Orlando -- A good price range to start for invest in rental properties

[Han Gu]

Hi all,

Looking to buy my first rental. Currently looking in Orlando area. I live in NY, so this will be remote. I did most of the research on Zillow, so the estimated rental numbers all come from zillow's estimate.

It seems, for properties up to $120k, one can get monthly rents of 1% of property price, so around $1200. Once you get over that $120k line, rents just don't increase proportionally to the price. A $150k property doesn't get rent of $1500, zillow estimates it to be around $1250.

For properties under $120k, rents seem to be more than that 1%.  So for $80k property, I've seen rents of $900.

Is this true in Orlando? Should $120k be where I draw the line in order to get the most bang for my buck? (in terms of rental)

Is there anywhere else in US that's a better place for rental?

All newbie questions. Thanks guys.

[Robert G.]

At 1%, I'd recommend searching elsewhere, unless you're making a purposeful appreciation play.

Is that 1% based solely on asking prices on Zillow?  Or have you searched for any distressed sales?  Willing to rehab?

And, honestly, whether or not there are better places to invest in rentals depends entirely on your objectives.  If you want strong cash flow, the mid-western markets will just about all do better then Orlando.  If you don't really care where the property is located, I'd recommend looking at Texas.  Tons of growth and jobs being created, owner friendly laws, cash flow possible, and appreciation is a good possibility.  

[John Kent]

Hello @Han Gu,

Rental rates share very little uniformity across Orlando. You really have to break it down to a specific neighbourhood. They also do not scale proportionately.

Of course Zillow is of little use for data. The MLS may help but a lot of rental inventory is never listed even if they are managed by brokers. Generally, I expect to come close with rental comps and rely on my property managers to know rates and inventory in their area and provide a more market accurate price.

If you are looking at condo's and townhomes a 1% rule will get you into trouble. It is best to use CAP rates as the monthly fees in some communities are quite high.

The market here is pretty hot right now so to get a higher return you will need to make a negotiation play. This is the case even for distressed and fixer upper properties. If you negotiate well 1% is achievable and your property will stay rented. Our local MLS has its' own consumer facing web portal. The data mix there is much more useful than Zillow. If you want I can look for a link.

[Han Gu]

Thanks for all the information. John Kent would you send me the link for the local mls? The more info I can get the better. Thank you very much.

[Matt Lilly]

Originally posted by @John Kent:

. The MLS may help but a lot of rental inventory is never listed even if they are managed by brokers.

What do you find is the best way to find properties not listed on the MLS in Orlando?

[Victor Menasce]

The Orlando market consists of several markets with different characteristics. In Orlando proper, you can only sign 12 month leases for residents. Short term leases attract hotel tax and the economics don't work. Seasonal and short term rentals are in neighboring communities like Kissimmee. But be aware that short term rentals have attractive rents during high season if marketed properly, and can experience periods of high vacancy during shoulder and low season months. Orlando is also a city where school districts matter a lot. Areas like Metro-West and Dr. Phillips have excellent schools and rental vacancy rates are near zero. Not true of other areas. Regardless of the city, real estate is intensely local. My business is headquartered in Chicago, and I live in Ottawa, Canada. I invest in several US markets. Strong local knowledge is critical to investing successfully, even doing it from afar.

[Account Closed]

I am a CPA and Realtor currently based in Orlando. I would caution using this % as your sole indicator. Maintenance, appreciation rates, taxes and HOAs are all going to have an effect on your ROI. I think the rental market is interesting, but I'd focus on areas which are seeing appreciation and have a lot of upside even if the yield were not as good.

[James Syed]

Welcome to BP.

Great post. I live near by St. Louis, MO. I have been gathering information on south Florida. It's varies a lot and very hot real estate market.

I heard Orlando is the same way.

[John Kent]

Originally posted by @Matt Lilly:

Originally posted by @John Kent:

. The MLS may help but a lot of rental inventory is never listed even if they are managed by brokers.

What do you find is the best way to find properties not listed on the MLS in Orlando?

 Hi Matt,

• For Rent signs in the neighbourhood that you wish to move to.
• Craigslist, Hotpads
• Property manager websites + call to ask if they have any properties not on the website

[Gordon Cuffe]

You should look at rentometor.com just to double check rents wherever you want to invest at.  Many cities like St Louis and Kansas City can get you 2% of rents compared to purchase price. You just don't look for appreciation in cities like that. You just buy at a discount so that you have built in equity (appreciation) . If you like to visit Orlando like I do and you own a rental you can write off the cost of traveling to that city.

[JC Gauthier]

Congratulations Han!

You can work with investors down here, wholesalers that have properties for you to rehab.  Jacksonville is great for returns right now.  Wide range of neighborhoods. Class D's to A+'s.

JC

[Han Gu]

One of the realtors recommended St Cloud, due to its low property tax, and cdd. 

What's your guys' thoughts on St Cloud?

[John Thedford]

Generally speaking, Florida is a great place to invest. We have manageable property taxes, no state income tax, and an increasing population. I also like many parts of the Texas markets. The 1% "rule" is only a guideline but can be useful for a quick mental evaluation of a property. As another poster stated, you have to note all expenses in your decision making. HOA fees and condo fees can eat up a lot of your cash flow. I am located farther south in Naples which is on the Gulf Coast. The area from Tampa and south down the coast is quite popular as well. Many parts are experiencing great appreciation. If you shop and wait for the right opportunity you can make money on the buy, get a good annual ROI, and if the market continues in the same direction for the next few years, have a good appreciation play as well.

[Jaime Penix]

@Han Gu whether you are following the 1% rule or not, you initial thoughts are true. Rents do not proportional increase with the price of housing. So I have been focusing on 100K or less myself, unless it is at least a 4 bedroom or multifamily home. St. Cloud from what I can see seems to be a nice area but the houses cost more. So if the houses cost 30% comparatively to the average central home but the rent is only 15% is it worth it? That is your option.

[Jared S.]

have you ever been to FL?  i live here and feel like FL has become a rental car.  sorry, rant over.

[Han Gu]

Thank you all for great input.

[Colin G Murphy]

Hi @Han Gu

Welcome to BP. I was pretty heavily involved in the Orlando condo market between 2008-2011 but have taken a step back since then as the market for investors got ferociously competitive. A lot of big boys including hedge funds, vulture funds, pension funds and rich out of town investors got seriously involved from 2011 onwards and basically took all the low hanging fruit the rest of us enjoyed during the peak crisis days. 

Nowadays, getting a high rental return usually means targeting lower income neighborhoods, which is not advisable at all for an out of state newbie. That being said, Orlando is a great market and a very strong one. If you pick and choose carefully you can get a modest rental return and strong appreciation. The Medical City in Lake Nona has been the hot topic for a while now, might be worth checking that out. Don´t be shy about hopping on a plane.

Keep doing your research and try to narrow down your focus to specific property types and locations. My advice is to focus on areas where locals want to live and rent and to stay clear of the tourist and short term rental markets. 

Good luck and keep us posted :-)

[Dan Oliver]

@Han Gu

Good morning, I am an investment agent in the Orlando area. For the most part, what has been said above has some ounce of truth. With each market, there are certain areas which boasts better returns than others. The numbers are analyzed and evaluated prior to us making them available to our investors. Average ROI around 17-19% and cap 10-13%. Depending on the rehab cost and ARV and what the particular area will demand for rent. School districts are important and always taken into consideration. If I can help you any further, please don't hesitate to reach out. Best of Luck!

[Jeremy Cummings]

I can not give you a good price to start at it is hard to say. I would be trying for wholesale to hold myself or wholesale to close. if you can grab properties for 50% of fair market value your going to win ether way.

I can how ever give you knowledge of the area as I lived there for 4 years.

Places I would invest in.

Doctor Phillips, Winter Garden, Hunters Creek, Lake Marry and Metro West. If you don't mind traveling I would add Poinciana.

Stay away from Pine Hills (crime hills) and Holden Heights.

not sure if these will help you better understand pricing or value of properties but will give you some idea what your looking at.

Have fun and enjoy. JC

[Ranjit Wasu]

I am  in Dr phillips, orlando and am looking for an investment/ rehab/rental project, but not sure how to find where the distressed properties are.  Some say to invest in marketing and find out where absentee owners are and also who are behind on taxes etc, but can anyone tell me how to start this on a small scale and focus on the areas of interest.  What type of marketing is good to start off with.  I am interested in rehabs in and around melbourne and palmbay right now, and then want to see if we can move into a buy and hold arena eventually.

Any advice and information would be appreciated.

[Valentina Naumenko]

Hi Han,

we can rent property either short or long term. Also, There are some properties within 32822 zipcode that are under 60k, and can generate $900-$218(HOA)=682, which is 13.6% annually.