Are Vacation Rentals a good way to get started in investing?

23 Replies

I am a new investor looking to get started in real estate. The area that I am located in has a fairly high volume of tourist that visit for vacations. Are vacation rentals a good way to get started in the real estate investing market?

@William Hurd

I would be careful investing in vacation rentals at this time.  Even if your state is open and people are free to rent a place, not all states are allowing travel now.  I would hesitate to start at this time with so many uncertainties.  Not that it can't be done,  but you have to know the current issues and be creative in marketing etc, and be able to cover holding costs if no one books your place. Good luck with everything!

In general, I would say no because the upkeep of vacation rentals is far more than most investors are willing to undertake and if you slip up even once and get a bad review, it tanks your entire flow on the deal. But as @Ann Shanley mentioned, especially now I think it's not a good time to try out vacation rentals while COVID-19 is still out there.

@Jonathan Greene

@Ann Shanley

It's interesting.  I'm looking at it a bit differently.  I just went down to Destin, FL a few weeks ago.  We didn't go out much, but had a house with a pool.  We were able to avoid the crowds and stay safe and have a great vacation.  Could you do that at a hotel?  Not so much.  

Over the last few years, I've staying in VRBOs exclusively for vacations.  I saw the trend heading that way before COVID, but I believe travel will be changed moving forward.  Airbnbs in cities that rely on event traffic are hurting, but vacation rentals I think could benefit huge.  

I know a STR owner in Vermont. Usually they get seasonal traffic in the winter for ski season and summer is very light. He's booked every week through Labor Day this year.

I'm betting on STRs in vacation spots with favorable legislation and a tract record of STRs long-term.  


@Paul Shannon I like vacation rentals. I haven't stayed in a hotel for 15 years. But a vacation rental, now, for a new investor? It's not the product, it's the upkeep that they are not ready for. If you get one bad review, you entire investment can be shot and when your reviews are based on either your upkeep or your manager and you get flooded and have two quick changeovers back to back in the summer, you will mess up. I've had several vacation rentals of my own, but we had a system. It's very hard for a first-time investor to do it well unless they are on-site or around site all the time to make it perfect so you get to 25 5-star reviews AFAP.

Originally posted by @Jonathan Greene :

@Paul Shannon I like vacation rentals. I haven't stayed in a hotel for 15 years. But a vacation rental, now, for a new investor? It's not the product, it's the upkeep that they are not ready for. If you get one bad review, you entire investment can be shot and when your reviews are based on either your upkeep or your manager and you get flooded and have two quick changeovers back to back in the summer, you will mess up. I've had several vacation rentals of my own, but we had a system. It's very hard for a first-time investor to do it well unless they are on-site or around site all the time to make it perfect so you get to 25 5-star reviews AFAP.

Yes, I can see what you mean. By new investor, do you mean new to STR investing, or investing in real estate in general? Do you think property management, although expensive, can help mitigate the risk of getting a poor review if your STR is out of state?

@Paul Shannon I meant new in any way to REI. People think vacation rentals are passive and run themselves a lot of the time even though they know they require management. But PM for vacation rentals is much better as a one person who can be there anytime than a company that can't schedule around quick check-ins and outs. We always had a local friend who managed our vacation rentals so they could respond to hiccups on arrival that are all explained in the workbook that no one ever reads. :) It can mitigate the risk, but there is no recourse when your PM is late or there is no toilet paper and someone drops you a 2-star review on your first one. It's dead in the water.

Here are my comments coming from a first time investor and having it be a vacation rental (STR). Its not fair to say it's not the right type of investment for a first timer or that a new investor is "not ready" for the upkeep. It's a matter of what is right for the individual person and what THEY are ready for. Someone may not be ready to handle a tenant who will be living in their property for a whole year and deal with those problems as a long term rental, so my thought is how is that different from dealing with guest issues. Every type of REI has pros and cons.

Our first investment property is a vacation rental cabin.  We self manage.  We get great reviews and we make great money doing it.  The process we have created is very simple.  All reservations managed by VRBO or Airbnb, have a great housekeeper and handyperson.  Its 4.5 hours away from our home and we spend very little time "managing" it.  Housekeeper has a checklist and that includes telling us if toilet paper is low...in that case, we order more from Amazon and ship to her.

Is vacation rentals for everyone? No. Is it for first time investors ...why not? You have to decide and thats the beauty of REI options. Its not a matter of "well I can't do a STR as a first time investor", but rather how the BP podcasts states to ask "How can I do a STR as first time investor?"

@William Hurd if you search the short term rental forums on BP, you will find MANY succesful people, information and ideas on how to make it work.  Nobody has all the answers, but you'll likely find what you need.  My 2 cents.

@Joseph Bafia thank you for your input. The biggest thing I am looking at for this investment will be a turn key rental with a history of positive cash flow. One of the areas I will have to do a lot of research in is how to find that right motivated seller that will make the purchase worth it.

@William Hurd yes provided you want to launch an active business, you have some availability to respond to guests if/when you have a problem to deal with and you’re willing to be more actively involved. It’s a lot of effort on the front end to launch an str for your very first time but once you get things rolling it’s very manageable. A str can generate 2x-4x+ as much revenue as a ltr so you can really juice your returns. It’s def a business!

@Brian Gerlach I am looking at Orange Beach, AL; Gulf Shores, AL; Dauphin Island, AL areas right now. Those are close enough for me and my wife to manage of something is needed. What are some of the ways to do market research? I’ve been going through VRBO and Airbnb looking at the size condos I’m interested in and gaging the average number of weeks rented with the varying prices. I plan on reaching out to a few of the owners to see if they will talk with me on some of the ins and outs and lessons learned that they have done with there property.

I have a STR (and LTR) in Gulf Shores but I bought it right. That's the key. I would buy around December as the RE market does dip a little during winter months. It has been hard to find good cleaning people this season. As mentioned above this can make or break you. I would think that you or your wife aren't planning to drive from Daphne each week as you need to think about the cost of your time. Playing with the Airbnb platform we have increase the minimum stays from 4 days to 6 due to the turnover challenges. If you're thinking about a condo it is important to factor in COA dues and the utilities, obvs.

@Katie House thank you for your input. I would love to pick your brain on some do’s and dont’s for our market area. Did you purchase a turn key rental? What were some of the considerations and requirements you looked for in purchasing to ensure you got a good deal? I agree with waiting until the winter to purchase down there in that area.



I did not buy a turn key for either. We had to do a lot of small cosmetic things (replacing the flooring, changing the electrical outlets from old yellow ones, light fixtures, popcorn ceilings) and it is still a work in progress. I'm hoping to do the kitchen and bathroom updates this winter. With the cosmetic updates I have already increased the value so that's mainly what I look for.
I would also suggest getting insurance quotes as soon as you can after the offer is accepted. I've heard that the insurance is less expensive the closer to the interstate you are. However I'm not in the Daphne market so it may be similar to what you already budget out in your numbers.

If you have any other questions feel free to PM me.

The biggest part to look at are  the yearly expenses on the property. We have noticed an uptick on new construction vacation rentals. Several investors are taking advantage of accelerated deprecation on the new construction.

@William Hurd

Our first REI investment was an STR. You get a lot of experience going through the process and we've been pretty successful and closed on another STR a year after. Know your market, make sure the rules allow you to STR and hire a good team on the ground to maintain/clean your property. With STR's being so review based, a good cleaner, preferably those familiar with vacation rentals and the upkeep, is super important. Good luck!

@William Hurd expected occupancy % x 365 days x ANR (average nightly rate) = gross revenue. My advice is to find a realtor with expertise who knows the AL str market inside and out. They should be able to know the estimated gross revenue on a property in 30 seconds or less. @Avery Carl might know someone in the AL market. A rockstar realtor and possibly a few local str owners can take you a long way. Your cleaner/s is the most important person as you manage ie, for cleans, eyes on the property, etc. Have a couple handymen on speed dial, find a go to HVAC person, plumber, etc. Tip: a rockstar realtor will already have referrals and contacts in place that you can leverage.

@William Hurd depends on the regulations in your city, the demand, and ultimately your numbers.

It can be great (covid has a tremendous impact on the travel industry).

The property I am working on now will be a vacation rental, but we did the math as a long term rental. 

If you get a property at a good location and achieve cash flow (on paper),as a long term rental, it seems like a great idea to get a better return as a vacation rental.  Gulf Shores, AL has national name recognition, so I’d say it’s a viable spot for a vacation rental.   As far as it being your first investment, and you are inclined to pick this method I don’t know why you wouldn’t find success at it.

Originally posted by @Mark Futalan :

@William Hurd

Our first REI investment was an STR. You get a lot of experience going through the process and we've been pretty successful and closed on another STR a year after. Know your market, make sure the rules allow you to STR and hire a good team on the ground to maintain/clean your property. With STR's being so review based, a good cleaner, preferably those familiar with vacation rentals and the upkeep, is super important. Good luck!

Mark, one of my concerns with STRs being self-managed from a distance is having a single point of failure in my process.  I can handle bookings and guest communications, but cleaning and maintenance are a concern.  It sounds like you've been successful with hiring cleaners and maintenance folks.  What if your cleaner calls in sick or isn't reachable on a turnover day?  Do you hire a cleaning company with a large staff to get around that?  Same issue with a handyman.  I'm preparing for making the self-manage versus hire it out decision.   

@Paul Shannon

Hi Paul,

We use a cleaning company that works exclusively with vacation rentals. The owner even has a few STR's of her own so she knows what it takes to run a successful Airbnb. We are very particular about what we expect and need and we communicate that with our cleaners. It's worked out great for us, and we've maintained close to a 5 star rating on Airbnb with close to a 100 reviews. They have a master calendar and prioritize same days turns. I would suggest working with a cleaning company because they are usually well staffed and we don't have to worry as much about availability or someone calling in sick. We do have back up cleaners just in case that we've used and also do a great job so we have options. Sure you could probably save a few bucks here and there if you hire a personal cleaner but the way I look at it is that cost is passed over to the guest anyway. But if you can find a good independent cleaner I'm all for it too, just make sure to manage your expectations. They also help with letting us know if things break or are missing and we just navigate through that as needed. Good cleaning goes a long way. We have a list of names/companies in the area that we can call depending on the situation. I find that as long as your communicative with guests on things like a maintenance item, it's usually not as a big deal.

@Paul Shannon

Also to add, if you choose not to self manage you’d give up a huge chunk of profits for something INMO, is not that difficult to self-manage. There are many people on this site that do. Plenty of systems and software out there to make the process easier. I have 2 that I self-manage remotely with a full time job and a family.

@Paul Shannon across 6 vacation rentals and 2 markets I have never had a cleaner just “miss” a clean unless I screwed up the calendar on my end. Most cleaners will have a few colleagues or family members that they have for coverage should the need arise.

As for handypeople, you DO want to keep a list of 2-5. If something happens and your favorite one is on a project, then call the next one on the list. Handyman needs don’t arise as often as you are fearing. It’s definitely good to be over prepared, but self managing is a lot quieter than the limiting belief of “I don’t want to invest in short term rentals because I don’t want to have to deal with calls all the time” suggests. Is it work? Yes. Is it easy work that might take 10 minutes out of your day max most days? Also yes.