Vacation rental properties have become a popular investment choice for many people. It’s a great way to make some passive income through rental bookings and property appreciation. However, not all markets are the same, and choosing the right market is essential for success.
Many people believe that Orlando, Florida, is an excellent place to invest in a vacation rental property because of its close proximity to Disney World and Universal Studios. But the truth is, the market is overly saturated with vacation rental properties, which leads to fierce competition and lower rental rates.
According to a recent report by alltherooms.com, Orlando had the third-highest number of active vacation rentals in the US in 2021, with over 46,000 properties. This oversupply of vacation rentals has driven down the average daily rates (ADR) in Orlando by over 20% since 2016. This makes it more difficult for property owners to earn significant rental income.
When choosing a market for your vacation rental property, it’s important to consider competition. Areas with a high number of vacation rental properties can lead to lower rental rates and make it more challenging to attract renters.
However, beachfront or island locations can be more profitable investments since they typically have less competition. In this report by AirDNA on the the best Places to invest in vacation rentals, islands and waterfront locations topped the list. These areas remain attractive for vacation rental properties, and demand remains high year-round.
Disney Property at Champions Gate
For example, let’s take this 5 Bed 3 Bath home in Champions Gate near Disney World, which is currently listed for $659,000. It would rent for about $264 per night and gross the owner About $4,400 per month. With a 20% down payment, this would actually lose the investor money each year.
New Smyrna Beach Property
Let’s compare that to a beach property just down I-4 in New Smyrna Beach, Florida. This home is listed for $439,900 ($120,000 LESS than the Disney Property). However, unlike the Disney Property, this home has an average ADR of over $700! This property will gross over $10K per month and earn the investor a nice return each year.
In summary, choosing the right market for your vacation rental property is essential for success. Although Orlando, Florida, may seem like a logical choice because of its proximity to popular tourist destinations, the oversaturation of the market makes it less attractive. Consider competition, local tourism industry, and regulations when choosing a market. Beachfront or island locations can be more profitable opportunities with high demand and limited competition.