SoCal Vacation Rental: Mountains or the Desert?

Question

Hi Guys! I've been in hiatus for a while now.

So, Christmas is right around the corner and as procrastinators always do, we are shopping around for a vacation property to rent for Christmas week in Lake Arrowhead/Big Bear areas. Then I started thinking: Let's see the home (cabin) values. Then this idea came to my mind about whether it makes more financial sense to invest in a vacation rental property - with the occasional owner use - in the mountains where we will see snow in the winter or the desert like Palm Springs. I know Palm Springs RE market is up right now but to me it has little to offer vs what I already have at home in LA. So, which one would make more money? I've tried to look up some rental property investment reports but have hit a bit of a brick wall with this question.

John D. · Answer

We manage a few rentals for other people (most that we manage I own myself) and charge between 20-30% for full service.  At that rate though for true  and highly competent full service that maximizes the homeowners profits, I can only manage large properties that can do $200k+ a year, with very cooperative and like-minded owners, that are willing to pay to keep a property up to our standards.  I would lose money at 20-30% for properties that don't fit that criteria.

Frankly having seen first the impact of uncooperative owners, owners that won't re-invest to improve and maintain the property, properties with funky systems controls (hvac, pool controls, lock systems, exterior cameras), properties with problem neighbors, etc. I understand why some companies charge 35-40%.  A discerning property manager should be able to provide quality service for less though, if they carefully select their clients.

Self-managing is always an option too.  But outsourcing the the online marketing/inquiry piece at 10-15% in my eyes only removes the easier piece, and leaves the tougher stuff of check-in/out, upkeep, maintenance, furniture and fixture inventorying and replacement, etc.  At least for our properties, which are somewhat unique (large properties, high price point).

John D. · Answer

@Rubik H. I can help steer you to some desert areas where the threat of a change in regulation is lower if you like.  Most of these opportunities are a distance from Palm Springs proper though, so you either need larger homes/properties (bigger groups tend to be less location sensitive) or something where you can market local hiking trails, nature, etc. to attract people that don't want to be near downtown PS.  While we have greater return potential, there is also a greater threat of a change in regulation, and often a higher price point to get into the market.

Travis Moe · Answer

Palm Springs area is indeed up - but the attitude towards Short Term Rentals (STR) is a mixed bag. Palm Springs put a moratorium on them a while back, then suspended it, then (I believe) restricted/banned them again.

Palm Desert passed an ordinance and no longer issues business licenses to STR owners. Existing STR licenses sunset and expire 12/31/2019. There are exceptions for certain neighborhoods and for owners that actually live on the property full time.

Indio seems to be okay with them for the moment - especially considering the boon that Coachella and Stagecoach bring in.

The point is, lawmakers and NIMBYs are fickle. A flick of the legislative pen can wipe out your income engine. While this is true anywhere, some areas are a little more predictable. In the case of Big Bear and Arrowhead - they've had vacation rentals as a major economic resource since looooong before AirBNB and VRBO existed. The climate is more patient and friendly towards STRs.

@Tyler Hungerford knows Big Bear well. You could reach out to him.

@John D. knows the Desert well. You could reach out to him.

John D. · Answer

@David B. You might find something just under $1mil nearly turnkey, or find a project at under $800k all-in if you are willing to take on a large project, remodel, add beds and baths, etc. that would hit that $200k number.

David B. · Answer

John D.—

What’s the purchase price and room count for high-end vacation rentals in La Quinta that produce over $200,000 per year?

Rhonda Blue · Answer

@Rubik H., @Tyler Hungerford, @John D.,  We lived in SoCal for the past 15 years. The investor bug grabbed me and I invested in a Desert Town - St George, UT. There are tons of opportunities there and I used Melissa Bean with REMax.

That was 5 years ago. I have since sold those and did 1031 exchange into 4 Mountain rentals. We moved to E TN area. This area is geared toward STR owners and very similar to BIg Bear. I have set up systems, cleaners, maintenance to keep my rentals booked year round.

When checking into new areas it is important to find local people on the ground who have done what you want to do because I have found that there are management companies that sell their services and charge 40% Then you can always go with an online company that only charges 10% for basic online marketing. But I find that the middle of the ground at 15% - works well if not fully self managing which is totally doable.  Because even with Short term rentals utilizing the online bookings through airbnb and vrbo as long as you have an extremely customer service oriented person answering messages and addressing issues, Rentals work and very very profitable.

On that note I have friends with rentals in Palm Springs, some in Big Bear, and a lot of friends with rentals here. It can become an addiction!!

Jack B. · Answer

And welcome to the reason I don't do STR's, I know full well many cities are enacting legislation and restrictions either banning it or restricting it heavily.

Rubik H. · Answer

All, thanks for your replies. I kind of figured that the mountains would have some challenges with regards to cleaning and maintenance. I think it would be important to buy a place that's easier to maintain and clean after rentals.

I think if one can remove the prospect of his own occasional use of the property for his own leisure, then longer term rental is probably less stressful because you don't have to deal with the routine cleaning.

Tyler Hungerford · Answer

@Travis Moe Thank you for the mention Travis! Really looking forward to working with you on some properties very soon!

SoCal Vacation Rental: Mountains or the Desert?

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