Cities

Investing in vacation rentals? Don’t miss out on these 5 picks for Naples

Reading Time: 2 minutes

Naples receives 1.1 million overnight tourists each year. Tourists visiting Walt Disney and International Drive tend to stay on the southwest, at a maximum driving distance from the parks of 15 miles or 20 minutes. Short term rentals are allowed outside of Orlando, towards the south west. In this research study we will focus on single family homes for families of 4 or 5 visiting the parks.

East of Royal Harbor

East of Royal Harbor Tin City, Naples Bay Resort Club and the famous beaches of Olde Naples. Median monthly income is $4,268 with an estimated occupancy rate of 80% for a two bedroom single family home with a nightly rate of $182.

Home prices in this particular area are lower than in Royal Harbor with similar occupancy rates. Median home price for our target area is $750,000.

Home prices in this particular area are lower than in Royal Harbor with similar occupancy rates. Median home price for our target area is $750,000. Estimated Cap Rate for single family homes in this area is 5.1%. This area presents high levels of occupancy and low seasonality. The buyer should consider evaluating properties below $450,000 to optimize Capitalization Rates.

East of Park Shore

This neighborhood is close to clam pass beach, Naples Zoo and Water side shops. Median monthly income is $5,304 with an estimated occupancy rate of 80% for a two bedroom single family home with a nightly rate of $221.

Home prices in this particular area are lower than in Royal Harbor with similar occupancy rates. Price range in the area is $295,000 to 850,000. The median home price for our target area is $650,000.

The reader should pick properties between 295,000 to 495,000 to ensure a Capitalization Rate (Cap Rate) over 10%. To calculate Cap Rate you can use our calculator for free with this link.

Conclusion

East of Park Shore presents the highest occupancy rates and fair prices to optimize returns for investors. Our favorite picks for investors in East Park Shore are the following:

Investing in vacation rentals? Don’t miss out on these two top picks in Orlando.

Reading Time: 5 minutes

Orlando receives 53 million overnight tourists each year. Tourists visiting Walt Disney and International Drive tend to stay on the southwest, at a maximum driving distance from the parks of 15 miles or 20 minutes. Short term rentals are allowed outside of Orlando, towards the south west. In this research study we will focus on single family homes for families of 4 or 5 visiting the parks.

Step 1: let airbnb show you where customer already prefer to stay

Families of 4 or 5 stay south west of Orlando in cities where short term rentals are allowed. These travelers prioritize fast access to the park. To find out which neighborhoods have the highest occupancy rates and will guarantee the best returns it’s best to perform a wide search in Airbnb with the word “Orlando”. Airbnb will display the places where travelers are more likely to stay.

Families of 4 or 5 stay south west of Orlando in cities where short term rentals are allowed. These travelers prioritize fast access to the park. To find out which neighborhoods have the highest occupancy rates it’s best to perform a wide search in Airbnb with the word “Orlando”. Airbnb will display the places where travelers are more likely to stay and this is where we should focus on:

  • South of Orlando, Between I4 and Big Sand Lake
  • East of Kissimmee, Between Bronson Memorial Highway and Bonnet Creek (without including the RV park).
  • East of Kissimmee, north east of Lake Cecile

Step 2: Calculate average nightly rates and GRI

The next step is to calculate the Gross Rental Income (GRI) for each location. We’ll make a list of the average rate and multiply it by 30 (30 nights per month) and 80% as the expected occupancy rate.

The process consists of taking a sample of 20 homes in each area directly on Airbnb and making a list to calculate the average price for our asset type in that area. It would look like the following:

With each nightly rate you should be able to calculate the GRI. The GRI is the nightly rate, times 30 (30 nights per month) and multiplied by the expected occupancy rate which is 80%

  • (1) South West of Orlando, Between I4 and Big Sand Lake: $110 per night or $2,610 per month
  • (4) East of Kissimmee, Between Bronson Memorial Highway and Bonnet Creek: $142 per night or $3,408 per month
  • (5) East of Kissimmee, north east of Lake Cecile: $142 per night or $3,552 per month

Step 3: Evaluate available properties on each neighborhood

Just as we did before we will draw the area we are searching to purchase from on Redfin or Zillow and make a list of the average property price and pick the properties that match our requirements (1 bed, 2 small beds plus 1 sofa bed).

Step 4: Calculate cap rate for each property

Once you have your lists of properties that meet these standards, the next step is to calculate the Capitalization Rate (Cap Rate) for each property. The cap rate is the net operating income (NOI) divided by its purchase price.

To analyze the cap rate you need to list all the expenses related to managing the property. You can use our calculator for free at getfoothold.com/calculator or build your own excel file to analyze the return. Your analysis should include:

  • Property taxes
  • Insurance
  • Utilities
  • HOA
  • Airbnb commission (3%)

Maintenance, repairs and cleaning fees can be charged to the guest though the “cleaning fee”. When performing this analysis this approach is good for simplification.

For each of the properties you should perform a Cap Rate analysis. You can use our calculator which available here for free.

The cap rate analysis for each property is the following:

Step 5: interview other hosts the target neighborhood

Before making a purchase, we rent on airbnb apartments with similar characteristics from successful hosts. This helps us gain insights about that particular market. We keep straight forward with the host by saying that we are looking to invest in the area and it might be possible to chat for 20 minutes to ask for feedback. You do NOT need to actually stay at the place to interview the host on the phone. In many cases, we just have the interview and later on inform the host that we will not be staying. We pay for the stay, of course.

Interviews will help you confirm occupancy rates and how to adjust prices throughout the year. Also, the host will have a clear profile of the average guest and why they decide to stay in their place in particular. Guests may decide to stay at a given place because of proximity to popular events, transportation options or safety. Interviews will give you a deeper understanding of the guests you will be expecting and will help confirm if the property you’ve selected meets their needs.

Conclusion

We have reviewed thousands of properties and purchased multiple short term rentals in markets we didn’t visit before the actual purchase. We have followed this procedure in every case to ensure returns to our investors. Each time we have strayed from this process, like selecting a property with no unique characteristics or one that is close but not within the delimitation of the geographical area we decided on originally, our margins have suffered. A part of being a successful investor is to decide not to invest in a market if any of the conditions before listed are not met.

We advise against using tools like Airdna or buying market research analysis for particular neighborhoods. Such tools present information on averages and may not reflect the opportunities available at a given time. Also, keep in mind that what makes a great stay is defined by the uniqueness of the place. No software app can help you assess that. Finding vacation rentals the hard way and being able to wait for the right property will prove to be a better approach in the long term.

In conclusion, after applying the methodology we use in the Foothold Fund, Lake Road House in South West of Orlando, in the area Between I4 and Big Sand Lake has the lowest risk of occupancy and an expected Cap Rate of over 10.9%.

If you are interested in learning more about our approach, you can buy a hard copy of our book on Amazon or dowload a FREE copy of our ebook with this link.

5 steps to invest inthe right studio apartment for short term rental in Miami

Reading Time: 6 minutes

At Foothold we have invested in markets where expected tourists visits surpass the current capacity (Bariloche in Argentina, Saint Thomas in the USVI are two examples). Such markets are exceptions. Where there is competition for the same number of customers, and customers have options you have to find the right property to have high levels of occupancy.

In a competitive market you are looking for property with a unique characteristic that helps it stand out from other competitors. This unique characteristic might be a great view, large balcony or place within the property where guests can spend time and build great memories. Professional photography and great decoration alone are not enough. When selecting between properties to buy, always prioritize by unique features. As you will see in the following research for Miami, we focused on properties with a view OR waterfront.

Regarding the asset type, you need to pick one. In our case we focus on studio apartments. This is our preferred choice for solo travelers or couples, business travelers and urban explorers who do not require a lot of space and have activities throughout the day.

Step 1: let airbnb show you where customer already prefer to stay

When deciding where in Miami to begin looking for a studio apartment it’s best to reverse the approach and look for where Airbnb predicts this traveler profile would stay. Make a search for an apartment in Miami, with 1 bed and 1.5 bathrooms using the filters. Input “Miami” on the search bar and write down the neighborhoods Airbnb recommends for you to stay.

Airbnb will display neighborhoods with the highest occupancy rates in town (averaging between 70%-80%). The price for these recommended locations will vary, but not its occupancy.

Recommended neighborhoods for Miami are: Brickell, Coconut grove, Wynwood, South Miami Beach and Bal Harbor. This is where tourists are more likely to stay, and this is where you should focus your research.

Step 2: calculate average nightly price and GRI for those neighborhoods

Next step is to zoom in on each neighborhood and write down the night price for the apartments as filtered before and calculate the median price. The easiest way to do it is to write down the prices on a list or excel in one.

You will then multiply the median price for 30 nights and 80% occupancy to calculate the expected Gross Rental Income (GRI). This number will come in hand in the next step, when trying to understand if the available apartments are being sold at a fair price.

For example, in the case of Brickell, the median price for the studio apartments listed on Airbnb is $189 per or $4,530 gross rental income (GRI) per month. We need to build our list for all the target neighborhoods:

  • Brickell: $189 per night or $4,530 GRI
  • Coconut grove: $129 per night or $3,096 GRI
  • South Miami Beach: $183 per night or $4,117 GRI
  • Bal Harbor: 134 per night or $3,168 GRI
  • North Beach: 142 per night or $3,160 GRI

Step 3: order neighborhoods by GRI to average property price

To calculate the average property price we will focus on the area delimited by Airbnb on the previous step and use the exact same filters (in this case, 1 bed, 1.5 bathrooms, under 750 sq ft, with a view or waterfront) in Zillow or Redfin. Again, we will take the sample directly from the real estate marketplace and use the median price.

Once you have sampled property prices for each neighborhood the next step is to calculate which neighborhood present the best price in properties with regards to the expected property average price.

According to this Analysis both Brickell and South Beach present you with the best opportunities for investment overall. This analysis will give an order to your research. Each apartment that you select has to be classified by its unique characteristics to understand if it will stand out. If none of your candidates look like they would stand out on Airbnb, in our experience, your return will suffer.

Step 4: select properties with unique characteristics

To guarantee high occupancy in Airbnb is to have a property with a unique characteristic that helps it stand out from other competitors. A guest will scroll through multiple properties on Airbnb. if your listing has something that catches their attention the user will stop scrolling to view your listing. Make a list of the properties that meet this requirement and rule out the apartment buildings where short term rentals are not allowed.

Step 5: calculate the cap rate for your the properties you’ve selected

Once you have your lists of properties that meet these standards, the next step is to calculate the Capitalization Rate (Cap Rate) for each property. The cap rate is the net operating income (NOI) divided by its purchase price. If you intend to use debt to leverage the purchase of the property the CAP rate includes the interest rate the costs associated with financing a property. When interest rates are high, you may want to limit the amount of financing as this will damage your CAP Rate.

To analyze the cap rate you need to list all the expenses related to managing the property. You can use our calculator for free at getfoothold.com/calculator or build your own excel file to analyze the return. Your analysis should include:

  • Property taxes
  • Insurance
  • Utilities
  • HOA
  • Airbnb commission (3%)

Maintenance, repairs and cleaning fees can be charged to the guest though the “cleaning fee”. When performing this analysis this approach is good for simplification.

At Foothold we rule out properties with less than 8% cap rate. Investing in short term rentals for investors sets up a higher standard regarding the expected returns of the properties. Managing short term rentals is hard work, to set up a minimum profitability standard for your investments is something that can help you rule out properties.

Step 6: Interviewing other hosts in the neighborhood

Before making a purchase, we rent on airbnb apartments with similar characteristics from successful hosts. This helps us gain insights about that particular market. We keep straight forward with the host by saying that we are looking to invest in the area and it might be possible to chat for 20 minutes to ask for feedback. You do NOT need to actually stay at the place to interview the host on the phone. In many cases, we just have the interview and later on inform the host that we will not be staying. We pay for the stay, of course.

Interviews will help you confirm occupancy rates and how to adjust prices throughout the year. Also, the host will have a clear profile of the average guest and why they decide to stay in their place in particular. Guests may decide to stay at a given place because of proximity to popular events, transportation options or safety. Interviews will give you a deeper understanding of the guests you will be expecting and will help confirm if the property you’ve selected meets their needs.

Conclusion

We have reviewed thousands of properties and purchased multiple short term rentals in markets we didn’t visit before the actual purchase. We have followed this procedure in every case to ensure returns to our investors. Each time we have strayed from this process, like selecting a property with no unique characteristics or one that is close but not within the delimitation of the geographical area we decided on originally, our margins have suffered. A part of being a successful investor is to decide not to invest in a market if any of the conditions before listed are not met.

We advise against using tools like Airdna or buying market research analysis for particular neighborhoods. Such tools present information on averages and may not reflect the opportunities available at a given time. Also, keep in mind that what makes a great stay is defined by the uniqueness of the place. No software app can help you assess that. Finding vacation rentals the hard way and being able to wait for the right property will prove to be a better approach in the long term.