Permanent residence or vacation?

Question

when buying a place say in the central Florida area, can you see and ROI on buying a place that is more geared towards a vacation place. A place that would have HOA fees plus figuring in for property management or do you need to stick to more of a family home?

Rod Witmond · Answer

Tons of great information from @Levi Bennett. One other approach that may make sense - have you considered a vacation rental where the property manager is willing to guarantee income over a longer-term basis? They are becoming more popular as PMs are trying hard to keep market share from losses to people managing properties themselves.

Account Closed · Answer

@Trent Fisher

If it is Central Florida that you are looking at buying in a career driven area is a big area. Downtown Orlando is pretty centralized and most of the outlying cities are only a 20-30 min drive. As a vacation rental as you are calling it my guess you would mean a condo or a townhouse? Hoa fees will really impact you there and I have seen them vary from $200-$400 a month. With a single family home your Hoa if there is one is usually that for the year unless your in a higher end community. As for fear of a down economy for vacation homes we have Disney and Universal Studios that keep things pretty active in that area. Central Florida has also just completed a $200 million renovation of there stadium and some bigger events are also being brought in to there that will attract tourists. Most likely either way you go if you are out of state you are going to want a property manager. I tend to lean to single family as the values hold better than condos or townhomes.

Rod Witmond · Answer

@Levi Bennett Yes, there's also a third type now that guarantees income for an extended period (12 months). For this, they take full control of the property for the period. It basically turns the STR into a LTR  opportunity for the owner.  They cover all costs - marketing, booking, maintenance, cleaning, Occupancy Taxes - except utilities. Pretty new model - but interesting.

Levi Bennett · Answer

@Rod Witmond Yes, it's an interesting business model. There are two very successful Property Managers for Vacation Rentals near Disney that use this model.

One will guarantee a nightly rate, and a minimum number of nights, but no more. If they book the home for over their promised rate to the owner, they keep the profit. If they book more frequently, the owner keeps the amount promised. If they don't book enough, they still pay out their promised amount.

Another simply guarantees a monthly revenue. If they beat it, they keep a higher percentage. If not, you still get the promised amount. It seems to be working very well for them. However, one common trait both of these property managers have, is that they're VERY selective about the homes they allow into their program... most homes for sale on the market would not qualify until a sizable cash investment got the interiors up to their standard.

Levi Bennett · Answer

Hi @Vicki Moraes, thank you for the nice comment! I work hard in this area and I love VR's in the area.

The "best investment" will vary considerably based on your goals, your price range, and whether or not you're financing or paying cash.

There are a few points you bring up, so I'll address them as I see them:

No. of Bedrooms: The basic rule of thumb here is that the more bedrooms the better. With each additional bedroom, there is a new plateau of price that you can charge for a VR. People are traveling in larger groups more than ever, and the more bedrooms you can afford, the better. So, yes, a 5 bedroom (in general) would be better than a 4 bed if all other things were equal. The problem is, it rarely is equal. Every neighborhood is different. Proximity to Disney is key, and so is interior furnishings. But, as a baseline, the more bedrooms the better. But, if you asked me if a 6, 7, or 11 bedroom is better, I would say the 11 bed is better. The more bedrooms the better, there doesn't seem to be a ceiling on this.

Higher Earning Potential: Vacation Rentals ALWAYS have a higher earning potential than a long term. But it's higher risk, and more volatile. The nature of it is different. Let's take a basic two bedroom condo in Windsor Palms for instance. This is a nice neighborhood that has some long term residents, but is also a popular short term rental community. A 2 bed there in a long term rental can generate about $1100-$1200/month at 100% occupancy. The exact same home can generate about $2200-2400/month at 100% occupancy as a Vacation Rental. So literally double the revenue. However, you'll never have 100% occupancy in a short term rental. Not even busy hotels have 100% occupancy. You may get 60%, or 70% or 80%... all depending how you market it, and what type of an owner you are. This is why, when it comes to investing, I need to get to know the clients.. how invested are they in running the home as a business, investing cash to improve interiors, etc... this will determine what kind of property I recommend, and your earning potential. This isn't like the stock market, where all 5 beds generate a certain average income, and all 4 beds are similar... it varies a LOT.. and it's almost completely dependent on the owner, or the decisions the owner makes about their investment. I can recommend smart decisions to maximize your occupancy, that's part of my job as a person who caters to investors.. but also part of my job is breaking the mindset that it's so cut and dry. There is no baseline, I know the potential, and I can help you gain the most out of a property, but at the end of the day, it's up to the owner catering to the market, and using the investment as a business. I hope this makes sense. I know I'm long-winded, I just want you to have an accurate picture of what you're looking at.

Price Point: At the price point of $125,000, you can definitely buy a vacation rental, but this is VERY entry level... consider that almost all the homes for sale that are zoned for short term will need a cash investment after purchase to get the furnishings up to par with the market, etc.. this will afford you a 2 bed, maybe a 3 bed if you're lucky, but not leave a lot of room for closing costs and furnishings, etc... At this price point, understand that it's a high risk investment, and that buying something to use for a long term lease will be much more predictable, just not quite as high of an earning potential.

Property Management: This is the most important aspect to your vacation rental. You MUST have a stellar PM company. This is the manager of your business. They are the face to your guests as their concierge, as their problem solver and customer service. They're also coordinating all the finances, from utilities, business licenses, taxes, HOA, etc.. They're also able to do all the bookings for you. Basically, this is how you put your business on auto-pilot. But you need an excellent PM. After everything is done and everyone is paid, it's possible to make more in a Vacation Rental than a long term rental. Just be aware that the risk is much higher, and it takes more of a capital investment and time on the front end to get it on auto-pilot. If you're more risk-averse, I would recommend getting a long term rental as an investment. They're more predictable, and easier to keep high occupancy, and easier to manage. If you want to take some risks, hustle, invest some money up front and make some money while owning a vacation rental that you can enjoy every now again, then it might be for you.

People who want a very hands off experience while owning a VR can do it, but you need to be in the $500,000 range to get everything lined up properly. You can get a killer return at the higher dollar marks. It's harder to do at the lower marks. Very possible, but it's just more involved. If you want something hands off, maybe invest in a mutual fund or something. I heard the US stock market is on sale this week :)

I hope this helps!! Feel free to PM me or contact me anytime if you have more questions or want to learn more about it :)

Levi Bennett · Answer

The main thing (in Florida) is a pool. The pool needs to be big enough at the clubhouse to accommodate everyone. Some have lazy rivers, waters slides, etc.. it's not required, but for a neighborhood further from Disney, you need to have an appeal that the ones close don't have. Often you can get a lot more for less money just by going another mile or two away from Disney. Another commonly requested one, but isn't necessarily a requirement to have a successful rental, is a manned guard gate. Renters feel a lot more secure who have been traveling when they find that they have a manned guard gate to help them out and check them in. Those two things are the most expensive in an HOA.

Cal C. · Answer

@Levi Bennett

Those are the no-brainers almost.  Sad to think that a lot of people don't get the basics.

Levi Bennett · Answer

@Cal C.

That's it man. That's the key, that's the million dollar question down here that some ask and some don't.

The one's that are doing well do a lot of "little things" but, in my mind, here are the biggest "little" things you can do:

1. refurbish with modern furniture. Successful units have either interior decorators, or the owners are savvy with decor so that it looks NICE in photos.

2. That's the next point: photos. Hire a professional photographer for $200-300 to take amazing photos of your property. It makes all the difference when people are browsing 100 properties on Homeaway.com

3. TV's. Have a flatscreen in every bedroom, cleanly mounted without tacky wires. They don't have to be big in the bedrooms, just have them in there. Have a really big one (modern) in the main room. People eat that up. Flatscreens are cheap nowadays compared to when most of these homes were originally purchased.. in my mind, this should be a given.

There are other factors like management, location, amenities, but.. it usually boils down to what people see on the internet, the better you can make it look there, vacationers don't care about the other stuff as long as it's up to standard with other communities.

Gregory Boudle · Answer

There's a potential good roi in any real estate transaction if you buy right and have several good exit stategies. Personally I like to hedge my bets by purchasing in areas with strong job markets where folks need to live. I feel that vacation areas are the first to go in a down economy.

Rod Witmond · Answer

@Levi Bennett Be happy to discuss in more detail with you. In short, there are over 300 property managers signed up to provide this service across the US. They are disbursed across the country but there are about 10 operating across the vacation destinations in Florida. It's part of a wholesale online rental marketplace where PM's bid for the right to run a property for up to a year. Highest bid goes back to the homeowner as guaranteed rental income paid out over the year - 5% up front and the remainder paid out monthly. PM takes on marketing, cleaning, maintenance and occupancy taxes. Homeowner retains responsibility for utilities (with a cap). Over 2000 properties have been listed over the past couple of years. Sometimes they don't get an offer - but more often than not, especially in Florida, homeowners get bids that are very attractive. I'm involved in the service and, as I said, I'm happy to go into more detail with you if you are interested.

Permanent residence or vacation?

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