Orlando STR-Recent Investors, seeing good returns?

Question

Market continues to be hot. Supply exploded in STR since covid. Are there still good returns or too saturated?

Alice Horn · Answer

@Chris Rich this is very well stated. Needless to say, the market has shifted dramatically since 2022. Demand has gone down in Orlando (this is true for hotels also), but the travel industry is expecting an upward trend next year. There are also a lot of buying opportunities due to all the homeowners who bought in at the peak and now can't make the numbers work.

I think it's important to note the Orlando STR market is vast. In addition to the large, expensive themed properties, there are many other pockets of opportunity in specific parts of the Orlando/Disney market due to strategic location near attractions, the convention center, etc. It's impossible to generalize the entire market. Right now, we find that highly themed 5-6 bedrooms are performing particularly well, which is a departure form the 8,9,10 bedroom homes right after the pandemic. Overall, we are at 73% occupancy for all our homes and having a really smart dynamic pricing strategy is super important.

For Disney fans and families who would like to invest here, do your research, talk to locals, (everyone from across the country seems to have an opinion). Crunch the numbers, do your due diligence etc....but don't be afraid of investigating the Orlando market.

Chris Rich · Answer

STR is not my area of expertise, but I can tell you since November last year I've had probably 50 leads / sales calls with STR owners in the Kissimmee area looking to transition to LTR because their STR is not performing as well as expected.A lot of investors purchased during COVID times when during a time of inflated tourism and it has since returned to normal, but supply remains high.  A lot of those people were sold on ADR and occupancy numbers that were the ceiling and not the norm.  It is a highly competitive market at the moment and the truly well performing STRs seem to be the large, expensive properties that are themed with a lot of amenities.

My lender just sold his STR 4BR unit in Kissimmee after two years because it wasn't performing well.  He sold for $20,000 under asking after 4 months on the market.  When all was said and done, he was lucky that he only took a $20,000 loss.  This is a common situation for a lot of my agent contacts with owners trying to sell in that area.

There can be returns, but you need to purchase the right property and have the right plan.  Otherwise you are in a situation where the STR is saturated and if it doesn't perform well, and you need to sell, it is going to be very challenging there as well given how many people are trying to sell in that area.

JD Martin · Answer

We're taking a beating this year. If I needed this property to turn a healthy profit I'd be dying right now! Since I use it when I come down here to do work, and we have family visits here, it doesn't particularly bother me that it loses money as I just consider it a luxury like playing golf or flying airplanes. But if I needed it to pay for itself I'd be divesting and probably losing 30-60k of principal besides right now. This year things were going pretty great right up to April and then it was off the cliff. Summer bookings and inquiries are ridiculously slow, noticeably less inquiries.

Next year will be better as Universal opens its new park for sure, but right now we are dealing with a ton of saturation here. If you want to jump in anyway aim for either the very basic entry point - maybe a 2br condo that's cheap - or you need to go up to the 6-10 br homes in resort areas. Anything in between (like us, a 4/3 3k sf SFH) you're going to be fighting a ton of bottom feeders with $100/night rates.

The problem in STR has, and probably always will be, the inability of the consumer to capably flesh out value properties. If you roll into town and you see a Marriot or a Motel 6, it's pretty obvious to you which one will (probably) cost more and which one will (probably) be a lot nicer. If you get hungry and you see McDonald's and Bonefish Grill, it will be pretty obvious which one will (probably) have a nicer meal and dining experience. With STRs this is almost impossible, because homes & ownership change all the time and there aren't any universal recognition points or services that can grade what you're getting. All the consumer knows is what S/he sees on AirBnb or VRBO or (if you have one) your personal website.

About 4 years ago I stayed at a place that had all top-notch reviews. The reviews were a joke and were probably because people didn't mind the issues when they were paying so cheap (we weren't paying so cheap but were traveling with our dog). 2 of the 4 burners on the stove were broken (I fixed one of them myself). The sliding door handles were broken. The hot tub was broken. There were dead bugs under the bed and on the counter. ETC. The reviews didn't match the experience.

Shawn McCormick · Answer

@Robert Geibel That question is very subjective in a market with 10's of thousands of units. Returns can be good if you treat it like a business and operate in the top 10% of owners with regards to pricing, theming of the home, the community you are in, responsiveness, cleanliness etc.

I have clients on both sides of this, some are doing great, others not so much. With the pending opening of EPIC, that should bring some life back to many who have been struggling..if they can hold out until then. I believe you can still do well here, especially cash flow compared to LTR's, but there is a lot more work to it so you have to up for the ride.

Andrew B. · Answer

Yes, there are good returns for STR in orlando, but you'll need to listen to those on-the-ground and active in Orlando. Single-family homes is for strategic and savvy investors, as bedroom count is king, especially as they target the multi-generation family and group-booking tourists. Condos are more for the lifestyle investor, as cashflow and ROI is limited, given they compete with hotel prices.

A good realtor and property manager will show you which resort and bedroom performs best.

Andrew Steffens · Answer

Orlando is a tough market, I think it would be very difficult to show any return at all right now with the high rates.

Danae Pitcher · Answer

I believe that if you have a house that stands out and you get it for the right price, you can still do very well.  I have clients right now operating in the black and they are doing it because they are aligned with a great team for management @Alice Horn and they purchased with a clear plan to move forward.  There's no question that the Orlando area is still bringing in record numbers of tourists and there is enough business to go around.  The critical factors in any STR are nicely themed rooms, a higher end game room, modern decor, and a good view from the pool area.  Don't be afraid to buy a home that needs some sprucing up.  You can often times save money and create a much better product than you would have had if you would have purchased it for a premium.

Orlando STR-Recent Investors, seeing good returns?

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