Rental Home with No Renter - sell or AirBnB it?

Question

I own a 4500 sq ft 5 bedroom, 4 bathroom house in Winter Garden that I have been renting out since 2012.  The renter moved out and I have been unable to find a new renter for a price where I can break even.   It is very close to Disney World, so at first I was excited that I could luxury furnish it (it has two other rooms that could be bedrooms so 7 total) and rent it out to large families via AirBnb or VRBO/HomeAway and occasionally use it myself with my own friends/family.  I was encouraged by $300 a night rates I was seeing on AirBnb for a home of this size.  Then I found out the HOA does not allow short term rentals.   Do I rent furnishings and go for it on AirBnb or just sell it?   What do HOAs do when they find out?  I live in another state so I need to have a property management company handle it for me.  Any advice?

Account Closed · Answer

Jake,

first i would look for a new property management company .. or at least quit using them and find a realtor to sell and help maintain the property while its for sale ..there are plenty of reators / brokers who also work as property managers and if yours is not getting the job done in this market .. i suspect they are not trying very hard .. have you or they thought about the entertainment industry ? .. there are plenty of films and concerts and shows that come through Orlando .. and they all need places to stay .. Im not talking about the whole production crew .. Im talking about the people who run it .. the people with money .. lol.. how about trying to look into renting it to a film shoot .. its a niche market but it pays very well .. and because no one would be actually living in it .. Im pretty sure it does not break the short term rental clause .. Although i woukd check with a attorney to be sure because they ( eailer posters ) are right .. HoA's have way to much power .. and you could find they put leins on you property for fines and your basically foreced to pay them if you want to sell your house ..

I do wish you the very best ..

God Speed,

Michael Short

Account Closed · Answer

I would second that, also Orange County doesn't allow short term rentals either.  So you could find yourself in trouble with the HOA, who has a ton of power in Florida, and the county.

Jeff T. · Answer

@Jake Gove  Maybe you should talk to your property manager about how they are trying to find a tenant and or look into finding another PM.  I'm not an expert in SFRs that big in that exact area, but my small property manager that normally has about 10 properties available, has maybe 1 or 2 at any time. The rental market is strong and went up 5% according to Marcus and Millichap last year. I'm just saying this so that you don't make an emotional decision based on some temporary expenses.

Whether you sell or rent should depend on your longer term goals and what you can get for selling vs renting it. It sounds like it's in a good area near Disney, but it's a large house for a rental, but that might work in that area.

Jake Gove · Answer

We built the house in 2011, and lived in it until July 2012.  Then we rented it out until this summer to a single renter.  We were making a few hundred a month after everything.  We haven't been able to find a renter since. Our property management company has been trying to market it and it's costing us a lot each month with the mortgage, the landscaping, the pest control, the property management fees, the HOA, etc. We also had to pay a lot to get it painted after the renter moved out.  From making a few hundred extra a month to having to pull thousands from savings to maintain it this summer.  That's why it looks like we have to sell.  I just think it's too big to find a renter and have them pay what we need to make a profit.  We had hoped to hold onto to it.

Jeff T. · Answer

@Jake Gove I'm curious why you can't find a renter to break even since rents have increased quite a bit in the area since 2012. Were you losing money before?

I'm just wondering if you have more options than just selling.  Also, have you lived in the house? If you've lived in the house 2 of the last 5 years, you may be able to sell and not pay tax on the gains.

Just some thoughts

Jake Gove · Answer

Thanks for the info, Bill and Dave.   Having never done a 1031, that's good news to me.  I would love to get into MF to increase monthly cashflow.  The problem is I'm not sure where to buy.

Dave Foster · Answer

@Jake Gove, what you've got is the a classic 1031 opportunity.  The property does not meet your investment criteria.  It is real estate that you have held for productive use.  And your goal would be to use the proceeds to purchase more real estate.

The larger the home the harder to squeeze NOI out.  So I like your strategy of selling and placing the money into 2 or more replacements where you can get better leveraged rents to value.  This is what is called a diversification exchange. The only real challenge if finding the multiples of properties you want within the calendar of the 1031.

Don't forget also that 1031 doesn't restrict you to only buying SFR if you're selling SFR.  You could also make the jump into MF or commercial.  Any kind of investment real estate may be purchased to finish up your 1031 exchange.

Bill Exeter · Answer

Hi @Jake Gove,

The 1031 Exchange would allow you to sell this particular property and defer the payment of your capital gain, depreciation recapture and any Medicare surcharge by acquiring one or more replacement properties of equal or greater value.