For some of you who have followed my previous posts and have reached out to me, you’ll know that I made a decision a few years ago during the height of the pandemic to change strategies from house flipping with investor clients/partners to multi-family value add properties. This allowed me to effectively scale up the business I had been running as my contractor and vendor contacts I had made house flipping immediately scaled up to larger jobs on multifamily properties.

However, about a year ago I started to see a massive black hole in the process: property managers. Many of the deals I put together were owned outright by investor clients which prevented me from managing the property for them. My brokerage at the time did not allow sales agents to act as property managers.

So, seeing an obvious need, at the end of 2021 I began preparing for the Florida Brokers Exam and took and passed the test in early February. After a few more months of waiting for LLC paper to be filed and Corporate Broker Licenses to be processed, in April my brokerage/property management company, Dispensa Properties, LLC, began operating.

I immediately took over management of two doors for a client of mine and have been growing steadily since. With each property I've taken over I have analyzed a multitude of strategies to attempt to generate the best ROI so I thought I'd write up this post to go over the state of some of these strategies in the Tampa Bay market right now.

Our rental strategy for multifamily units can be divided into three potential strategies: short term rentals, medium term rentals, and long term rentals. (Henceforth abbreviated STR, MTR, and LTR) STR's and MTR's tend to be furnished units, where as LTR's tend to be unfurnished.

Let's start with STR's. These are our "AirBNB's" and "VRBO" units. They have the POTENTIAL to generate the highest returns, however come with a whole host of issues that frankly are getting worse. We started this past spring with two STR's advertised only on AirBNB to start. They were located in Port Tampa City in a location that was not particularly conducive to tourism (compared to say, a beachfront property in Indian Rocks). Upon putting them on the market, AirBNB initially forces you to offer out the units at a discounted rate for your first couple of guests. This worked fine, however as a new listing we started seeing massive issues in the QUALITY of guest we were getting.

Namely, we started dealing with con-artists right out the gate. Namely the con will look like this: you will get a booking request from a guest with few or (most likely) no reviews. Once they’re booked, communication will be sparse. They’ll check in, act like everything is fine. Then in the middle of the night they’ll send a complaint in about the rental. They’ll claim there’s bugs. They’ll claim there is hair everywhere. They’ll send you pictures of bugs and hair (which they likely brought in and then dropped everywhere). Then they’ll tell you in the middle of the night that they cannot stay there and they’re leaving immediately and cancel the booking. They’ll ask for a refund and since AirBNB does not send you funds until the second day of your guests stay, most of the time AirBNB will issue the refund.

However, we put wifi enabled smart locks on our doors. When the guest claimed all of this filth forced them to move out at 3 in the morning, we were able to immediately show AirBNB the lock log showing they did not actually leave until 9:00 am. Their con to get a free night was busted and we wound up keeping their entire fee although they did not stay in the unit. Having inspected the unit an hour prior to their arrival I knew the complaints to be false and we were lucky in not getting conned in this case. However, I’m certain other AirBNB hosts haven’t been as lucky.

The second big problem we had with these units is cleaners. When I took over those first two doors, the owner had a relationship with a cleaning company. However, upon inspecting their work I noticed they were cutting considerable corners. Not washing sheets, not wiping down surfaces. Not following the clearly laid out checklist. Again, we had wifi door locks installed and could tell when cleaners entered and left. On a “deep clean” that was required because of an extended stay with a pet, the cleaner entered for twenty minutes and left. We had paid over $250 for a deep clean. The cleaning service had simply entered, made the beds without changing the sheets, did a quick vacuuming and arrange pillows etc. I fired the cleaning company on the spot and spent the rest of that morning cleaning the unit by myself prior to the next guest arrival. Luckily I was finally able to find a reasonably priced cleaning company that does solid work. This crew is worth its weight in gold and I will hold on to them as long as I possibly can.

Since last Spring, as many of you know, AirBNB has changed their algorithm completely. This resulted in a MASSIVE drop in bookings for us. Frankly, with increasing fees and the amount of work that has to go into optimizing your listing for their new search algorithm, I no longer view AirBNB alone as a viable option for generating a substantial revenue stream.

Right now, we're utilizing OwnerRez to cross market the short term rentals across AirBNB, VRBO, Booking.com, Travelocity, and adding in the others that OwnerRez allows channel management of. This strategy definitely is showing results however I do believe the greatest indicator of success with an STR will always be its proximity to tourist destinations. Properties near the beaches on the Gulf will always do well year round, and properties in the city will have different challenges. Sometimes they will still work well for business travelers but you really start getting into very specifics as to whether a property will work for STR.

Frankly the amount of work that goes into managing STR's in residential neighborhoods (outside of tourist destinations) really doesn't make sense when comparing to the potential increased cash flow.

With STR, there's also A LOT more work to be done on the management side. I charge a considerably higher rate for managing STR's because they literally require me to be glued to my phone all day to deal with booking requests and issues. And that is even with a considerable amount of automation. The biggest problem is that if we aren't above 75% occupancy, we often get last minute booking requests. Vendors are difficult to find (cleaners, etc) and are often booked up. Here's a typical situation that I see with STR's:

I have a unit with an 11:00 am checkout time and a 3:00 pm check in time. Guest 1 checks in for a two week rental. Checking in on Saturday the 1st of the month. Their checkout is on Saturday the 15th at 11am. Guest 2 has booked a 5 day rental starting Monday the 17th. I contact my cleaners three weeks ahead of time and give them this schedule. Seeing as there’s no same day check in, they clean the same day check in units first on Saturday the 15th and begin the cleaning at 1:00 pm. Suddenly at 2:45pm we get a last minute booking from Guest 3 and they are literally standing in front of the building as my cleaners are still working. My phone is suddenly ringing off the hook and we are scrambling to accommodate them.

Now there are a number of things we can do to avoid this situation: turn off instant booking, turn off last minute bookings, etc. But if we are below 75% occupancy, do we really want to do these things?

The conclusion I've drawn from all this is that STR's really need to generate significantly higher revenues AND have extremely low vacancy to be worth the effort. The low vacancy will allow you to ensure your systems are running smoothly by having the unit booked out well in advance.

Now MTR’s are a nice sweet spot that is sadly drying up on some level as well. Previously we had a good deal of success furnishing units (rather inexpensively too) and marketing them on furnished finder and some other sites. We were seeing considerable returns renting to travel nurses and medical personnel. Through the pandemic, many of them received significantly larger travel stipends to help ease the burden of overworked hospital staffs in certain markets. As an example, a unit that we had purchased in summer of 2021 was leased month to month at $850 a month. We gave notice to vacate, spent $10,000 on renovations (painting, new floors, new hardware, re-glazing bathtubs and surrounds, new vanities and mirrors, new lighting) and about $5,000 on furnishing (beds, bedding, couches, TV’s, tables, kitchen supplies, and décor). We began leasing these units to travel nurses at $2,500 a month (utilities included) and as high as $2,700 a month. We kept the unit at 100% occupancy from September 2021 until mid-August of 2022. At which point many of the hospitals started lowering travel stipends for their traveling personnel as some of the staff crunch from the pandemic stabilized.

Currently with the travel nurse tenancy dying down we have been able to find other medium-term tenants in the form of corporate leases and temporary relocations. However, these have required additional marketing and aren’t as consistent as the travel nurses were.

Lastly we have the LTR units. Although these tend to offer the lowest initial return, they are by far the most stable of the units I manage. LTR rents have obviously skyrocketed. Many of the buildings my clients purchase haven’t seen significant rent increases in 5 years or more. Our strategy with these rentals has been to offer renewals on non-renovated units slightly above the going market rate for comparable units. Sometimes a tenant will decide it’s not worth the expense of moving, they like the building, etc. In these cases they wind up paying slightly above market rent to stay put. Most likely (about 75% of the time) they elect to move. Which then frees up the unit for us to renovate and put the unit back on the market at the highest possible price.

Although LTR’s don’t generate the highest return month over month of these rental classes, slow and steady often wins the race. The consistency of rents coming in combined with the stability of good long-term tenants often allows you to generate a considerable return with even small value-add investments. For example, I had a client purchase a 6 plex in St Pete in November 2020 and the aforementioned 4 plex in Port Tampa City in July of 2021. By renovating 3 of the 10 units across those two properties and making some small exterior improvements and small rental increases to existing leases, just last month she was able to refinance both properties and take her entire initial investment out AND get a smaller monthly mortgage payment even though her interest rate has risen considerably. Sure the cash flow of an AIRBNB might have put a few hundred extra dollars in her pocket each month. But on the refi she put the several HUNDRED THOUSAND of her initial investment back in her pocket and ready to invest in another property.

There’s a real sweet spot in demand right now for efficiency units and 1 bedrooms around $1,200 a month, literally anywhere in the region. I had a small efficiency unit the owner was looking for $1,000 a month for back in July. I convinced him to take a shot at marketing it at $1,200 a month. The unit wouldn’t be ready to show for 10 days so I had some time to collect applications. We received over 400 inquiries and 100 applications via Zillow Rental Manager. With so many to choose from the only fair way to lease the unit was to hold an “open house” style showing. Of the potential tenants who showed, we picked the best qualified candidate and they leased it on the spot.

With this in mind, I would honestly consider subdividing some units. I have several owners who own triplexes with 2 one bedroom units and a large 2 bedroom unit. Zoning on many of these properties allow for up to 4 units. We are looking very seriously on the next turn into subdividing the 2 bedroom units into 2 large studios or 2 small 1 bedroom units. It’s a bit of the process which requires going through planning and inspections, but because we’re not adding square footage we can generally build “as of right” because of the zoning and only require a standard building permit.

My outlook for the Tampa market right now is strong. New construction in multifamily is far outpaced by demand. Demand for workforce housing is even higher seeing as the only new construction being built is luxury apartments. Value add opportunities still abound in small to mid cap multifamily properties throughout the Tampa Bay area. I see deals every day both on market and off with the potential for substantial returns for those with the foresight, know how, and risk tolerance to take a chance on them.

Tampa, Florida

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