FAQs
Hospitality Investment FAQ
25+ answers to the most common questions about investing in hotels, vacation rentals, motels, and theme park corridor retail in Orlando.
Getting Started
What types of hospitality properties can I invest in?
Hotels and motels (budget to premium brand), short-term rentals / vacation rentals (single-family or small multifamily), NNN retail leased to restaurants and tourism tenants near theme parks, extended-stay properties, and large destination resorts. Each has different capital requirements, management intensity, and return profiles.
How much capital do I need to start investing in hospitality?
Minimum entry: $250K for a single vacation rental property. Value-add motels start around $1.5–2M total investment. Mid-scale brand hotels $8–15M. You can also invest passively in NNN theme park retail starting around $2M for a single-tenant building.
Is Orlando a good market for hospitality investment?
Yes — one of the world's top. 75 million annual visitors, structural demand from Disney/Universal/Convention Center, and multiple investment tiers (budget to institutional). The demand floor that comes from theme park visitation doesn't exist in most markets.
What is the difference between a hotel and a short-term rental investment?
Hotels are professionally managed commercial operations with franchise agreements, established branding, and institutional financing. STRs/vacation rentals are residential or small commercial properties rented nightly via Airbnb/VRBO, with higher per-night yields but more management complexity and tighter financing.
Cap Rates & Returns
What cap rates should I expect for Orlando hotels?
Premium brand hotels near I-Drive: 4.5–5.5%. Mid-scale brands: 5.5–6.5%. Extended-stay: 5.5–7.0%. Value-add motels: 6.5–8.0%. Boutique/independent: 5.5–7.5%. Cap rate reflects risk profile and location — theme park proximity compresses yields.
What cap rates do vacation rentals produce?
Orlando STRs near Disney/Universal produce 7.5–10.5% cap rates for cash buyers. Add leverage (DSCR loan at 25% down) and cash-on-cash returns run 6–10%, with total IRR (including appreciation) targeting 12–18% over a 5-year hold.
How is NOI calculated for a hotel?
Hotel NOI = Gross Revenue − Operating Expenses. Gross revenue = (Nightly Rate × 365 Days × Occupancy Rate). Operating expenses (housekeeping, utilities, management fees, insurance, taxes, maintenance) typically run 55–65% of gross revenue for hotels and 35–45% for STRs.
What is RevPAR and why does it matter?
RevPAR = Revenue Per Available Room = Nightly Rate × Occupancy Rate. If ADR is $150 and occupancy is 75%, RevPAR = $112.50. Higher RevPAR = higher NOI = stronger cap rate. Compare RevPAR to competitive set to gauge relative performance.
What IRR should I target for a value-add motel conversion?
Target 15–25% IRR over a 5-year hold for well-executed value-add motel conversions. Entry at 6.5–7% cap rate, $10–15K/room renovation, occupancy lift from 55% to 75%+, exit at 5.5–6% cap rate (re-rated after stabilization). Execution risk is real — underperforming conversions produce 8–12% IRR.
Financing
Can I get a conventional mortgage for a vacation rental?
Most conventional lenders decline STRs. Better options: DSCR loans (qualify on property income, not personal income), portfolio lenders (hold loans in-house), or seller financing. Expect 7–8.5% rates and 25–30% down.
What is a DSCR loan?
DSCR = Debt Service Coverage Ratio loan. You qualify based on property NOI, not personal tax returns or W-2. If property NOI ÷ Annual Debt Service ≥ 1.20x, you qualify. Popular for STR investors who have complex personal financials.
Is SBA financing available for hotels?
Yes — SBA 7(a) for owner-operated hotels and motels. Enables lower down payments (10–20% vs. 30–35% conventional) in exchange for higher rates (Prime + 2.75–3.25%) and personal guarantee. Best for first-time hotel buyers with strong operational plan.
What credit score do I need to finance a hotel?
Conventional: 700+. DSCR: 680+. SBA 7(a): 650+. Bridge lenders: 620+. Strong property cash flow can partially compensate for lower personal credit with flexible lenders.
Can I use a 1031 exchange to buy hospitality property?
Yes. Hotels and income-producing hospitality properties qualify as 1031 replacement property. NNN-leased theme park retail (Chili's, Starbucks NNN) is an especially clean 1031 target — long leases, investment-grade tenants, fast closing. STRs are trickier on 1031 timelines due to zoning verification requirements.
STR / Vacation Rentals
Which Orlando areas allow short-term rentals?
Kissimmee/Osceola County has historically been STR-friendly. City of Orlando and Orange County are tightening regulations. Polk County (near Disney via US-192) allows STRs in many areas. Always verify current licensing availability with city/county planning before purchase.
What nightly rates can I expect near Disney?
$180–280/night for quality 3–5 bedroom homes within 3 miles of Disney main gate. US-192 corridor (5–10 miles) achieves $140–200/night. Further out, rates drop to $100–160. Premium finishes, pool, and extra bedrooms justify 15–25% rate premium.
Should I self-manage or hire a property manager?
Self-manage for 1–2 local properties if you can respond to guests within 2 hours. Professional management for 3+ properties or if you're out-of-state — costs 20–30% of gross revenue but handles all operations. Net-net: professional management often makes sense above 3 units for scalability.
What operating expenses should I budget?
Budget 35–45% of gross STR revenue for operating expenses: cleaning/turnover (10–15%), property management (0–25%), utilities (5–8%), maintenance (3–5%), insurance (2–3%), supplies (2–3%), and platform fees (3–5%). Model at 40% for conservative underwriting.
Due Diligence
What should I inspect before buying a hotel?
Physical: HVAC systems (hotel HVAC fails at 10–15 years; full replacement is $2–4K/room), roof, plumbing, elevator (if applicable), fire suppression system. Financial: 3-year actual P&L (not projections), occupancy by month, ADR trends, OTA reviews. Legal: franchise agreement terms, PIP compliance requirements, existing contracts.
What is a PIP in hotel investing?
PIP = Property Improvement Plan. Brand hotels require periodic renovations to maintain franchise standards. When you buy a brand hotel, the franchise can require a PIP — a list of renovations you must complete within 12–24 months. PIPs often cost $5,000–20,000 per room. Always negotiate PIP costs into purchase price.
How do I verify STR zoning before buying?
Contact city/county planning department directly. Ask: (1) Is STR permitted at this property's zoning classification? (2) Are STR licenses capped and currently available? (3) What are the STR operating requirements (guest limits, noise, parking)? Never assume — get it in writing.
How important is Airbnb/Google review history?
Critical for STRs — reputation drives occupancy. A property with 500+ reviews at 4.8+ stars can maintain 80%+ occupancy at market rate. A property with 50 reviews needs 6–12 months of operation before stabilizing. For value-add plays, factor in review re-building period in your financial model.
Exit Strategy
Who buys hotel investments at exit?
Value-add motels sell to other operators and investors. Stabilized brand hotels sell to institutional buyers, family offices, and REITs. STR portfolios sell to STR operators and individual investors. Theme park NNN retail sells to the broadest buyer pool — passive investors, 1031 buyers, institutions.
When is the best time to exit a hotel investment?
Exit when: (1) NOI is stabilized and trending up (highest valuation), (2) Capital market conditions favor sellers (low cap rates = high prices), (3) Franchise agreement has 10+ years remaining (brand flag adds buyer comfort), (4) You've captured the value-add NOI lift. Don't exit in first year of renovation.
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