Are you Orlando STR folks making good cash flow?

Question

Hi folks,

So I'm just continuing down the rabbit hole (research, analysis, etc) and doing some preliminary numbers checks on AirBNB and VRBO, leave me wondering if any of you owners in this market are actually making good money here?

Just plugging in a week stay sometime in October, most places are coming up less than $100 a night (literally $75 in some cases) for 3 and 4 bedroom places. VRBO's numbers are only slightly higher, but almost none of them were showing good enough numbers to cover a mortgage, insurance, hoa's, fee's, blah blah blah for a beginner like me.

I mean, I'm hearing people talk about clearing thousands of dollars a month (some in this area) and I'm trying to figure out how when at the numbers above, I'd barely be breaking even (if that).

Am I looking at this incorrectly or did I miss something big?

Steve

Shawn McCormick · Answer

Hi @Steve Uekert and thank you @Michael Baum.

Steve, Orlando does have 10's of thousands of units here, mostly centered around the Disney area (Universal and Sea World aren't that far away, but those areas don't allow STR. So that means a very concentrated area to put these types of units into and then you separate them further by being in a resort community, a 'regular' neighborhood that allows STR. Without knowing what parameters you put in and what type of property etc, its very hard to say where this was.

If your unit is in a higher end resort community that actually is searchable on the booking platforms has a reputation, is close to the theme parks and offers great amenities, than you will be able to charge much higher rates. If you go a step further and offer something unique in your theming or your community has golf or something else, that will just add to enticement to book with you rather than the bargain hunters looking for $69/night.

As a rule, there are multiple times more smaller units, think 1-3 bedroom condos, 3-4 bedroom townhomes, 3-4 bedroom single family, plus timeshares, condo-tels, hotels and there is sometimes a race to the bottom with owners trying to fill nights by lowering prices.

And something to consider is that you are ultimately buying a small business and just because the current owner is managing it poorly and not charging enough, does not mean that you can't turn it around and do better. I've sold a lot of units here and the reasons for selling vary greatly. Many times the owners are foreign and just don't know what to do and how to properly manage, hire a bad property manager etc. I would suggest to look at other units in the same neighborhood to see if everyone is charging low rates, there may be something telling there....bad HOA, amenities not maintained, too far drive to the theme parks etc.

Hope this helps, best of luck to you!

Travis Timmons · Answer

As the market matures, I like to apply the good, fast, and cheap construction rule as a comparison. If you want a deal that cash flows well on day 1, you have to make a compromise. You can't find something in an established market that is turn key at a good price. You have to research other markets, fix up a place, or get creative if you want good cash flow on day 1. The flip side of investing in a mature market is that those properties can or tend to trade on a multiple of gross revenue a bit. That's not an absolute, but if you can get a property to perform, there seems to be a straightforward path to creating equity.

It's like any other business. Early adopters make the easy money, margins get compressed, and it turns into a game where the best operators and those that create opportunity where others can't or won't win.

Nathan Gesner · Answer

You're looking at it correctly. The market is becoming saturated with short-term rentals. Prices are so high that many people prefer to go back to hotels. I own a short-term rental and love to use them when I travel, but the costs are getting so high and the quality is so low that I'm just as likely to use a nice hotel where I know what I'm getting. More importantly, exaggerated income creates false expectations. So many short-term rental owners claim to make $X but they never explain their expenses. Even if they count their expenses, they don't include the cost of their own time.

Michael Baum · Answer

Hey @Steve Uekert. When I researched the area that is exactly what I found and I couldn't understand how anyone covers expenses let along make a profit.

The place we looked at was a 3/3 with a small pool. On a corner lot overlooking a wetland area. It was pretty nice and on VRBO. It was renting for $69 a night. Nothing fancy. No themed rooms etc. It was $429,000. No way I could cover the HOA, mortgage and every other expense on $69.

Now I have been chatting with @Shawn McCormick on some stuff in other threads and he is quite knowledgeable on the area. Do a search on some of his posts and you will find info about the better resort communities and the type of house that brings the best CoC return.

Jc Gordon · Answer

Hey

I’m a property manager in Davenport, I’m in all the popular resorts around here. I would say that based on home prices right now, this is not a cash flow area. I tell customers that it is an appreciation game.

I was talking to a customer that had 1 million cash to buy a home in championsgate. He decided to pay cash for the home, instead of getting a mortgage because there would have been negative cash flow.

The area is getting more popular and they are building more resorts and plazas around. So it’s the place to be. I’m not a realtor. Just a manager.

Mike D'Arrigo · Answer

@Steve Uekert I think that people are being short sighted by focusing on resort/vacation destinations for STR. As many have pointed out, those markets have become saturated. The other problem is they are very seasonal and they tend to have shorter stays. People use STR's for all different reasons--corporate housing, contract workers (i.e. traveling nurses), people who have moved in to the area and looking for a house to buy, visint family, conventions, conferences etc, etc. We are doing STR's in Kansas City. KC get 35M visitors a year that spend over $1.4B on lodging. Markets like this are ideal for STR in the right areas.

Instead of trying to compete in super competitive markets, focus on

Are you Orlando STR folks making good cash flow?

Most Popular Reply