This week we accepted an offer to sell one of our short-term rental properties for less than we paid for it. And I for one am thrilled. Let me explain.
In January 2023 we closed on a 3-bedroom townhome in Kissimmee, FL. We bought the property in the summer of 2021 as a new construction, along with another 4-bedroom townhome next to it.
When we looked for a short-term rental in Florida, we did our homework. We used Airdna to review market data for the Kissimmee area. We worked with an agent experienced in short-term rentals. We all agreed that Margaritaville had the best rental numbers. It looked like a home run. So we bought two properties, one we would primarily use as a rental, and one we would use as a vacation home but also rent out when not in use.
Then in the intervening year and a half, a few things happened that we didn’t anticipate. First, mortgage interest rates doubled in 2022. We locked our rate in 2021 at 3.5%, but due to construction delays the lock expired. We relocked our rate in late 2022 and closed with a rate of 6.25%. That increased our monthly mortgage payment by around $750 per month. There went a bunch of cash flow!
Second, the vacation market in Kissimmee generally tanked in 2023 and has yet to recover fully. Where the resort had previously had very healthy occupancy rates of over 60%, those went down into the 30% range. Those have gotten better over time, but still hover in the mid-40% range. More cash flow gone! Whoopie!
So the property that looked like a banger when we bought it turned into one that breaks even or loses a small amount each month.
Here’s what we learned. If something like that happens and your model breaks, just cut your losses and move on. We tried for a couple of years to make the best of the situation. Hoping for what, I’m not sure. That the market would turn around maybe? But the market usually won’t bail you out. Intellectually we knew this, but now we also have experience as a teacher.
What we should have done was sell the property as soon as we bought it. We would have actually sold for more than we bought it for and made a quick buck.
We tried to make it work even though our assumptions were broken, and lost more cash flow and equity in the process. And it’s fine. There will be other properties. We can always make more money.
If you are in the investing game long enough, you’re going to lose money sometimes. You’re going to do things you wished you hadn’t done. Things aren’t always going to go to plan, and there’s not necessarily anything you did wrong. There are always things that you did not anticipate.
To win in the game of investing, you don’t have to be right all the time. You just have to be right more times than you’re wrong. And when you’re wrong, just admit it and move on.
Today we celebrate being wrong.