How to get into the Vacation Rental Home Business

Summary: A record number of second homes were sold last year. Many home owners have high hopes of covering their second home costs in the short term vacation rental market, but it can be difficult to find renters.

We own three 4 bedroom vacation rental homes 2 miles southeast of Walt Disney World.

I’m occasionally asked by guests and prospective guests about how they can get in the STR Vacation Rental home business. My advice to them? In most cities the numbers don’t work anymore. You’ll lose money.

Here is the problem: The weekly rental rates have not risen to match the increases in home prices. We still charge $900 to $1000 per week, which is the same rate we charged 7 years ago.

The rental rate is established by “What the market will bear.” Your prospective renters will compare your home on the Internet with other homes they believe to be similar. If they’re charging $1000, you have to charge $1000 to be competitive.

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We bought when homes were only $140,000, so my mortgage payments are about $1000 per month.The cost of property taxes, utilities, property (flood, liability) Insurance, pool and lawn Maintenance have all risen 50% to 100% in the past 7 years.

Take a drive around Orlando then tell me, what do you see on International drive? What do you see on 528 near I-4? Rooms are being built EVERYWHERE and the number of visitors is NOT increasing. In fact, the state and counties are reporting DECREASING tourist tax revenues, indicating a DECLINE in visitors (in hotels and rental homes, anyway). (proof provided upon request)

So back to my original point; Our mortgages for $140K homes are each $1000 per month. You’d need to pay $300K for a similar home today, so your monthly mortgage would be $2100 per month. Add $200 per month for taxes, $100 per month for lawn and landscaping. Expect to average $500 per month for utilities, cable and phone. After a while, you’ll be averaging $400 per month to replace furniture, appliances, linens, etc.

So, your expenses total $3000 per month, give or take a few hundred dollars, or $36,000 per year.

Assume that you achieve $1000 per week for rentals, you’ll need to rent 36 weeks per year to have positive cash flow.

According to results of a recent survey published by Florida Homes and travel, the average Orlando rental owner achieves about 21 weeks of rentals per year. $21,000 gross revenue and $36,000 in expenses puts you negative by $15,000 per year.

In my case, my expenses are $1100 less than yours because I bought a few years ago when homes were less than half as much.

One of the best things you could do is buy this report:

http://www.floridahomesandtravel.com/property_management_survey

Good luck with your research

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