Introduction
Buying your first short-term rental (STR) can be exciting and intimidating at the same time. As a real estate agent, I’ve helped many investors buy their first STR in Kissimmee/Orlando. Through my interactions with clients, I’ve compiled all the questions they typically ask from our first meeting all the way to the purchase. My goal with this guide is to walk you through the process of finding the deal, analyzing it, and acquiring the property.
1. Plan
Identify the location
When you think about buying a STR near Disney, the first city that comes to mind is Orlando. But, you will find your STR most likely in Kissimmee or Davenport (Osceola County / Polk County). Orange County, where Orlando is located, has more restrictions on STR. One of them is that the owner can only rent out on STR platforms half of rooms and must live in the property. Please refer to each of the county’s websites for the latest rules on STR. Finally, we’ll refer to Orlando as the location of STR for simplicity, but remember that almost all of them are located in Kissimmee and Davenport.
The following map shows the main attractions in Orlando and the popular resort communities.
Select the property type
When it comes to STR in Orlando, you can buy either in a resort or a non-resort community. Here are a few questions to consider when determining to buy in a resort or non-resort community.
- Would you like to have access to resort style amenities?
- Are you looking for passive or active income from STR?
- What is your budget?
Resort Communities
When you own a resort-style property, it belongs in an association. The goal of the association is to ensure the community is managed similarly to a resort. Likewise, it will have multiple amenities like pools, entertainment centers, gym, tennis courts, and others. To enjoy those benefits you pay a monthly or quarterly association fee. While the fee may seem high, it usually includes access to the amenities, landscaping, and sometimes basic cable/Internet. Another benefit is that the association takes care of the trash pickup which makes it easier to manage and is convenient for guests. Furthermore, resort-style communities tend to be in prime locations, which can help generate higher booking rates.
Finally, these properties are owned majorly by investors. During good times that could be an advantage, but in recession periods when no one is traveling they can depreciate quickly and become hard to sell.
Non-Resort Communities
Non-resort community rentals are properties located in residential neighborhoods where the majority homeowners are primary residents. They are usually located in quiet neighborhoods and scattered all over the city. Typically, a non-resort property will be less expensive per square feet and have low or no association fees. Hence, they make it ideal for someone starting in the short-term rental business to enter the business at a low cost. Similarly, they can be easy to sell or flip as both investors and residents are part of your buyer base.
As short-term rentals, they will typically commend lower booking rates since they have no extra amenities. Additionally, some neighbors in residential communities do not like to have short-term rentals next to them, hence conflict is a risk. One important thing to note is not all professional property managers will manage STR in non-resort communities. If you plan to buy your STR it’s important to identify your property manager before you make your purchase. Finally, you should do your due diligence regarding the zoning, county STR rules & regulations and HOA rules if applicable for the area/community.
In the end, if you are looking for passive income (full-service property manager), you will be better off with a resort-style property. On the other hand, if you live locally or have a local team, then you can consider either.
Determine how you will manage the property
A way to oversimplify the STR management process is to split it into two segments: online management and operations
The online management aspect of the process includes the marketing, bookings, guest communication, and team coordination. These are all activities that can be done remotely. On the other hand, the in-person work includes inspections after each cleaning and maintenances (fixing and replacing items in the house, meeting contractors, delivering supplies, etc).
You can manage a STR in three different ways:
- Hands off approach – a professional management company takes control of both the online management and operations
- Hybrid approach – the owner takes care of the online management but uses a local team for the operations
- Self-management approach – the owner takes care of both processes
2. Execute
Obtain a Pre-Approval Letter
The first step in the property purchase process is to obtain a pre-approval letter. As shown in our guide on the steps to buying a property (link), a pre approval letter is a document your lender can provide you stating how much you are potentially qualified for. In order to get a pre approval letter, the lender will verify your credit score and assess your borrowing capacity. Getting a pre approval letter early in the process will help you be ready to bid on the right property once you find it. Above all, the pre approval letter will show the seller of the house that you are a strong candidate. This will help you identify the target property / community based on your budget and jump start your search.
Build Your Team
Now that you have identified the location, the type of property and your budget you need to build a team of STR experts to execute your plan. Two key partners you must identify for your STR are (1) real estate agent and (2) property manager.
- Real Estate Agent – The real estate agent will be your main point of contact during the home purchase process. Your agent will discuss your priorities, recommend areas based on your criteria, help you submit offers, and coordinate with various partners for a smooth closing. The real estate agent specialized in STR will help you narrow down your search based on your criteria and help you identify the property with great potential for your STR investment.
- Property Manager – If you are buying a STR to generate passive income, you will need a STR property manager (PM). Some local PMs focus on specific communities only where they are well established, while other PM companies can manage almost anywhere. It is important to interview your property manager before buying a property to ensure they operate in the communities you are looking to buy. Similarly, the PM will help develop a plan to market your property and maximize your return.
Buy the property
The STR property purchase process consists of 3 steps:
- Identify the specific property – with the help of your real estate agent you’ll be able to narrow down the search to one or a few properties
- Analyze the potential cash flow – take a look at our blog post on how to analyze a short-term rental deal (link)
- Buy – similarly, take a look at our blog on the process of purchasing a property (link)
3. Manage
Once you’ve closed on your purchase, the next steps will be:
- Decorate the property – the decoration will depend entirely on the theme of your property and the experience you are planning on providing.
- Advertise it – after finishing the decoration, you can hire a professional photographer and advertise your property on STR hosting platforms like Airbnb and VRBO.
If you’ll be using a full-service PM, they’ll take care of this you.
We hope you found this guide useful. As always, if you have any questions feel free to reach out through our contact form!
