“How much revenue will this property make?” Probably the most commonly asked question we get on a weekly basis.
There are many unknowns to accurately answer this question but let’s dive a little deeper to understand more on the subject of potential rental revenue.
The Evolution of Short Term Rental (STR)
The original concept of short term rental was to enable owners of Orlando vacation homes to have a vacation property or second home that they could rent out when not in use to help offset some of the costs of ownership. The advent of the internet and the ability to mass market a property to potential renters forever changed the landscape. Owners could now generate significantly more revenue and in some cases begin to turn a profit if they did all the things to make a property rent efficiently.
The Explosion of Inventory
As word spread that there was money to be made in STR, developers quickly moved to create huge new resorts; thousands of new properties, purposely build to accommodate the STR industry. As inventory grew, so did competition for rental dollars. The system began to create new ways to attract guests – and owners and their properties began to separate like milk and cream.
Owners who understand what it takes to elevate their properties to the level necessary to attract top dollar have consistently been able to produce revenue to exceed expenses.
It’s all about RATE.
It’s Orlando, it’s the family entertainment capital of the planet. 70+ million visitors a year looking for a place to stay. You can rent a property out nearly every night of the year if you wanted to. But it’s not about occupancy. It’s about Rate. Getting a higher rate means offering a better product than your competition. That is the secret to revenue success.
To put it in very plain terms, the more you spend on a property the more likely you are to generate profit. Since many of the costs are fixed, the potential to get a better nightly rate on a bigger and better home directly relates to a better profit and loss scenario. As a rule of thumb, we would suggest break even on a cash purchase today is probably around 350k. If you finance it will be closer to 450k.
As you move into the bigger and more elaborate homes you move into higher potential rates and positive revenue.
So, how much revenue will this property make?
We don’t know. Chances are if it is being sold then they probably didn’t do a very good job of marketing it – so getting any historical information will most likely be counterproductive. Even if they are willing to share “true” numbers. If it is a great rental property and it does happen to have great revenue then you can expect to pay a premium. Most likely more than you would if you took a bad renting home and made it a good one. No seller will be in a hurry to sell or take a low offer if they are have great cash flow, and neither they should.
So, what’s the answer?
Here is where it is extremely important you find representation that understands what it takes to make an average rental property a great rental property. You will be want to look at properties that have POTENTIAL. What a property did last year is irrelevant for what it will do next year. With the correct guidance any property can be configured to maximize potential. When searching for property, rental potential is the most important aspect when focusing on the financial aspect.
For most buyers it is not just about money.
The majority and our most successful clients are well educated on the short term rental industry. They understand they have a choice on how they want to set up their home. Many have or will visit Orlando many times over the next 5-10 years or maybe plan on spending more time here as their life progresses. They have realized that it makes sense to have someone pay for their vacation home than the other way around and a nice home with solid potential to cover costs is a wonderful lifestyle investment that allows them, their family and friends to enjoy the spoils that central Florida provides whenever their time or need requires it.
This is the true value of a vacation home in Orlando. A property that pays for itself and offers a lifestyle investment like no other. For a small investment they can have a beautiful cash flow property fully paid for by the short term rental program to enjoy for the rest of their lives or as a heirloom for their children and grandchildren.
Understand what a vacation home in Orlando offers and you will enjoy a wonderful lifestyle experience.