Purchasing a vacation rental as an investment
Kahanu NoaPro Member
Investor · Maui, HI · Member since 2014 · 48 posts · 10 votes@Kahanu Noa , I have one but I would not say I am experienced in vacation rentals. My property is is in Carmel Ca. I bought it as a personal vacation unit (second home) and it slowly turned into a vacation rental for specific events: golf tournaments at Pebble Beach, Auto Shows and nearby auto racing events. I am not sure if my experience will be directly applicable for you, but I thought I could give you one perspective.
The property that I have is a 3bd/2.5ba three blocks from the ocean, within walking distance to Downtown Carmel and Pebble Beach. Most of the year I keep it open so I can use it with my family, but on special events weekends I do rent it out for a killing. It is important that if you are going to use the property for mixed use that you have areas that you can lock up your personal things that you want to keep there. The last thing I wanted to do was have to "move in and out" every time I used my own property. I segregated the building so that the upstairs area holds of my family belongings. Therefore I rent the place out as a 2bd/1.5ba.
In my case, I am close to the property so I handle bookings and cleaning myself. I also have gotten to the point where I don't need to advertise and get bookings based on repeat business or word of mouth. This makes the risk level substantially lower and the potential headaches much more manageable.
The downside of the way I do it is that many months I don't rent it out, which equates to a loss. However, the upside is that I don't have to worry about people walking around on the hardwood floors with sand on their shoes, because the people want to come back the next year.
Anyway, basically I started out as an owner occupant and I am making the transition to full time vacation rental. It can be done, but your goals and time horizon needs to be realistic to make it happen without major headaches.
Not sure if I answered your question, but I hope it helped!
You have to be careful about buying a place as a "personal property" and than renting it immediately as a vacation rental. If you don't live in it as your primary residence for one year but use it for investment right away it is technically mortgage fraud. I believe you can rent it out for 14 days (although check) without negatively impacting your mortgage. Now once you have done the year, its fair game.
As far as more information, check the search bar. there are lots of people that talk about this topic. This is what we are hoping to adventure into next.
There was a recent blog post about vacation rentals that you should check out.
Here is the link I'm referring to.
@Elizabeth Colegrove great stuff, thanks!
@Kahanu Noa - Buying vacation rental investments require a lot of down, usually at least 35% unless you buy as a 2nd home or primary residence. I almost bought in Hawaii and they had a couple lenders that would finance the vacation rental investments. In regards to deal analysis I would talk with the vacation rental managers, owners that have purchased in that area/building.
@Kahanu Noa , I have one but I would not say I am experienced in vacation rentals. My property is is in Carmel Ca. I bought it as a personal vacation unit (second home) and it slowly turned into a vacation rental for specific events: golf tournaments at Pebble Beach, Auto Shows and nearby auto racing events. I am not sure if my experience will be directly applicable for you, but I thought I could give you one perspective.
The property that I have is a 3bd/2.5ba three blocks from the ocean, within walking distance to Downtown Carmel and Pebble Beach. Most of the year I keep it open so I can use it with my family, but on special events weekends I do rent it out for a killing. It is important that if you are going to use the property for mixed use that you have areas that you can lock up your personal things that you want to keep there. The last thing I wanted to do was have to "move in and out" every time I used my own property. I segregated the building so that the upstairs area holds of my family belongings. Therefore I rent the place out as a 2bd/1.5ba.
In my case, I am close to the property so I handle bookings and cleaning myself. I also have gotten to the point where I don't need to advertise and get bookings based on repeat business or word of mouth. This makes the risk level substantially lower and the potential headaches much more manageable.
The downside of the way I do it is that many months I don't rent it out, which equates to a loss. However, the upside is that I don't have to worry about people walking around on the hardwood floors with sand on their shoes, because the people want to come back the next year.
Anyway, basically I started out as an owner occupant and I am making the transition to full time vacation rental. It can be done, but your goals and time horizon needs to be realistic to make it happen without major headaches.
Not sure if I answered your question, but I hope it helped!
@George You thanks for the tips! May I ask, What deterred you from investing in Hawaii or is it something you are still considering?
@Kahanu Noa , I have one but I would not say I am experienced in vacation rentals. My property is is in Carmel Ca. I bought it as a personal vacation unit (second home) and it slowly turned into a vacation rental for specific events: golf tournaments at Pebble Beach, Auto Shows and nearby auto racing events. I am not sure if my experience will be directly applicable for you, but I thought I could give you one perspective.
The property that I have is a 3bd/2.5ba three blocks from the ocean, within walking distance to Downtown Carmel and Pebble Beach. Most of the year I keep it open so I can use it with my family, but on special events weekends I do rent it out for a killing. It is important that if you are going to use the property for mixed use that you have areas that you can lock up your personal things that you want to keep there. The last thing I wanted to do was have to "move in and out" every time I used my own property. I segregated the building so that the upstairs area holds of my family belongings. Therefore I rent the place out as a 2bd/1.5ba.
In my case, I am close to the property so I handle bookings and cleaning myself. I also have gotten to the point where I don't need to advertise and get bookings based on repeat business or word of mouth. This makes the risk level substantially lower and the potential headaches much more manageable.
The downside of the way I do it is that many months I don't rent it out, which equates to a loss. However, the upside is that I don't have to worry about people walking around on the hardwood floors with sand on their shoes, because the people want to come back the next year.
Anyway, basically I started out as an owner occupant and I am making the transition to full time vacation rental. It can be done, but your goals and time horizon needs to be realistic to make it happen without major headaches.
Not sure if I answered your question, but I hope it helped!
Arlen, Carmel is a great place and I had the opportunity to stay in Pebble Beach once. I understand how you can make a killing when the big venues hit the area.
Thanks for sharing your very functional tip on segregating the area for mixed use purposes. I have a relative that lives on an island that is not nearly visited as Oahu or Maui. In her case, rents are less than a mortgage but we need to follow up with vacation rental managers in the area as others have mentioned to get a good idea of the vacational rental market.
As you transition it from a second home to a full time vacation rental, what does that process look like for you? Do you plan to be hands on or will you find a manager to handle bookings, cleaning, payments, etc.?
Thanks for the post and it definitely helped!
I'll be interested in seeing how this thread develops, and what peoples' experiences are. Because I have never been able to figure out how the numbers work.
Me and my siblings share ownership of a (inherited) beach cottage. Worth probably right about a million. The absolute max we could get for Gross Rent would be maybe $25k over a ten week summer season (summers aren't really 10 weeks anymore, for summer rentals up this way. School extends too late and starts too soon; the season is down to about 8 weeks.)
Obviously $25k would never work as return on a million invested. So I'm really curious how this sort of thing can work for people.
@Richard C. Location is the key to vacation rentals. You need to be in a location that will draw people a large portion of the year. One season won't do, unless you are in a place like southern California or Hawaii.
Aloha @Kahanu Noa! We own a vacation rental property in Kihei, Maui. We've owned it since March 2012 and it's been very successful for us and we continue to keep an eye on the market there for another property. I grew up on Oahu and now live in Denver and have been going to Maui every yr since my wife and I got married on Maui in 2007. So although I'm no expert on the Maui market, I'm know it fairly well.
We were lucky and got a great deal on our property in 2012 and prices have really gone up since, which has kind of kept us from buying another property there. With the level prices are at now, you would probably have to put down 50%+ to come out cash positive each year. That being said, we would definitely buy another property there and are always on the lookout for a good deal.
Feel free to PM me and I'll be happy to share our numbers, experience and insight in more detail.
@Richard C. Location is the key to vacation rentals. You need to be in a location that will draw people a large portion of the year. One season won't do, unless you are in a place like southern California or Hawaii.
Yeah, I've thought of that. Specifically I thought about Jackson Hole, which is my favorite place to ski. It seems like there might be demand in the summer, too, with Grand Teton and Yellowstone right there.
I wouldn't mind a condo there that just got me to break even over the next 20 years while it pays down the note. Then I could go into retirement with it largely paid off. But like I said, I'll be curious about people's experiences.
@Kahanu Noa I started off handling everything myself. This was because the number of tenants was low, so it was pretty easy to deal with all of the issues. I was also using the space often, so it was easy to check. I did very quickly find a cleaning service to handle laundry and clean up after renters. I got very tired of cleaning up after people!
But I must be honest, I still see this as a family vacation home that happens to generate some income. But as we use the property less, and the idea of renting it out more is becoming more of a reality signing up with a management company is sounding more appealing. When I am through the process the property will end up being a vacation rental that happens to be a family vacation home on occasion. At that point, I will expect to run this property like my other standard rentals.
Good luck!
I'll be interested in seeing how this thread develops, and what peoples' experiences are. Because I have never been able to figure out how the numbers work.
Me and my siblings share ownership of a (inherited) beach cottage. Worth probably right about a million. The absolute max we could get for Gross Rent would be maybe $25k over a ten week summer season (summers aren't really 10 weeks anymore, for summer rentals up this way. School extends too late and starts too soon; the season is down to about 8 weeks.)
Obviously $25k would never work as return on a million invested. So I'm really curious how this sort of thing can work for people.
What do you do with the property for the other 9 months? Out here in San Diego we have a student market for those 9 months and 50% of our clients will rent out their places to USD students during that time. Is that an option for you out there? 2 bedrooms get around $2500/month for 9 months and 3 bedrooms get $3500/month.
Aloha @Kahanu Noa! We own a vacation rental property in Kihei, Maui. We've owned it since March 2012 and it's been very successful for us and we continue to keep an eye on the market there for another property. I grew up on Oahu and now live in Denver and have been going to Maui every yr since my wife and I got married on Maui in 2007. So although I'm no expert on the Maui market, I'm know it fairly well.
We were lucky and got a great deal on our property in 2012 and prices have really gone up since, which has kind of kept us from buying another property there. With the level prices are at now, you would probably have to put down 50%+ to come out cash positive each year. That being said, we would definitely buy another property there and are always on the lookout for a good deal.
Feel free to PM me and I'll be happy to share our numbers, experience and insight in more detail.
I love Maui! I've only been once but want to go back and remember looking at property out there for a vacation rental. What type of gross rents are you getting with your place? and can I see a link to it on your vrbo or listing site? Thanks!
@George You thanks for the tips! May I ask, What deterred you from investing in Hawaii or is it something you are still considering?
I'm still considering it. I was about to buy a place in 2012 in Oahu but was waiting for the right place. I didn't want to settle for anything and wanted to get a place that I knew would rent well and that I wanted to stay in for many years.
Cash flow in Hawaii is hard to come by. There are opportunities, but it's certainly not one of the first markets that comes to mind when looking for CF. That's why I almost exclusively flip there. And now last week, we moved to San Diego (will maintain the Oahu biz simultaneously) where I still imagine cash flow is a hard game. I intend to flip here as well and look for other markets elsewhere for the passive income.
Aloha @Kahanu Noa! We own a vacation rental property in Kihei, Maui. We've owned it since March 2012 and it's been very successful for us and we continue to keep an eye on the market there for another property. I grew up on Oahu and now live in Denver and have been going to Maui every yr since my wife and I got married on Maui in 2007. So although I'm no expert on the Maui market, I'm know it fairly well.
We were lucky and got a great deal on our property in 2012 and prices have really gone up since, which has kind of kept us from buying another property there. With the level prices are at now, you would probably have to put down 50%+ to come out cash positive each year. That being said, we would definitely buy another property there and are always on the lookout for a good deal.
Feel free to PM me and I'll be happy to share our numbers, experience and insight in more detail.
I love Maui! I've only been once but want to go back and remember looking at property out there for a vacation rental. What type of gross rents are you getting with your place? and can I see a link to it on your vrbo or listing site? Thanks!
@George You PM me and I'll give you the link to our VRBO listing. I think there's a rule here about posting things like that on the forum since it's considered advertising. I can tell you it's in the Kihei Kai Nani complex right across the street from Kamaole II Beach in Kihei.
Last year was our first full year and we brought in just over $30,000 in rent and this year we are scheduled to be just at $32,000. This of course does not include any expenses, just the amount of rent collected.
Also, I did state in a different thread a while back that we were 89 - 90% occupied, but that included the dates that we used the condo, which I guess really doesn't count towards your occupancy.
Aloha @Kahanu Noa! We own a vacation rental property in Kihei, Maui. We've owned it since March 2012 and it's been very successful for us and we continue to keep an eye on the market there for another property. I grew up on Oahu and now live in Denver and have been going to Maui every yr since my wife and I got married on Maui in 2007. So although I'm no expert on the Maui market, I'm know it fairly well.
We were lucky and got a great deal on our property in 2012 and prices have really gone up since, which has kind of kept us from buying another property there. With the level prices are at now, you would probably have to put down 50%+ to come out cash positive each year. That being said, we would definitely buy another property there and are always on the lookout for a good deal.
Feel free to PM me and I'll be happy to share our numbers, experience and insight in more detail.
I love Maui! I've only been once but want to go back and remember looking at property out there for a vacation rental. What type of gross rents are you getting with your place? and can I see a link to it on your vrbo or listing site? Thanks!
@George You PM me and I'll give you the link to our VRBO listing. I think there's a rule here about posting things like that on the forum since it's considered advertising. I can tell you it's in the Kihei Kai Nani complex right across the street from Kamaole II Beach in Kihei.
Last year was our first full year and we brought in just over $30,000 in rent and this year we are scheduled to be just at $32,000. This of course does not include any expenses, just the amount of rent collected.
Also, I did state in a different thread a while back that we were 89 - 90% occupied, but that included the dates that we used the condo, which I guess really doesn't count towards your occupancy.
Thanks! Just PM'd you. Wow, 89-90% is great occupancy! What do these places sell for now in your area? Do you have a property manager? What's their cut?
The last few have been in the $300K - $350K range and all units in our complex are 620sqft, 1bd/1bth units.
We have an onsite property manager and they are great people. They take 22% for any booking they do and 5$/nt for any booking that we do. We do 99% of our own booking and have had only 2 bookings come from our PMs.
@Michael Borger, my wife and I love living in Denver and have always said there are only 2 places that we would leave Denver for and those are San Diego and Hawaii. As winter approaches, we are considering moving to Maui!
I'll be interested in seeing how this thread develops, and what peoples' experiences are. Because I have never been able to figure out how the numbers work.
Me and my siblings share ownership of a (inherited) beach cottage. Worth probably right about a million. The absolute max we could get for Gross Rent would be maybe $25k over a ten week summer season (summers aren't really 10 weeks anymore, for summer rentals up this way. School extends too late and starts too soon; the season is down to about 8 weeks.)
Obviously $25k would never work as return on a million invested. So I'm really curious how this sort of thing can work for people.
What do you do with the property for the other 9 months? Out here in San Diego we have a student market for those 9 months and 50% of our clients will rent out their places to USD students during that time. Is that an option for you out there? 2 bedrooms get around $2500/month for 9 months and 3 bedrooms get $3500/month.
Yes, thanks for the thought, but it won't work. Partly because it is on a sandbar and the water line is shut off to all of the cottages on November 1. We all have private septic, but you can't drill a well, you'll just hit salt. I know a couple of people have tried trucking water in to stay for brief periods, but I'm not sure that's legal, it wouldn't really be practical for 6 months, and it wouldn't be practical for any length of time in a rental.
Also, winter leases on beach rentals here fetch a fraction of rent on a monthly basis that they do on a weekly basis in the summer. We probably couldn't get more that $1500.
Anyway, I'm not actually trying to make this specific property work as a rental. It's where we spend our vacations and anyway I only own a quarter of it. It's more that I am curious how people can make vacation rentals work generally.
You have to be careful about buying a place as a "personal property" and than renting it immediately as a vacation rental. If you don't live in it as your primary residence for one year but use it for investment right away it is technically mortgage fraud.
All the mortgages/DOT documents that I have seen just require that you intend (at the time of purchase) to occupy the property as your primary residence. Of course, your intention can change at any time. I wouldn't want to live there for a week and then turn it into a rental though. I've heard from other agents that 6 months is the minimum you should plan on, but I would think if you can point to a change in circumstance that makes a move reasonable, you'd be okay with less time (although I can't imagine you'd actually have to, because I've never heard of a bank checking on these things).
Adrian most loans with personal property has a 12 month minimum. Your right it won't matter till it matters. The issue is when it becomes an investing strategy.