Higher End SFH rentals (generally, but also Tampa specifically)

[Joseph S.]

If I were purely considering the situation from an investor perspective, I would not consider purchasing higher end SFHs as with a buy and hold strategy, the cap rates seem to be very low. But if I'm considering a 1031 exchange from a current SFH rental (class A/A- but not high-end) to a higher end home that I would plan to invest in the short-run but have the option to convert to my personal resience in the medium/long-run, I may accept a smaller cap rate/return for this personal option I have down the road.

My concern is exactly how bad are the cap rates (generally, and again more specifically in Tampa folks have experience there) and even if I'm okay with a lower cap rate, will vacancy also be a major issue since there is less demand for high-end rentals as folks that can afford it often just buy these kinds of homes themselves?

Let me make this more tangible: A decent A/A- home in Tampa that sells for $250k rents for $2000/month provides $15k in net income for a cap rate of 6%. Not bad, not great. Let's say in order to pursue this 1031 exchange strategy of purchasing a higher end home so that I have the option of converting it to my personal residence, I'm willing to accept a cap rate of 4%. So if I'm looking at $700k homes and I want $28k in net income, my rents would have to be roughly $4,500/month.

Is there really much demand for rents this high (especially in FL, we're not talking about CA or NYC)? Can I really expect to get this much? Do these kind of homes generally suffer from a lot of vacancy since the demand will likely be much more sparse? In a particular area I am interested in South Tampa (Culbreath Bayou/Swann Estates), I see some rentals listed there in the $5k/month - $10k/month range, but wonder if they are actually able to get that much and if they have much larger vacancy.