All Forum Posts by: Serena Kim

Hi. What are your thoughts on what will perform better going forward, short-term rentals or long-term rentals? 

This is a topic that comes up very frequently in conversations with clients, investors, and friends here in Florida. I currently own 5 long-term rentals and 3 short term rentals, and everyday I wonder which one will do better over the next few years. Below is my answer to this question, but I'm very curious on what others think. 

Long-term rentals

Pros:

• Appreciation – in central Florida we’ve seen our condos and townhomes appreciate quite a bit since 2016. My opinion is that this will shift over the next few years in favor of single-family homes as people start valuing privacy, having space for their family and pets, and move to the suburbs. But for now, they have been fabulous investments.
• Passive Income – it doesn’t get any more passive. Besides fixing an appliance a year, if you have good tenants you can enjoy the fruits of long-term rentals for a long time. I think every passive income retirement plan should include long-term rentals.

Cons:

• Cashflow: when I started in 2016 the financial metrics were very good (monthly rent / price were greater than 1%, cap rates were decent at over 7%). Nowadays it’s very hard to find a long-term rental that meets most investor’s criteria in Orlando. If you move outside of the city you can still find attractive opportunities, but those present their own challenges.

Short-term rentals

Pros:

• Cashflow: the cashflow can be attractive. These past few months have been challenging, but the cashflow continues to be better than long-term rentals.
• Leveraged play on real estate and COVID aftermath – Airbnb homes tend to be bigger than long-term rentals. I personally consider real estate to be one of the best investments you can make for the next 10 years given record low interest rates, accommodative fiscal and monetary policy, and tax benefits. Unless your Airbnb home is in a vacation rental community, you can also benefit from the structural move to the suburbs and bigger homes. At the same time, once people start traveling, I think they will prefer the privacy of an Airbnb home vs traditional hotels.

Cons:

• A lot of work – managing a short-term vacation rental is a full-time job in itself. If I were to calculate the net cash flow / hours worked in 2020 relative to my long-term rentals…
• Seasonal business & COVID – there are many systems you can use in your business to make it more predictable, but there is still a lot of uncertainty out there. If you can weather the storm and up your game, I think short-term rentals will become a lucrative investment. Until then, you can’t ignore this headwind.

Conclusion

For now, I continue to focus on building my portfolio with short-term rentals on the view that once this year ends and people start traveling, they will do extremely well. That’s also because my husband and I have the time, energy, and motivation to put the hours required to renovate and manage a short-term rental. If we didn’t have the time or did not share the views of short-term vacation rentals doing extremely well post COVID, then we wouldn’t pursue this strategy.

Once COVID ends, I can see myself jumping back into long-term rentals (buy the rumor, sell the news). I can see a lot of landlords using the opportunity to sell their properties due to issues with their tenants not paying.

Regardless, I think both strategies will do very well over the long-term because appreciation and tax benefits can represent a large portion of the gains in real estate. Finally, I think real estate in Florida will do very well compared to other parts of the country (this also can be another full post).

Do you have different views? What are your thoughts?

Serena

@Kenneth Hayes

Let’s take your questions 1 by 1:

Budget: $250k - that will get you a 3br, maybe 4br in the Kissimmee area, which is where you can have Airbnb properties close to the parks. I would suggest raising the budget to $275k, as it would open up doors to much better properties

Bookings: we are still getting booked without issues. With that being said, guests since the pandemic have become very detail oriented. In the sense that pre-covid you could have left a little piece of paper under the bed and would have been fine. Now, that guarantees a bad review for cleanliness.

Suggestions for maintaining good bookings: cleanliness is number 1, 2 and 3. And, the difference between being Superhost and not is big. I’ve been fortunate to have maintained Superhost status this whole year, but covid forced me to up my game significantly.

Renovation? Absolutely. What I’ve learned this year when looking for properties for clients is that a short term rental needs at least one Wow factor. What is a wow factor? Something very unique and special of your house. It could be fancy furniture, amazing pool with view, unique game room, etc. Plain boring house dont cut it anymore. A lot of guests now were former hotel customers and they have high expectations.

Conclusion: what we are seeing and will see more off is covid forcing operators to up their game or force them out. That brings a ton of opportunities (and riches) for those that win.

On another topic, we should connect! My next expansion project (early 2021) will be investing in apartment buildings in Georgia (between Atlanta and Cummins). Are you familiar with that market?

Serena

@David Siders

Have you looked into Lakeland? A tad farther than Tampa for you, but it benefits from been right in the middle of Orlando and Tampa. Cash flow has been great, never had to deal with vacancies longer than 1 week as the rental demand is strong, and a diverse pool of tenants.

@Jeremy Pieroth

Education - YouTube University. There are a ton of blogs out there (especially here in BiggerPockets), but I’ve found YouTuBe to be a great resource for learning about the short-term rental market (Airbnb)

Location - I like the Kissimmee area a lot (right next to Orlando, 15mins from the Parks). My thesis is that people will prefer private houses with private pools vs hotels going forward. So far, a good percentage of my guests told us they used to stay in hotels but wanted to try “this airbnb thing”, and they loved the experience. For investors, Florida provides a great investment opportunity, no state income tax, and very low costs

Return Expectations - that will vary greatly, but the below can serve as a starting point:

House cost: 250k (around zip code 34746/34747)

Remodel cost: 10-15k

Insurance: can vary greatly, but 1,500 a year avg is a good starting point

Average nightly rate: 100-150 now, later in the year higher (200-300)

Expenses (monthly):

Electricity: ~250

Internet: ~60

HVAC and Pool maintenance: ~150

Landscape - usually covers by HOA, but if not ~50-75

HOA: the lower the better, but 50 a month is a decent average

Property management - 15-25% depending on level of service and company. I manage my own

County Tourist Tax: 6% (airbnb now allows hosts to charge it to guests, nice feature)

With that you can create an excel spreadsheet to get the numbers. When I model this I use 5 scenarios: Bear, Slow, Average, Above Avg, and Bull. The numbers will depend on the property and location, but you could start with 70 a night with 20 nights booked as Bear, and 200 a night with 25 nights booked as Bull, and fill the middle.

Hope that helps, feel free to reach out with any questions.

Serena

Hi Nicolas - I own 2 STR in Kissimmee near Disney parks. I'm currently buying another one and helping other investors buy as their realtor in the same area.

*Area/rental potential: if you'd like to be near golf course/parks, look at properties near Celebration. I personally own and help other investors to buy properties about 7 miles west and east of Celebration in Kissimmee. Properties (3br - 4br) with private pool go around $250k -  $300k. The properties in this area are about 10 - 20 minutes to Disney parks which give you the highest rental potential for short-term rental. 

*Space/amenities: I personally don't like to host more than 8 people as it tends to attract party goers and create more mess. With that being said, for me the sweet spot is 3 - 4 bedrooms with a private pool and a grill. 

Happy to help with any additional questions. 

Hi - I own 2 STR in Kissimmee near Disney parks. I'm currently buying another one and helping other investors buy in the same area. I haven't had vacancy issues personally as I've been a super host for the past 2 years with great reviews. In terms of the occupancy, September and October are the lowest season in this area historically. It starts picking up mid-November and peaks in December and January.

As you mentioned the low inventory coupled with the strong demand has driven up prices in the past months but there are more listings coming out starting in August. Once in a while a good one comes to the market. In terms of deals we're considering in this market are:

(1) we try to look at those priced at the median price (around $250K in Kissimmee) or if the listing price per sqft is comparable to sold properties in the community (this could vary depending on the area but we're looking at around $150 per sqft).

(2) check on the age of roof and AC systems before going to see the house. I also check on Google Earth to see the condition of the roof as many houses in the area were built in 1980-1990s nearing end of useful life.

It's hard to tell exactly how the situation will be in the coming months. But I believe people will favor staying in a single family home with private pool over hotels/resorts even after the pandemic. My background is in accounting and I'm always thinking of the worst case scenario. My worst case scenario planning is (1) whether I will generate a positive cash flow if my STR is converted to long-term rental due to travel restrictions and (2) do I have enough cash reserves to cover fix costs if my properties are vacant and if so for how long can I cover. If I'm prepared for these scenarios I believe I can navigate through the storm. Happy to help if you have additional questions.

@Melissa Bovee Just two weeks ago we had to do this. We had a situation where her team completely ignored the 2nd floor of the house, we found a towel hanging from one of the windows, and recently had received two complaints because of cleanliness (which is a huge issue now during Covid). I spoke with her to let her know of all the issues we’ve been encountering for a while now of which we’ve been very clear with her and that for the moment we will not be needing her services.

To avoid this issue in the future we’ve created a checklist of everything we expect from the new cleaning team, and after each job they have to certify it has been done. After that, our “inspection team” goes and certifies the same list. Since then, it has only been 5 stars and flawless reviews.

Best of luck, and don’t wait, it’s your business and you only deserve the best.

Serena

@Nathaniel Walker that’s a great idea. If it’s organized count me in. I’m an investor in the Orlando, Lakeland, and Kissimmee area, both long-term and short-term rentals, as well as investor agent.

@Greg Z.

I would recommend Lakeland. It’s a great rental market, growing fast, and right between Tampa and Orlando. Cash flow is much better than Orlando, and appreciation is steady but slower. We have 3 properties there an vacancies since 2016 for us have been almost zero.

@Dev Paul

“Slow” season in central FL is July-September in my experience. My occupancy has averaged 80-85%. During those months you just adjust the price to maintain same occupancy level, it just means less profits. Those months are also the warmest, hence your electricity bill / costs increase.

No reason to sell for me. I still think buy and hold is the best strategy in the area.