Looking to jump into to STR in Florida, considering paying all cash
Ben KelleherPro Member
Bangor, ME · Member since 2023 · 4 posts · 2 votesLooking to jump into to STR in Florida, considering paying all cash
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Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votesIt's not terrible. Paying cash protects you from yourself if you have that much capital. It keeps you from overextending and buying too many properties at once. The Disney STR market is hard, though. I've kicked the tires on it a couple of times, and it's a market where you have to be really good to perform well.
If you're asking for free advice from a stranger on the internet, I'd encourage you to find a different STR market unless you want to have a place in Kissimmee for personal use. The one caveat on that advice is that I have not looked at or analyzed any Kissimmee/Davenport properties in 12-18 months. Prices may have adjusted, but my educated guess is that they have not. It's expensive and hard to stick out there.
If the motivation is to pay cash and wait for rates to come down, I don't like that strategy. Nobody knows what is going to happen with rates...trying to guess or forecast is a fool's errand. If it is to play it safe and have a feel for the type of actual operating income that the property can produce before you put debt on it, that's a safe and solid idea.
The good news, however, is that you're likely going to be purchasing a furnished property. That'll save you a pile of money and hassle. Good luck!
15 Replies
- 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
It's not terrible. Paying cash protects you from yourself if you have that much capital. It keeps you from overextending and buying too many properties at once. The Disney STR market is hard, though. I've kicked the tires on it a couple of times, and it's a market where you have to be really good to perform well.
If you're asking for free advice from a stranger on the internet, I'd encourage you to find a different STR market unless you want to have a place in Kissimmee for personal use. The one caveat on that advice is that I have not looked at or analyzed any Kissimmee/Davenport properties in 12-18 months. Prices may have adjusted, but my educated guess is that they have not. It's expensive and hard to stick out there.
If the motivation is to pay cash and wait for rates to come down, I don't like that strategy. Nobody knows what is going to happen with rates...trying to guess or forecast is a fool's errand. If it is to play it safe and have a feel for the type of actual operating income that the property can produce before you put debt on it, that's a safe and solid idea.
The good news, however, is that you're likely going to be purchasing a furnished property. That'll save you a pile of money and hassle. Good luck!
- 2yJonathan GreeneBusiness MemberReal Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
I agree with @Travis Timmons on Kissimmee and saturation. If you want to enter that STR market you will need a lot of amenities and theme to keep up so furnishing costs could run 100k with modifications to support getting closer to the top in a tough market if it's not one that someone else was running.
In terms of the cash, it gives you leverage on the buy, but I don't think you will like what you see on rates with a DSCR for STR if you only have 3-6 months of activity. It's often slow when you start so you would probably need a year or more and those rates are not good right now for refi.
- Bangor, ME · Member since 2023 · 4 posts · 2 votes2y
Thank you for the input, @Travis Timmons & @Jonathan Greene. I greatly appreciate it. As Travis mentioned, there is motivation by the location, as we frequent the area for personal use and vacation, but that is not the only motivation. The saturation does give me concern, as it will be hard to make sure the property stands out from others when it is so far away from home without significant time and effort to keep up on theming, not to mention that you are at the mercy of your management company for some of the placement.
With respect to rates, I have no delusions that the rates will come down, the refi is more a protectionary measure to make sure that we do not end up upside down on a mortgage if we just pick an arbitrary number and say, put 40% down on the property at 8%. It also allows me to get a realistic idea of vacancy rate as well as other anticipated expenses. Again, thank you both for taking the time to work with me to understand the challenges, your responses are invaluable to me.
- Property Manager · Kissimmee, FL · Member since 2019 · 446 posts · 266 votes2y
Quote from @Ben Kelleher:
Thank you for the input, @Travis Timmons & @Jonathan Greene. I greatly appreciate it. As Travis mentioned, there is motivation by the location, as we frequent the area for personal use and vacation, but that is not the only motivation. The saturation does give me concern, as it will be hard to make sure the property stands out from others when it is so far away from home without significant time and effort to keep up on theming, not to mention that you are at the mercy of your management company for some of the placement.
With respect to rates, I have no delusions that the rates will come down, the refi is more a protectionary measure to make sure that we do not end up upside down on a mortgage if we just pick an arbitrary number and say, put 40% down on the property at 8%. It also allows me to get a realistic idea of vacancy rate as well as other anticipated expenses. Again, thank you both for taking the time to work with me to understand the challenges, your responses are invaluable to me.
@Ben Kelleher Kissimmee (and Davenport) are saturated with homes...because there is an enormous demand with over 70 million guests annually. Rather than second-guessing "what is the new hot STR market" as I see many do - I may be biased - I believe it makes more sense to invest the time in figuring out how to succeed in a year-round market which is proven to attract tourists year after year. Many investors, like you also enjoy coming here with their families and using the homes. And yes, RE prices have now dropped dramatically on local vacation rental homes.
Your 5-6 bedroom home strategy makes sense and we are currently seeing the highest demand for that home size. Also, with 5-6 bedroom homes you have a greater opportunity to make it stand out with the theming, as many of the HIGHLY themed homes are 8, 9, BR and larger homes.
The key to making the home unique is theming, but not just any theming. (No Star Wars decals, please). Make sure you find a really talented and qualified designer with original ideas. Other key strategies may include finding homes with a lake or forest view, or near the clubhouse, south- or west-facing pool, the list goes on.
Happy to chat about some ideas and learn more! - Developer · Palm City, FL · Member since 2018 · 326 posts · 99 votes2y
Quote from @Ben Kelleher:
Recently, we did quite well on a business deal and found ourselves with quite a bit of cash to invest, particularly in real estate. We have chosen to target 5-6 bedroom homes in Kissimmee, FL due to the excellent short term rental market. Our plan is to buy the first home in cash, likely $550k-$650k, operate it under management for 3-6 months, then refi to pull out what we feel the property can support for a mortgage so we do not end up upside down. Then we will put the cash from the refi towards another property with even less capital investment than the first property, etc. Are there any major flaws with this plan, other than tying up a significant amount of capital on the first property? I see a tremendous advantage to getting deals by buying with cash now since we have it, as well as making sure we do not end up underwater on a mortgage due to unforseen expenses as we are new to the STR game. Please take a minute and shoot some holes in this plan, if there are any. I'd like to go into this as educated as possible. Thanks!
@Ben Kelleher Congrats on the successful business. I can't offer much feedback on the Kissimmee market since I am in the South Florida development/investment market but happy to just be a connection down here if you need.
Best of luck!
- Real Estate Broker · Raleigh, NC · Member since 2023 · 79 posts · 57 votes2y
I agree with the comments about saturation in the Disney market. Also, what you'll find about having an STR is that you want to use it most times that you'll collect premium rates and that can create a little internal conflict haha. I have this issue with my beach property :)
Overall your approach to using cash and getting a loan later isn't a bad one at all. The other thing to keep in mind is that Florida has a lot of issues with getting and keeping home insurance so that could end up being a hassle. I know a few people that operate in the new england area with STRs and do well so don't feel like you can't do something closer to home. If its truly intended to be an investment I say look at a different market and use the extra money to rent a sick house for a week or two in Florida.
Good luck!
- 2yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
I wouldn't even say that it is about saturation necessarily. There are just some markets that don't require you to be that good. There has been serious supply growth everywhere. The Disney market is mature with a lot of developments of identical houses. You have to stick out. That can get out of hand fast. You're spending that money before you earn a dime of booking revenue.
Another random example closer to home for me is Waco, TX. The price point is lower, but you're competing against top notch design. The traveler expects the house to look like Joanna Gaines did it.
Compare that to mature vacation rental markets in your home state of Maine (as a random example). They're old, tired properties that only rent at a 7 night minimum from May to October. It's really easy to beat that competition. That market is every bit as mature as others; supply has also increased drastically while margins have compressed, but you don't have to be as good to succeed.
- Bangor, ME · Member since 2023 · 4 posts · 2 votes2y
Quote from @Travis Timmons:
I wouldn't even say that it is about saturation necessarily. There are just some markets that don't require you to be that good. There has been serious supply growth everywhere. The Disney market is mature with a lot of developments of identical houses. You have to stick out. That can get out of hand fast. You're spending that money before you earn a dime of booking revenue.
Another random example closer to home for me is Waco, TX. The price point is lower, but you're competing against top notch design. The traveler expects the house to look like Joanna Gaines did it.
Compare that to mature vacation rental markets in your home state of Maine (as a random example). They're old, tired properties that only rent at a 7 night minimum from May to October. It's really easy to beat that competition. That market is every bit as mature as others; supply has also increased drastically while margins have compressed, but you don't have to be as good to succeed.
@Travis Timmons -- That context is helpful, as part of our STR investment strategy will also be to invest in our local market, which I agree is an easier market to stand out in without a dramatic investment.
- 2yShawn McCormickPro MemberRealtor · Central Florida-Orlando · Member since 2014 · 1k+ posts · 892 votes
@Ben Kelleher Congrats on your business deal! I do a lot of business in the market that you are looking in and have helped dozens of Bigger Pockets members purchase here. There are nuances to owning here that other markets don't need/have and vice versa. We don't have oceans to gaze at or mountains to ski or forests to watch wildlife....we have theme parks.
Although Orlando has a lot more to offer than that, that is the reason we have over 70 million visitors a year. Universal is opening a whole new theme park and Disney just announced another too. So you'll hear alot of others that don't know our market parrot 'over saturated' because that's what they heard. Do we have tens of thousands of units..YES, can we support that many..YES. However, you do have to put in work and imagination, the days of sticking up some posters and buying a Mickey Mouse comforter at Walmart are long gone. If you buy in the right community and prepare your house to be as unique and memorable as you can, you will (should) do very well. You have to treat it like a business. The amateurs are the ones selling.
I'd be happy to dive deeper into all of this and point out some of the communities/resorts that you should focus on. My contact info and a calendar link are in my profile.
Best of luck!
- Real Estate Consultant · Usa · Member since 2024 · 27 posts · 9 votes2y
Quote from @Ben Kelleher:
Recently, we did quite well on a business deal and found ourselves with quite a bit of cash to invest, particularly in real estate. We have chosen to target 5-6 bedroom homes in Kissimmee, FL due to the excellent short term rental market. Our plan is to buy the first home in cash, likely $550k-$650k, operate it under management for 3-6 months, then refi to pull out what we feel the property can support for a mortgage so we do not end up upside down. Then we will put the cash from the refi towards another property with even less capital investment than the first property, etc. Are there any major flaws with this plan, other than tying up a significant amount of capital on the first property? I see a tremendous advantage to getting deals by buying with cash now since we have it, as well as making sure we do not end up underwater on a mortgage due to unforseen expenses as we are new to the STR game. Please take a minute and shoot some holes in this plan, if there are any. I'd like to go into this as educated as possible. Thanks!
A ton of risk with short term rentals. Neighborhoods are trying to get them banned and they are a lot of work every week. Learn how to flip or partner with somebody who does. Great returns and limited commitment if you do it right.
- Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes2y
Others have already stated but
1 saturation - better do your due diligence.i wouldn't buy in Kissimmee unless someone has some serious verified books and even then it won't represent the future.
2. And probably more importantly - not so sure you will be able to refi it fi the house after 6-8 mos. We bought two str with mostly cash, about 99%, and found that banks want longer than that before they do a loan in that type of property. We knew this risk going in and just left out cash in and are doing great with them, of course your a little cash poor for a minute but you'll be realizing heavy cash flow so it wasn't a big deal for us. We never did pull money out and do t regret it.
- Property Manager · Kissimmee, FL · Member since 2019 · 446 posts · 266 votes2y
A ton of risk with short term rentals. Neighborhoods are trying to get them banned and they are a lot of work every week. Learn how to flip or partner with somebody who does. Great returns and limited commitment if you do it right.
The Disney area vacation rentals in Kissimmee and Davenport are not at risk of being banned. They are purpose-built vacation rental communities and are zoned as such.
- 2yCorby GoadeBusiness MemberInvestor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
I think that's a solid plan- sort of a middle ground between the risk of leveraging too much and not enough. You get a year to see how the property performs and you can finance accordingly. I like it!
Better yet- buy something with a reasonable value add, which gives you more options at refi time due to the equity you build.
Good luck!
- Lender · Miami · Member since 2022 · 99 posts · 18 votes2y
Quote from @Ben Kelleher:
Recently, we did quite well on a business deal and found ourselves with quite a bit of cash to invest, particularly in real estate. We have chosen to target 5-6 bedroom homes in Kissimmee, FL due to the excellent short term rental market. Our plan is to buy the first home in cash, likely $550k-$650k, operate it under management for 3-6 months, then refi to pull out what we feel the property can support for a mortgage so we do not end up upside down. Then we will put the cash from the refi towards another property with even less capital investment than the first property, etc. Are there any major flaws with this plan, other than tying up a significant amount of capital on the first property? I see a tremendous advantage to getting deals by buying with cash now since we have it, as well as making sure we do not end up underwater on a mortgage due to unforseen expenses as we are new to the STR game. Please take a minute and shoot some holes in this plan, if there are any. I'd like to go into this as educated as possible. Thanks!
Hi Ben,
I do not have any feedback for you on the STR rental market in Kissimmee, but on the lending side, I would recommend getting a mortgage when you purchase the home. Rates are lower on purchases than refis and we can use a projected rental income to qualify rather than actuals. As stated with an STR it will take you a while to get the property up and running, so the rental income may not look great over the first few months. With the cash you have, I would put 40%-50% down to get yourself the best rate and put yourself in a position where even if you had to rent out the property on a year-long lease the rental income would still cover the mortgage payment.
- Lender · Austin, TX · Member since 2021 · 448 posts · 441 votes2y
At least with DSCR lending, cash-out leverage will be at 75% LTV max, while leverage on acquisitions will be up to 80% LTV. If you want to maximize leverage and have the easiest time with financing, I suggest using leverage for the purchase and just qualifying with AirDNA. It can sometimes get tricky doing cash-out refinances for STRs in less than a year.
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