STR & Vacation Rentals are dead, LTRs are in...
My position is more nuanced than the overly reductive title indicates.
Of courseI believe people will continue to find decent deals, and investors who bought right years ago will more than likely continue to do well if they play their cards right.
That said...
The Orlando landscape has shifted and the STR/Vacation play isn't what it used to be. The market has matured, becoming saturated, and now requires the stewardship of a strong operator. The good investors are being separated from the bad.
The regulatory environment is becoming more and more restrictive with each passing day.
Without a highly differentiated product, owners are having to reduce ADR in pursuit of higher occupancy, ultimately crushing RevPar.
Dynamic pricing is complex, time intensive, and more important than ever. The average time from booking to stay is approaching 3-4 days.
The number of available prospective properties zoned for this activity is shrinking.
Property management fees are higher than ever.
This is a wealth preservation vehicle at best and positive cash-flow is compressing. ROE will be the main source of upside for many investors, which requires a second or third, or outright exit.
Why LTRs may offer a path to safety:
Property management fees tend to be 15-20 percent less for LTRs.
Almost no meaningful fluctuation in income. Long term tenants bring stability.
Same or similar paper money upside.
Zero zoning restrictions.
No self-employment tax and no hotel/hospitality tax.
In summary, we are no longer in the early stages, I believe most would agree with that, and consolidation has begun. Arbitrage is limited.
Wealth preservation > wealth creation.
I know this is a hot take. I am open to any counter arguments. Curious to know your thoughts. I am a truth seeker, and recently I have become less and less comfortable encouraging my investment circle to engage in the STR play. I have research supporting this position as well as anecdotal evidence. Do you agree? Disagree? Why?
All the best!
Most Popular Reply
Let me give you a bit of perspective from an agent that works in this exact arena and still finds Orlando as a viable market.
Some of your points are certainly valid and I'm here to figure out why you wrote this or where your information comes from.
One of your first points is that units require a strong operator. Of course it does, any business does and that is why so many are sour on Orlando, they just hear the stories of operators losing money and having to sell at a loss. That headline could be virtually any business. Most people didn't underwrite what it takes to operate units here, end of story. If you are a bad operator and didn't do your due diligence, of course you won't succeed.
Second point is more restrictive regulations, that really isn't the case unless you are operating outside of what is handed to you on a silver platter....resort communities specifically built to be STR here in the 4 corners area. Again...back to due diligence. Not wanting to pay higher HOA fees thinking your genious. The HOA's resorts will be the last ones standing.
Third, a highly differentiated product..again, this is almost any business model. What do I have that is better, faster, cheaper, more convenient than you do. That is just building a better mouse trap (Disney pun intended), and should have been on the forefront of your business plan from the start.
Dynamic pricing is an app, software or algorithm that is much easier now than ever, IMO.
Fourth, the property management fees are literally cheaper now than I've seen them since pre pandemic. They used to be 20-25%..I've got PM's calling me after a closing begging to offer me 12-15% tops. There will be a consolidation of them too as better PM companies take more market share and squeeze out the lazy or old school operators.
With bonus depreciation play being a key solution to many high income earners and on their radar now, STR is a great play and is bringing in more savvy investors that know they have to treat this like a business and I believe we will see revenues and sales of these units slowly make more sense here in the Orlando market.
Are there better STR markets in Florida, absolutely, but there are also much more restrictions, weather events, sheer volume of tourists, less name recognition, less occupancy issues that Disney doesn't really content with. Theme parks are getting bigger, more and more enormous projects are coming to keep attracting the more than 75M visitors we already get including our expansion of convention space and so much more.
As a Realtor that works the STR market consistently in Orlando, I am still selling in the $600-800k range, just a different type of buyer now.
Just my 2 cents.