Orlando: Short term rental market: Timing / Funding / Strategy

9 Replies

Hello all,

Is the Orlando, FL short term rental market still a good bet? There is a lot of new construction going on - specifically targeting this market.

I am based in NY and have some funds available to invest. I visited Orlando and saw a few options last month. I have a good real estate agent who specializes in this market. The thought process is to buy a new condo or a town home, furnish with a high-end package, go with an established marketing / booking agency - and command higher rents. I have seen similar sized / aged properties command different rents based on how they are furnished and presented. Presentation is the key..... In addition, of course to location (proximlty to all the attractions), size, age, service, amenities ..

In October 2016, I used my HELOC to buy a long term rental property in Palm Bay, FL which is currently leased out (yearly) starting March 2017 (and renewed last month). I then refinanced my primary mortgage (in NY) with a cash out, and paid off the HELOC last month. The full HELOC is available again to invest now.

I am looking for better returns on my next investment - so thinking about the short term rental market. And which place is better than Orlando? (Right?? Wrong ??). All expenses including HELOC payments (principal + interest) will need to come out of the rental income on a month-to-month basis.

I am aware of the recent Orlando ordinance allowing home sharing (http://www.orlandosentinel.com/news/orange/os-orla...), but will not be competing with them.

Is this a good time to invest? Saturation of the market is one concern. And what are the strategies to maximize the rental income potential?

Thoughts / Comments / Feedback welcome !!

Thanks,

Pankaj Aurora

I've had good results with running STRs in a depressed town with one big industry. My houses pay for themselves with 6 months rent. It may take 7-12 months to make 6 months of rent. If you want to factor in utilities and furniture for the house, it's about 9-15 months before everything is paid for with the profits generated by each individual STR. Washer, dryer, fridge and stove can be your biggest appliance expense. Bedrooms come next. Living rooms aren't that bad except for the HDTV.

Remember that the Orlando short term rental market is centered in Kissimmee and Davenport areas and many communities are set up for this and allow it. As you edge in to dr. Phillips, Windermere and Orlando in general, it is not permitted, though some people get away with it as Airbnb. The safest bet is to pick up something already zoned Str. I'm an agent who's been heavily investigating that particular market for a foreign investor recently and I'm leaning towards either new construction or picking up a unit (townhomes) that is already updated. Otherwise you may wait a while to find something undervalue that is ready to go or by the time you remodel (30k for TH) and furnish, you've wasted time and money.

The second piece, and the part that really determines your net profit, is Property Management and marketing. There are many out there and I suppose some  owners are happy to  make  8 to 10K a year after  expenses and utilizing  the home for their personal vacations, but the investors getting 10%+ seem to be splitting it- one company does just the bookings for roughly 15% Commission (per night or per stay) and property manager does just Property Management. I did just find a company who does both and I think it's around 20% total, but I have not had a chance to speak with them to verify. 

If you are willing and have the time to manage your bookings, that's more money in your pocket. One pm I spoke with works in sync with owners who Self book and have software that compiles all the bookings into a single calendar to avoid double booking.

If you're aware of one company that does everything, does it well and still leaves 10% + Roi for you, I'd love to hear about it. Likewise, feel free to message me if you want the names of the PMs I mentioned.

I'm speaking a place of ignorance, but from the outside looking in, Orlando scares me. I know its the vacation capital of the world, but when I was there late last year, the marketing of developers to STR owners was frightening. Almost like the time-share era on steroids. And when I did a search for my own Airbnb to rent, there were SO many choices. Many look like they were a quick stand up with whatever Rooms-to-Go had to offer that day, and were just sitting vacant.

Again, I have no local knowledge, but after suffering through a few downturns in various sectors, the Orlando market is something I would personally keep a wary eye on.

you're not the first I've heard say that. And I wouldn't argue. Thinking as an investor, taking a more conservative approach with clients and spending a lot of hours finding evidence of owners who are making consistent profits. Some management companies will share profit and expense sheets, others won't. I do hear that you should be getting 50 to 60% vacancy minimum and the new or very upgraded units that are properly marketed are seeing 70 to 80% occupancy. No guarantees. Still, if you purchase an asset with resale value, I myself would be confident testing market for 2 to 3 years.

Courtney, 

I agree with you. There are many opportunities for investors who hook up with property managers/ marketers who are experts at marketing. For investors who want a 10% + RE ROI, they can let property manager pay them a fixed rent and not worry about day to day management.

@Pankaj Aurora I looked at the Orlando/Kissimmee area as an investor and chose not to move forward. The rental rates didn't justify the cost and the extreme saturation will continue to push it down. You'll have a much better return in the FL beach areas.

Thanks @Paul Sandhu , @Courtney Bass , @Mark S. , @Todd Goedeke , and @Richard Ibeh for your feedback. I think the potential is high (provided every thing works for you ...), but the risk is high too in the short term rental market.

How about the long term rental market in the same area? Ideally, something you can switch between LTR and STR depending on which market is doing better....

@Pankaj Aurora Not sure who your Orlando contact is but I know someone who specializes in short-term rentals only in that area. She can provide a much more detailed insight as she also has built a vacation rental group with about 1500 active investors and vacation rental managers sharing information everyday. Not many people I've come across I can recommend but as a manager/investor, she was definitely impressive.

Pancaj , consider properties where the rent someone pays you allows for a 12%+ cash on cash ROI. There are STR business owners/ marketers who will pay you via lease rent enough money for you to generate a 12+% ROI. Consider using IRA or Solo 401k as possible sources of investment capital.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.