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Posted over 8 years ago

Considering Buying a Property as a Vacation Rental?

Recent developments in the vacation rental (short-term) rental market (coughAirBNBcough) have led a lot of people to believe that short-term rental is easy or a simple alternative to longer-term rental for every one and every property.  Nothing could be further from the truth.  For some people, it is a great alternative but not for everyone. And not for every property.

Even in a well-established vacation rental and tourism market like Hawaii (where I manage vacation rentals) not every place and every property can work.  The myth that "its in Hawaii, everyone wants to visit Hawaii" has wrecked more than a few property owners.

Here are some questions to ask yourself:
1. If I search on AirBNB or VRBO or FlipKey for other rentals in the same area as my property, do I find many?

2. If I find them, what does their calendar look like?  Empty or full?

3. What kind of rates are they getting?  Is it seasonal?

4. How long has it been on the vacation rental market?  The ID number on the sites will give you a clue.  Established properties always do better than new properties simply because they have had time to develop a clientele.

5.  Do the successful ones within about 5-10 miles of mine have something that mine does not?  Pool?  Hot tub? Anything?

6. Is my place decorated and outfitted in a way that fits the market?  A place that looks like a glorified prison cell will never do as well as a well-equipped rental.

7. Am I prepared to make the commitment to make a vacation rental work?  It can be a full time job.  If you don't respond to a guest's inquiry within minutes (forget hours -- that's far too long) you will lose that guest.  Until they have confirmed a reservation, guests keep looking and while they are looking, they may find someone that responds faster.  You will lose them to that person.

8. Do I have the infrastructure in place to handle a couple of turn-overs a week - with cleaning and all?  What about same day (back-to-back) turn overs?  

9. Do I have someone in place to answer concerns within a few hours rather than a few days?  Think of it this way - if you have a long term renter and they have a question and you answer in one day, you have responded in 1/365th of the time they are there.  If you have a vacation renter there for a week, they are there for 168 hours.  To keep the same response ratio, you'd need to respond in 30 minutes.  That's an extreme example, but the basic idea is true.  If a guest is there for a week, you can't take 2 days to answer them on a maintenance concern.

10.  Because 90% of the owners that think they can do it themselves burn out - have you factored an average of 30-35% of the base rental as a management expense for when you burn out?  Or if you don't burn out, have you factored that in for when you sell the property to someone that wants to be more hands off?

Vacation rental is not simple but it is a valid form of real estate investment.  Just be sure to walk in with your eyes open. 


Comments (2)

  1. Great article. Very informative.


  2. Item #2 is often overlooked.  Even successful vacation rentals have high and low seasons, so it's important to understand year-round cash flow.  

    A conversation with a local vacation rental management company can also provide insight into what the unit might rent for and what the seasonal vacancy rates could be.