Welcome To The Orlando Real Estate Market

The real estate market in Orlando is unlike any other, and it can be a bit challenging for new investors who aren’t familiar with its peculiarities.

First, Orlando may be warm year-round, but it’s a highly seasonal destination—and so is its real estate market. The rule of thumb is that you can expect to face more competition from other buyers during the times of the year that people are likely to be going on long vacations. In particular, early summertime is when the theme parks in the area will be at their peak business, which is also when rents will be at their highest and properties will be faster to sell. In contrast, the fall and early winter are the least active periods in the market and for the city. That means if you want to net a good deal for an investment property near Disney World, the ideal time to be shopping is between September and December.

Second, the premium people are willing to pay for an attractive location is extremely high for both rentals and units for sale. Obviously, the closer a property is to a theme park, the more sought-after it’ll be. But for investors who are just getting started with their business, the most favorable locations are likely to be too expensive to even approach. Everyone knows that Disney World is a major draw, and the multiples of rental revenue that sellers will be looking for will leave you repaying your principal for years and years, which ultimately makes your financing costs much higher. So, the more loosely you’re willing to interpret your desire to own something near Disney World during your search, the better deal you’re likely to get.

Finally, the housing stock in Orlando tends to be on the newer side, and it’s usually in pretty good condition. Units tend to be more spacious compared to denser cities, and having dedicated parking for guests is a must. If you can find a place that’s a bit on the small side or is looking a little worse for the wear, there’s a good chance that the market won’t be valuing it as richly as the norm. But you shouldn’t compromise on parking. If a property doesn’t have parking, it’s a major problem for any potential guests or tenants, and it’ll be harder to make money.

Benefits

In a nutshell, if you buy investment property near Disney World, you’ll discover the following:

• There’s a highly reliable base of demand
• Consumers expect to pay high prices for lodging
• Your biggest competitor’s pricing is fully transparent
• Most families are unlikely to cause damage to your property
• It’s easy to find inexpensive labor for maintenance and services
• There are plenty of other real estate investors to network with
• Business developments at Disney continually add to the area’s property value

These benefits are nothing to sneeze at. After all, it’s pretty great that you can hold onto a property and see its value rise as a result of Disney working to expand its business. Likewise, it’s hard to overstate the number of opportunities for investors to find each other and team up in the Orlando area, so it’s a great place to start your real estate career.

Of course, having a regular firehose of people looking to rent properties helps, as does the area’s expensive reputation. More than in most markets, you’ll have the leeway to mark up your rental prices without facing a drop in your occupancy rate. Plus, your most likely tenants will be families on vacation that are typically peaceful and only around for a short while, which limits the amount of stress you’ll have about potential issues.

Another major benefit is that Disney is your largest competitor for lodging, and you can look up the prices to stay at its hotels and resorts on the internet whenever you want. You’ll need to mark down your rental prices significantly compared to what someone could get at a Disney hotel on-site at the theme park, but the point is that you can easily price your rent to look extremely attractive. And that’s especially true if you’re willing to throw in a few of the same amenities that people would get at the hotel.

Challenges

As great as the market near Disney World is, it’s also one of the most competitive ones out there, and it has a bevy of potential problems which have historically been the downfall of many ill-prepared real estate investors.

Specifically, some of the challenges associated with buying investment property near Disney World are:

• Properties are valued steeply
• Consumer expectations for lodging quality are high
• Short-term renting or lodging is the norm
• There’s a ton of competition both upmarket and downmarket
• Both appearances and marketing matter immensely
• Business decisions at Disney can change the market overnight

As you can see, the risk of overpaying for a property is quite high, and it’s no surprise why. There are plenty of investors in the market, and many are willing to get into bidding wars if they think a unit is located favorably and in a rentable condition. It’s not uncommon for people to bid up the price of a well-positioned rental by 30% or more out of a fear of losing out to a competitor. Major players are especially vulnerable as their ability to make all-cash offers over the asking price tends to make for sloppy due diligence practices which might reveal a lower valuation. And smaller businesses can typically only grow as quickly as the presence of appropriately-priced properties allows; there’s just no point in getting into a bidding war when it’s safer to wait for a new opportunity.

On that note, don’t expect anything good to stay on the market for long. If you can’t evaluate and move to close deals quickly, you’re going to struggle because the competition won’t have the same problems on average. What’s more, know that being in a rentable condition generally means being in pristine condition, so budgeting the time and money to make relatively small repairs is a concern.

People head to Disney World for vacation and they expect their lodging to be fresh, polished, and in a like-new state of repair. Even with units priced for the downmarket, there isn’t much tolerance for run-down locations. Having up-to-date appliances is something that I recommend as it’s generally better to avoid offering an amenity unless you can offer it at a high level. Expect to pay for regular cleaning and maintenance or face complaints.

Similarly, checking into a rental unit needs to be seamless and as frictionless as possible, so it might help to hire a property manager. This raises another issue, though, which is that operating your investment property near Disney World might be a bit too close to running a hotel for your tastes. It’s true that you aren’t obligated to buy an investment property with the goal of turning it into a profitable rental unit, but it’s the play which attracts most real estate investors to the area. If the idea of actively managing your rental like a hotel sounds like a nightmare, it’ll be a difficult market for you to participate in.

The other set of challenges stems from the fact that you don’t really control the single most important variable: Disney. If Disney suddenly decides to quit Orlando, you’ll be left holding the bag. Of course, Disney isn’t about to destroy its business, but it’s entirely possible that some of its new policies or initiatives lead to less (or more) inbound traffic to the region.

To put all of the above issues into context, overpaying for properties relative to their rental income is probably the most common and most damaging problem for investors. I’ll teach you how to avoid it in the next section.

Pick A Niche In The Market

The first thing you’ll need to do is to figure out where in the Orlando real estate market you’ll be targeting.

Decide whether you’re interested in the upmarket, midmarket, or downmarket. If you’re just starting your career as a real estate investor, the midmarket is a decent option if you have the financing to afford it, but you could also approach the downmarket and compete with fewer resources. I suggest staying out of the higher end of the market until you’ve spent a couple of years in Orlando understanding the flow of things.

Then decide where to look for properties. The closer you get to the theme parks, the more your tenants will expect from the unit. Still, if you look at properties that are an hour away from Disney, you might struggle to find renters during the off-season. Overall, I suggest looking in areas to the northeast, east, and southwest of Disney. Don’t be intimidated by downtown Orlando as there’s the occasional gem to find for every type of investor.

Find The Right Property

Once you’ve settled on your niche, it’s time to figure out which type of property makes sense for you to focus on. The Orlando area has incredibly diverse options for investors, like units in high-rise apartment buildings, small apartment buildings, detached single family homes, townhouses, two-family homes, and more. If you’re looking to get the most bang for your buck because you don’t have much capital or borrowing ability, small apartment buildings are typically appealing, though it’s rare to find them on the market.

If you prefer to focus on detached single-family homes, be aware that many neighborhoods have homeowners associations which may govern your ability to rent out your property. On the other hand, if you can find a few other investors to join you on a deal, buying a high rise and turning it into a bunch of rentals can yield margins that dwarf the others. But that’s a big project for newer investors, so choose wisely.

Determine The Valuation

Valuation is where your margin will be made or destroyed in the Orlando market. If you’re willing to overpay for a property, there’s no guarantee that you’ll be able to make up the difference by charging more for rent. At the same time, finding an undervalued gem is only possible if you have a finger on the pulse of how much a property is actually worth.

In your valuation, you’ll need to (at a minimum) understand how the following variables impact the value of a property:

• Location
• Type of structure
• Size
• Appearance
• Outdoor spaces
• Parking availability
• Tax and ownership issues
• Overall quality

There’s no substitute for experience, but many investors use software to help them calculate the appropriate purchase and rental prices for their properties. Above all, you need to trust the results of your valuation process. If you don’t have confidence in your valuation, it’s easy to get carried away if another buyer starts bidding beyond what a property is worth. And if you have a strong method for determining the value of a home, you’ll also have a great negotiating tool which might help you address various objections from counterparties and other stakeholders too.

Make The Offer, Close The Deal, And Operate The Property

The purchasing process isn’t any different in Orlando than it is anywhere else in Florida. Working with a development agent can make the process easier, especially for newer investors. Once you have the deed in hand, it’s time to bring the unit up to your standards and find renters. Be ready to find contractors for repairs, maintenance people for regular upkeep, and perhaps cleaning staff if you plan to offer hotel-like amenities to your tenants.

To get people to rent your unit, listing it on any number of websites should do the trick. Just be sure to pick the right listing service based on your preferred rental period. The slicker your promotional pictures and the more accurate your marketing materials are, the better off you’ll be. And don’t forget to calibrate your asking price based on the market segment you’re targeting, where your unit is located, and the level of amenities you’re choosing to offer, if any.