Investing in Orlando rentals

[Tyler Gibson]

I decided to write this post after having multiple conversations with potential out of state investors that were looking to invest in Orlando. I figured after having the same conversation 5 times it was best to put it in writing. I hope that this helps some of you out there looking to get into the Orlando market. 

To start the Orlando market is HOT! Home prices are up and if you are looking for a 3/2 starter home in a good neighborhood then you should expect to pay $250k and up. You could rent that home for $1400-$2200 depending on the zip code and finishes. There are so many areas in Orlando and these areas matter. There is College Park, Winter Park, Winter Springs, Winter Garden, Oveido, Ocoee, Apopka, Conway, Belle Isle, Pine Hills, Richmond Heights, Dr. Phillips, Orlo vista, Altamonte, Casselberry, Longwood, Maitland, and many more. Where a property is located matters in this market. A 3/2 in Pine Hills costs $145k-$170k but the rent is maybe close to $1200 max. Pick up and move the home to Winter Park and it will easily sell for $340K+ and rent will be closer to $2200. 

Why do I share that? Well I simply want to inform people that may be looking to invest from out of state. Not all of Orlando is created equal. Many of the times I speak with an out of state investor I share the above information and they sound deflated. I burst a bubble, they have read all over the internet about how hot Orlando is, how it is such a great rental market and the properties are cheap. Well, some of what they have read is correct but it requires knowledge of the market to actually find a deal. 

Orlando is a great rental market! The median income for workers in Orlando is $14/hr. That means that most people can't afford to save and purchase a home of their own. Orlando has some of the largest tourist attractions in country and they employ an absurd number of people and all those people need a place to live. A recent statistic said that 1100 people move to this area every week. Yeah I said every week.  This is one of the reasons why there has been such an aggressive expansion of commercial multi-family in the area. Much of that has been in the form of luxury apartments which carry absurd rental rates leaving some of the lower wage workers looking for alternate housing. I have seen a decent inventory of homes that are moderately priced in some of the lower class neighborhoods that with traditional 20% down financing should cashflow positive and be a solid long term rental. Many investors are not interested in this kind of property because they would not want to live in the home themselves or would not want to manage it. Well you aren't going to live in it and you don't have to manage it I know several property management companies that have no issue with managing this kind of property.  Even so most of the people that I speak with are looking for a home run in a great neighborhood for less than $150k and in today's Orlando market that is a fantasy. 

But what about Wholesalers? or direct marketing? won't that get me my home run deal? 

Well.... NO, and here is why. Orlando is saturated with people that went to a free real estate investing event hosted by your favorite TV star. These people were sold a no money down approach to real estate investing. So they have all started direct marketing/bandit signs/driving for dollars. Many of them are so focused on getting something under contract that they totally miss the point of making sure it is a good deal. They then market their contract that is close to retail price as a great deal. They over estimate ARV by cherry picking comps or just picking a number that gives the deal enough spread. Oh and the estimated rehab cost is again a wildly inaccurate guess. Then we have the new flippers that are marketing someone else's contract at a markup. I encourage you to join a few Orlando real estate investing Facebook groups after a few hours you will have seen 10-20 people looking for cash buyers to add to their list. Once you sign up and start seeing the properties you will notice they are all selling the same properties but at different prices. On the direct marketing front that is saturated too. Trust me I get at least one offer a week from someone that wants to buy my rental properties. Now I can't say with certainty that it won't work but if you don't know what you are doing and aren't consistent enough then you are probably just throwing away your money.

I realize that this rant has seemed relatively negative in tone, but I'm just trying to paint an accurate picture. 

I love the Orlando market I live here, work here, and invest here. I hope to continue to help people invest here because I don't see this economy slowing down any time soon. I simply feel someone needs to paint the more realistic picture of what it looks like to invest here. 

If you are looking for a solid long term investment then Orlando is the market for you. You just have to choose between investing for cash flow (in a lower class area) or for appreciation. Not to say you can't achieve both but likely not in the next 5 years. 

[Russell Holmes]

Amen @Tyler Gibson! Well said.

I have had a few out of state investors reach out with these types of misconceptions and it's so easy to think "Orlando" is all the same.

I also agree with you about the flooding of so-called 'wholesalers'. The good 'wholesalers' I know are also flippers, often holding a Real Estate License, simply wholesaling the excess deals that they spend good time and money to find, analyze, and put under contract. It may be one or two a month and their numbers are solid. I'm on several lists and every once in awhile see something decent, but most often their ARV or Rehab estimates are way off to 'make' a deal where there isn't one. Things are so tight that I know flippers starting to lend money and wholesalers starting to put some MLS properties under contract to wholesale for slimmer margins.

Not to say that there aren't deals (there are) or that all wholesalers fluff numbers (they don't), but the Orlando and surrounding markets require local knowledge and analysis and a look at the bigger picture long term. It is NOT a 'throw a dart and hit a deal' type market!

I feel strongly about a point David Greene made in his BRRRR book about looking to buy in 'the path of progress'. Not necessarily buying ONLY for appreciation, but acquiring properties in locations with good core reasons to appreciate in the future. Some of the highest dollar markets are capped out on space and prices are huge. But with growth in all directions and some of these outskirts markets seeing revitalization and new growth, it takes some foresight and analysis to find deals for long term holds.

All of the population growth, overall prices being reasonable for owner occupant homes, strong employment, infrastructure growth, and other factors point to this being a very strong market for years to come. However, it is a blessing and a curse in that this 'hot market' has driven up demand and competition for distressed houses.

I've got a JV flip listed on the market now considering what to do next with my partner. In looking around at the current offerings from all sources, my partner and I are strongly considering BRRRR or new builds to hold since slimmer margins than flips work on those. I wouldn't buy only for appreciation, but I don't think rent is going to stop climbing for quite some time even if prices flatten out. A mediocre hold deal now will only get better in time, in my opinion.