percentage of your purchase price and add 2 to 3 percent annual growth.
- Add a one-time HOA special assessment and test repayment over 12 to 24 months.
- Raise vacancy by 2 points to reflect seasonality or leasing restrictions and see how EGI and NOI respond.
The bottom line
Fort Lauderdale can deliver strong rental performance, but only if you underwrite costs with local precision. Model property taxes with a realistic reset, separate insurance lines for wind and flood, and read the HOA budget and reserves like a financial statement. Normalize everything to annual dollars per unit so you can compare condos, single-family homes, and small multifamily on equal footing. When you do, your cap rate will tell a true story and your cash flow will match your expectations.
If you want a second set of eyes on a specific deal, reach out to Premiere Realty for local rent comps, HOA document reviews, and a clean underwriting worksheet tailored to your Fort Lauderdale target.
FAQs
What is the best cap rate metric for Fort Lauderdale rentals?
- Use cap rate based on NOI after vacancy and all operating expenses, not gross rent, so you capture taxes, insurance, and HOA costs that vary widely by location.
How should I estimate property taxes on a new purchase in Broward County?
- Start with current taxes, then model a reset toward your purchase price and add annual escalation; pull history and assessed value from the Broward County Property Appraiser.
Do I need flood insurance for a Fort Lauderdale rental property?
- It depends on your flood zone and lender requirements; verify your parcel on the FEMA flood maps and get quotes for both building and flood coverage.
How do HOA dues affect my underwriting for condos?
- Convert dues to annual dollars per unit, list every service covered, confirm master policy insurance, and model special assessment risk if reserves look thin.
What vacancy rate should I use for long-term rentals in Fort Lauderdale?
- Many investors model 5 to 8 percent for stabilized long-term rentals, then adjust up for properties with leasing restrictions or seasonal demand swings.
How much should I set aside for CapEx on older or coastal buildings?
- A common range is 250 to 1,000 dollars per unit per year or 3 to 6 percent of collected rent, with higher reserves for older or coastal-exposed properties.
