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.