All Forum Posts by: Serena Kim

I've been running my short-term rentals in Orlando/Kissimmee for about 4 years and have 5 listings now exclusively in Kissimmee. I can't speak of other areas but I've seen an increased daily rate and stronger demand in rentals since the pandemic in my area. We used to have 70% domestic and 30% international travelers but with the pandemic it became more like 90% domestic and 10% international travelers. But more domestic travelers would drive down here than fly and stay longer/venture out to other surrounding areas while working remotely/vacationing at the same time. In 2019 I used to rent my 3br single family house with a private pool for $140 per day on average but it rents out for $230 per day on average this year. For this summer I'm renting out over $300 per day for the weekends. I believe people will more likely travel to busy/crowded cities or areas with tons of things to do rather than travel to a secluded/nature area like people used to during the pandemic now that things are going back to normal. For that reason, I'm still bullish on the Orlando/Kissimmee area. 

Hi Christy - 3-4br homes are in non-resort communities with no HOA or low HOA fees. 6BR house is in a resort community. As long as your house looks great/attractive it will do well either in resort or non-resort communities. For non-resort homes you definitely want to have other amenities to attract guests (e.g., oversized private pool, lake/conservation views, pet friendly with the big backyard/fence, etc.).

What are the metrics you use to analyze your short-term rentals? 

I've been analyzing my 4 short-term rentals from Kissimmee / Orlando (Disney area) and over the past few years they've grossed consistently around 18-22% of their value. 

Total Annual Gross Revenue = 18% of Total Investment (Property Price + Remodel)

Are you seeing that in different markets in the US in your properties?

My two 3br rentals generate $50-55k gross revenue each year ($300k properties). The 4br generated $55k last year and is on track to generate over $65k this year ($350k house). Finally, the newer 6br ($550k house) is well on track to generate over $100k this year.   

Just wondering if that could be used the same way we use the 1-2% rule on long-term rentals. Would be great to be able to quickly analyze a $1 million cabin in the Smoky Mountains vs a $500k house in Disney or Destin FL. 

With the fast property appreciation this rule will probably be closer to 16-18%, but should be a very simple way to start an analysis. I'm assuming a property with good location, management, and reviews.

Cash on cash return is another metrics I look at of course but wondering what you guys come across in your situation/market. 

Serena 

 Thanks for sharing your thoughts Nathan! That's why it's so important to run the numbers, accurate numbers. I know many investors that bought over the past year and are disappointed with their cash flows. On the other hand, they are ecstatic with their home appreciation. 

In the next downturn either the cashflow or the appreciation will decrease (or maybe both?). I just have a hard time seeing that any time soon. There's no supply in the horizon (outside of some townhomes), the parks are packed 24/7, and that's just with US tourists, and the amount of demand is insane. Imagine once COVID become endemic globally and we get the foreign tourists and investors back in the game. This summer is lining up to be record breaking. 

Thanks @Felicia Lucco. Totally agree with you on pricing software. I tried two of them (before COVID) and was very disappointed with the results. Now I just do my own pricing strategy. 

The three most important reasons I've seen from operators that struggle to rent here are:
- Reviews (or lack of). In our area it takes 3-5 months to ramp up a STR. First 10 reviews are critical. One bad review at the beginning can do a lot of damage (bed bugs, stolen car, HVAC not working, rude host, rat swimming in the pool, etc)
- Pictures. I'm still surprised some hosts use their own pictures to advertise. It only costs like $200-300 to get a professional photographer and that could be the difference between not renting and renting at prime prices
- SEO - as mentioned earlier, it takes 3-5 months to ramp up the listing (and that includes the SEO). Title, description, details, house rules, calendar strategy, picture strategy, price changes, etc

Hi - are you currently worried about short-term rentals in Orlando/Kissimmee? 

Recently, that has been one of the top question I've been getting from investors, especially given how well the real estate market has done. My short answer is no and below I'll do my best to answer some of the reasons fellow investors cite for their concerns. At the end, I'll include my own concerns. I would love to get your thoughts as well. I've been wrong many times in the past and thanks to this community I'm becoming better investor. 

Other People's Concerns

Concern #1 "House prices are going through the roof and properties are going for $10k to $100k above asking!" 
Answer: The value of a house is whatever someone is willing to pay for. In theory, the value of an asset is the present value of it's discounted cash flows. It simply means, you estimate the cashflows it will generate and discounted by an interest rate (more on this next). House prices near Disney have skyrocketed in price, but so have the cashflows. I'm currently charging significantly more in 2022 than I used to in 2018+ ($50-100 more a day on average). Similarly, the cost of building a house (materials and labor) increased by quite a bit over the past year alone. If you can charge $10 more a day ($300 a month), that would justify an additional mortgage of ~$50k. Finally, in a normal market you have around 5 offers per property. Every week one of my clients is bidding for a house that has 20-30 offers! Supply is not even close to the demand! Prices are not going down any time soon. I personally think houses will continue to appreciate at least for the next 3-5yrs.

Concern #2: "The Airbnb market feels saturated. So much competition"
Answer: A simple check on Airdna proves this wrong. Type Kissimmee on Airdna and scroll down to Rental Growth. Back in 2019 there were over 45k listings. Now there are around 37k. Similarly, Tourism is increasing in Florida. 

Concern #3: The Fed is hiking interest rates and that will cause interest rates to go higher and the housing bubble to burst
Bubbles are driven by irresponsible use of leverage, we are not close to that (corporate leverage is significantly healthier, when was the last time you heard about NINJA loans, etc). US government debt is another story, but that's the great benefit of having the world's reserve currency. Historically, when the Fed hikes interest rates, as soon as the process begins you tend to see interest rates move lower. What does happen is that the yield curve flattens as the market start pricing in the probability of a recession. Mortgage rates are driven by the back-end of the yield curve (30yr rates), and those tend to stay low (as they are now). While the market is pricing in 6 interest rate hikes by February of next year, I personally think they will hike only 1-2 times. Same with their balance sheet. The US economy is moving into a deflationary bust (lower growth and lower inflation). By the time the Fed looks to hike a 2nd time (May or June), they may have to stop. I could write a whole blog about this, but simply to say rates are not going to move higher, and if anything it should all support housing prices. 

My Personal Concerns

Concern #1: Struggling competitors squeezing margins to make ends meet. Operators in the area are doing a much better job than back in 2019 when I used to see hosts rent their beautiful homes for $80 a night. But still, when I see a 6+br resort house charging $150 during holidays I can't help but get frustrated. When everyone is making money, competition comes. We are seeing a lot of townhomes come online (and more will probably come soon). Some of those are highly overpriced and don't have big private pools. On the other hand, they are luxurious. I could see a lot of those operators struggle to rent and start lowering prices.

Concern #2: The cashflow is pretty good, especially for those that manage their properties well. The market is ripe for an institutional player to take over, and I don't know what will be the net effect of that. Uncertainty makes me a better investor, but also scares me. So far our market (Kissimmee) is managed mostly by mom-and-pop shops and by the owners. At some point a big institutional player looking for cashflow will join the market at scale and provide the institutional quality management that the market needs. Every day when I look at properties and see their Airbnb reviews I notice that a bulk of the people selling are because they are not making money. If you see a listing, try finding that owner's Airbnb profile, you'll probably see a bunch of guest horror stories and extremely low daily rates. 

Hopefully this wasn't too long (or boring) to read. Please feel free to share your thoughts!! Would love to hear what others are thinking. 

Serena

@Charles Carillo thank you for your response! Will PM you

Hi - I’ve been speaking with a few partners to raise capital to buy properties in FL, and had a few questions was hoping someone could help. 

• Is there a lawyer you would recommend?
• What’s the approximate cost for it? I’ve seen anywhere between 10k and 50k
• Is creating the PPM and Partnership Agreement the first step in the process before speaking with potential investors?
• Anything else you would recommend/suggest based on your experience?

Thank you!

Serena

From my experience we are seeing a lot of investors buying in Orlando. The market has been appreciating in a straight line up. We may see a bit of softening now and probably for a few months, but it should resume appreciating later in the year and into next. Supply is still low and Florida remains an attractive market, especially for investors in the northeast and west coast. Finally, once international investors come back (something I haven't seen yet), it would bring another demand base to a limited supply market. Very bullish indeed. 

@Amanda Schneider

Pre-pandemic September and October used to be slow months, but slow = less $ night, not less occupancy in this area. Now there doesn’t seem to be any slow months.

Since 2018 my occupancy rate has been ~84%. Definitely above average this year