Can short term rental property pay for itself? (Orlando, Clermont: for sale, 2015)
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Thank you in advance for any advice, this is my situation.
Just came back from a Florida vacation where we rented a property from one of the larger management firms out there, paid $1,300.00 or so for four night rental and thought to ourselves that we should be the ones owning a home like this so we can rent out ourselves, stay a few weeks out of the year for "free" and build up equity in a future retirement home. I would not be counting on this property making any real money, just enough to break even, give me a place to stay a few weeks out of the year and eventually retire to.
My question is basically is this sound logic? I am 40 years old and would love to semi-retire to Florida in 10-15 years (youngest child is 13 so in 10-15 years I will be done paying for college and my main home will be paid for) and get a job at a theme park or something a lot less stressful than my current job.
The home I am looking at is in Davenport, FL approx 15 miles from Disney and 24 miles from Universal and is priced in the $170,000.00's. I would be all in with mortgage payment (including HOA, taxes, and insurance) for approx $1,100.00 per month, is it reasonable to break even (or come close to breaking even) by renting the property out? The property management firm claims that I am very likely to at least break even (after HOA, taxes, utilities, mgmt fees, mortgage, and commissions) and they claim around a 60% rate of occupancy, is this true?
My concerns are that it looks like there is LOT of property for sale in the area, not sure if this is a good thing or a bad thing (a lot of the properties look like they sold for way more than current asking price in 2007, no idea if we ever get close to that point again) and that I don't want to end up with property that not only doesn't break even but ends up costing me big?
Also what are opinions of living full time in a community that is zoned for short-term rental property?
Any advice / opinions appreciated, thank you very much.
In reality, the closer to Disney you are, the more likely you are to have higher occupancy. Unfortunately, for many people, Davenport seems pretty far away. Now, if you've got really good amenities in the complex that you can rent it out for that and have a private pool, you might have luck getting occupancy. What they're looking at break-even-wise is that you'll be able to rent it out for one week a month to make that $1100 (plus their fees). That isn't *unreasonable*, but what you can do is find other properties in the area and then try to book them for various times throughout the year. If they have availability almost all the time, that means you will probably also have availability all the time and won't be rented.
The other thing that you need to factor in is that you'll have an initial outlay to furnish the property. Not a deal-breaker, but something you'll want to consider in your budget.
In reality, the closer to Disney you are, the more likely you are to have higher occupancy. Unfortunately, for many people, Davenport seems pretty far away. Now, if you've got really good amenities in the complex that you can rent it out for that and have a private pool, you might have luck getting occupancy. What they're looking at break-even-wise is that you'll be able to rent it out for one week a month to make that $1100 (plus their fees). That isn't *unreasonable*, but what you can do is find other properties in the area and then try to book them for various times throughout the year. If they have availability almost all the time, that means you will probably also have availability all the time and won't be rented.
The other thing that you need to factor in is that you'll have an initial outlay to furnish the property. Not a deal-breaker, but something you'll want to consider in your budget.
Property is actually fully furnished and already in the property management's system, so its basically a turn key proposition. It does have a pool and the management firm claims its already booked for 115 nights in 2015, just not sure how much of this is them being totally honest and how much is them pushing for a sale...
When I pull comp's in the area very similar homes within a mile have sold at foreclosure auction in the last few months for under $125,000.00, not sure what that says about the value of this particular property? The one sale I found that was an actual sale and not auction was for about the same as this one is listed for ($95-$97 per sq. foot, is that about right)??
Davenport is not known as one of the better parts of CFL and as EditorJul pointed out is far from Disney. Who pays for pool and yard maintenance, pest control, cleaning between short term guests, and property maintenance if something gets trashed ? I assume you're responsible for the utilities as well ?
And why would you think about living in a community with short term rentals if you're going to retire in CFL ? Wouldn't you want to build relationships within the community ?
I'd ask to see the rental bookings and also look at the crime reports in Davenport. You could end up with nothing but a headache as short-term renters tend to care less about a property than someone on a long term lease.
Davenport is not known as one of the better parts of CFL and as EditorJul pointed out is far from Disney. Who pays for pool and yard maintenance, pest control, cleaning between short term guests, and property maintenance if something gets trashed ? I assume you're responsible for the utilities as well ?
And why would you think about living in a community with short term rentals if you're going to retire in CFL ? Wouldn't you want to build relationships within the community ?
I'd ask to see the rental bookings and also look at the crime reports in Davenport. You could end up with nothing but a headache as short-term renters tend to care less about a property than someone on a long term lease.
I have taken that into consideration and all of the maintenance was figured into what the property management company gave me as an estimate of costs (again not sure how accurate any of this is because it all depends on how long it is rented for and for how much)....
Budget is a concern, need to be under $200,000.00, is there another area I should be looking at? I have been told to get any closer to that attractions I am looking at $200,000.00 +?
The chances aren't good that over the next 10-15 years you'll see 60% occupancy. A couple reasons...
1. As the property ages it will become less desirable.
2. The economy is cyclical, and there WILL be another downturn within the next 15 years or so. When that happens, you might be lucky to have 20% occupancy. Might. Be. Lucky.
3. You are forgetting insurance. As a landlord you will need property and contents and liability. Expect that to run you $2000 or more a year.
4. You have to pay occupancy taxes and property taxes.
5. Your property taxes WILL go up. You can not homestead that property. I would expect to see them double over the next 10-15 years.
6. Have you accounted for the need to replace all furnishings, bedding, and soft goods within the next 10 years? That's a good $5000 buying cheap stuff, $10K buying decent quality, $20K and up buying high end but not designer.
7. Who figured the mortgage payment? If it wasn't a mortgage broker, don't believe them. You do understand rates are .5-1.5% higher for investment properties, correct? You would also need a minimum 20% down, you can't get MI for a NOO any longer.
8. The market is already over-saturated with people just like yourselves, and more and more properties are being built which is lowering the value and rental prices.
As mentioned above, people don't want to have to travel 15-30 miles to the theme parks. That's a huge ding against you right there. Do you really want to drive that far every day to a minimum wage retirement job?
By the way, how many times have you been to this area, and have you visited for over a week during every month for a number of years? if you can't answer "yes" to that, I would certainly think twice about making long term retirement plans until you have. Living here and vacationing here are two very different beasts.
The chances aren't good that over the next 10-15 years you'll see 60% occupancy. A couple reasons...
1. As the property ages it will become less desirable.
2. The economy is cyclical, and there WILL be another downturn within the next 15 years or so. When that happens, you might be lucky to have 20% occupancy. Might. Be. Lucky.
3. You are forgetting insurance. As a landlord you will need property and contents and liability. Expect that to run you $2000 or more a year.
4. You have to pay occupancy taxes and property taxes.
5. Your property taxes WILL go up. You can not homestead that property. I would expect to see them double over the next 10-15 years.
6. Have you accounted for the need to replace all furnishings, bedding, and soft goods within the next 10 years? That's a good $5000 buying cheap stuff, $10K buying decent quality, $20K and up buying high end but not designer.
7. Who figured the mortgage payment? If it wasn't a mortgage broker, don't believe them. You do understand rates are .5-1.5% higher for investment properties, correct? You would also need a minimum 20% down, you can't get MI for a NOO any longer.
8. The market is already over-saturated with people just like yourselves, and more and more properties are being built which is lowering the value and rental prices.
As mentioned above, people don't want to have to travel 15-30 miles to the theme parks. That's a huge ding against you right there. Do you really want to drive that far every day to a minimum wage retirement job?
By the way, how many times have you been to this area, and have you visited for over a week during every month for a number of years? if you can't answer "yes" to that, I would certainly think twice about making long term retirement plans until you have. Living here and vacationing here are two very different beasts.
Appreciate the info and the honesty.
I got all of my figures from a lender, I assume he took into account the proper insurance (though it is a lender recommended to me by the property manager so I dont know how close they work together). I have stayed in the area multiple times, we never minded driving 1/2 hour or so to the parks (I know the traffic is very bad).
Maybe knowing the actual property can help you give me a better idea of what I would be getting into:
That's a REALLY long drive to Disney and ridiculously long to Universal. It's 20+ miles to Legoland. It might be OK for YOU, but 99% of people would say no way. I would also point out that driving an hour round trip when you are on vacation is much different than doing it when you are going to and from work.
Additionally that area is just kind of meh. Not much to do around there without driving 10+ miles. No decent restaurants or pubs--there's Denny's, Waffle House, Cracker Barrel, Bob Evans, some fast food and take out pizza, but nothing else.
I'm not buying $2400 a year in utilities--even without pool heat. Your electric bill alone is going to run $2400--Get a Brit in the house for a week who wants the A/C kept at 65 all day and night in August, and you've added a hundred more right there. Add in cable/internet/phone, water, sewer, irrigation water, trash collection, that's another $2400 a year.
That is not quality (looking) furniture or soft goods, and at 60% occupancy (if you get that) plus your four weeks a year use and it WILL need replacement in 10 years. You are competing against hundreds of other homes, and to be honest the kitchen looks dated. I'd also suggest that larger homes can be harder to keep occupied. There would be a higher pool of renters for a 3-4 bedroom than a five bedroom. There are numerous 3-4 bedrooms within 8 miles of Disney in the $129 per night range. If I was a family of five and could be closer to the parks and amenities including a ton of restaurants, pubs, and shopping and save over $400 for the week, guess where I'd be going.
I'd also like to point out that their $190 a night is an estimate--and my guess is that the reality does not equal the estimate.
PS--I would never assume a mortgage person has a clue about insurance costs. Contact a local agent or two and get quotes before you sign anything. I'd put money on it that it's going to be considerably higher than they are guestimating--if they included it to begin with.
That's a REALLY long drive to Disney and ridiculously long to Universal. It's 20+ miles to Legoland. It might be OK for YOU, but 99% of people would say no way. I would also point out that driving an hour round trip when you are on vacation is much different than doing it when you are going to and from work.
Additionally that area is just kind of meh. Not much to do around there without driving 10+ miles. No decent restaurants or pubs--there's Denny's, Waffle House, Cracker Barrel, Bob Evans, some fast food and take out pizza, but nothing else.
I'm not buying $2400 a year in utilities--even without pool heat. Your electric bill alone is going to run $2400--Get a Brit in the house for a week who wants the A/C kept at 65 all day and night in August, and you've added a hundred more right there. Add in cable/internet/phone, water, sewer, irrigation water, trash collection, that's another $2400 a year.
That is not quality (looking) furniture or soft goods, and at 60% occupancy (if you get that) plus your four weeks a year use and it WILL need replacement in 10 years. You are competing against hundreds of other homes, and to be honest the kitchen looks dated. I'd also suggest that larger homes can be harder to keep occupied. There would be a higher pool of renters for a 3-4 bedroom than a five bedroom. There are numerous 3-4 bedrooms within 8 miles of Disney in the $129 per night range. If I was a family of five and could be closer to the parks and amenities including a ton of restaurants, pubs, and shopping and save over $400 for the week, guess where I'd be going.
I'd also like to point out that their $190 a night is an estimate--and my guess is that the reality does not equal the estimate.
PS--I would never assume a mortgage person has a clue about insurance costs. Contact a local agent or two and get quotes before you sign anything. I'd put money on it that it's going to be considerably higher than they are guestimating--if they included it to begin with.
Again appreciate all of the insight and info.
So the question becomes is my idea of buying a home, covering costs by renting it out and eventually moving into it a wise proposition or not? Is it just a matter of finding a better property or is the whole idea more trouble than its worth (or is it only viable if you are paying cash for the property)?
I guess option 2 would be to buy a smaller (less expensive) townhome with same principle, stay there few weeks a year and retire there at some point but skip the rental part, is that a more viable option (insurance, utilities, upkeep way down)? Are there good areas in Orlando vicinity to get a nice townhome in the $100,000 - $150,000 range?
Last edited by pbiancardi; 01-13-2015 at 09:06 AM..
So the question becomes is my idea of buying a home, covering costs by renting it out and eventually moving into it a wise proposition or not? Is it just a matter of finding a better property or is the whole idea more trouble than its worth (or is it only viable if you are paying cash for the property)?
I guess option 2 would be to buy a smaller (less expensive) townhome with same principle, stay there few weeks a year and retire there at some point but skip the rental part, is that a more viable option (insurance, utilities, upkeep way down)? Are there good areas in Orlando vicinity to get a nice townhome in the $100,000 - $150,000 range?
We went through this same process about 15 years ago. Ultimately we made a decision based on several factors.
1. We felt that regardless of the quality of tenants, things would still get broken or stained.
2. We didn't want to deal with the paperwork of being landlords--the annual inventories, etc.
3. We wanted to own a home in a neighborhood of f/t residents where we could plant roots, get to know our neighbors, and know that if something happened, the people next door would know how to contact us.
4. We wanted to buy the home we would want to retire to, without settling.
5. We wanted a single family home. We wanted privacy and peace that doesn't come from a townhouse or condo.
6. We refused to be rushed in the decision, and looked at properties for three years before finding the right place. The minute we drove into the neighborhood it spoke to us and we knew it was "home."
7. We made several trips down where we didn't go to theme parks, we spent the entire time looking at properties.
What we decided on was a SFH in a guarded, gated community that doesn't allow short term rentals on the north end of Clermont. We built a house we could afford without rental income. Ultimately I moved here full time, long before I planned to retire. I will caution, building a custom home from 1000 miles away was stressful, and I don't know that I'd do it again.
As far as buying something now, I'd do the math. If you can easily afford it without rental income, it's something to consider. If it will cramp your lifestyle, I wouldn't do it. I'd also caution against buying a townhome that you want to actually live in in 20 years. My experience as a former townhome owner is that the neighborhood can change pretty drastically over time, and often people buy them as starter homes then keep them and rent them out once they move on to SFH's. Having a high ratio of NOO units doesn't lend itself to a desirable neighborhood.
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