Is it a good idea to invest in vacation rental properties
Menifee, CA · Member since 2016 · 6 posts · 1 vote
Hello BP community I'm just starting out on my journey and I am interested in investing in rental properties including vacation rentals. I have read "the book on rental property investing" and a few other books as well. I plan on taking some more classes on these subjects as well as asking other investers in my area but I figured I would start here first.. let me start with what are the do's and dont's on investing in vacation rentals? Why are they good or bad compared to other rental types? And what types of vacation rentals are better then others?
Hi Andrew. I too I'm new to vacation rentals. I took the plunge last April and bought a fore closure 2bed 2bath beach front condo in Florida. I paid 225k for it and did 30k worth of renos on it. I did granite counters. Gutted old bathrooms updated design. It came out gorgeous. Put all new furniture. It stays booked so well worth it. A lot of people do not like condos and HOAs. I've had very good luck with mine. They have an onsite management co that runs it and I'm happy with them. I need it since I live out of state from property. My HOAs are 464.00 month and they do a great job keeping the property up. Mgmt fees are 20% off season. June July August they charge 30%
Hi Andrew,
Welcome and have fun! As far as Vacation Rentals go you have some very broad questions there. Frankly there is no right or wrong answer, different markets are different and different people in the same market can even have different experiences, it's hard to pin down exactly what will stick and what won't.
The pros or cons really depend on your own personal style. VRs (and I'm assuming we are not talking the traditional beach or cabin rental) require a lot of day to day work, more money upfront, higher management and maintenance fees, varying degrees of complications and regulations depending on where you are. It can be a headache and a hassle but there is obviously much greater financial return for the most part, not to mention use of the property.
Again, types that are better depend on your personal preferences and what your goals are. I personally wouldn't buy a vacation rental I wouldn't want to use, but other people would for the $$. Avoiding Condos and HOAs normally works out better but some people get lucky with those.
If I could start over again I wouldn't change much about what I did - Find somewhere close to you in a popular but not overwhelmed travel (business, vacation, or other specialties) location. Check local regulations. Do comps on comparable places. Pick somewhere without a Condo or HOA, and also somewhere that could convert to a traditional rental. All your renovations and furnishings should fall into the category of sturdy and good quality, with a color or finish that wont show dirt or wear and tear. Decide whether you will self manage or get a PM company. Hire a housekeeper. List it on the popular sites and get going. There are details outside of that but the best thing to do is just get started.
Vacation Rentals are 99% short term and that induces LOTS of turnover. As they need to be furnished, you have extra maintenance and replacement costs. Then someone needs to perform the laundry service and make beds.
This kind of REI would never be hands off.
Hi Andrew. I too I'm new to vacation rentals. I took the plunge last April and bought a fore closure 2bed 2bath beach front condo in Florida. I paid 225k for it and did 30k worth of renos on it. I did granite counters. Gutted old bathrooms updated design. It came out gorgeous. Put all new furniture. It stays booked so well worth it. A lot of people do not like condos and HOAs. I've had very good luck with mine. They have an onsite management co that runs it and I'm happy with them. I need it since I live out of state from property. My HOAs are 464.00 month and they do a great job keeping the property up. Mgmt fees are 20% off season. June July August they charge 30%
thanks for the great input and advice, I truly appreciate it! The properties I'm looking into are in my local mountain vacation spot witch is booming in the winter time due to snowboarding and skiing. In the summer they offer the same trails to mountain bikers. There is water sports and camping, hunting, fishing as well.
Hi all,
@Jeff B., it can be completely hands off; many people wouldn't have vacation homes otherwise.
As to the do's and don'ts, here are a few:
1. Before buying, do your research.
How much will a long-term rental make in comparison? Sites like Mashvisor & free online tools (e.g., we have a Rental Grader & Calculator) can help. See how similar homes in the neighborhood have been doing on Airbnb. What are their occupancy rates? Average nightly rental rate? Cleaning costs, etc.
2. Know your costs.
Unless you're planning on using a management company that will take on these costs for you, factor in short-term rental costs like maintenance, utilities, cleaning, booking costs, insurance, occupancy taxes, home essentials (i.e., linens, etc.). If you're also considering a long-term rental instead, make sure you consider that the home will have to be furnished for a short-term rental.
3. Compare your options.
Do you want to use property management? Do you plan on self-managing? HomeAway reports that the average user spends 8.4 hours per week managing their vacation home, and the industry is beginning to even more obviously favor the professionals in the industry (Tnooz published an article on this today).
4. If you do decided to self-manage, make sure you have the right tools.
From remote locks & keys to booking managers to dynamic pricing tools, make sure you have the tools you'll need to be competitive.
5. If you decide to go with a property manager, also know your options.
Don't be fooled by a property manager that offers low commission rates only to have additional fees added to your bill later.
Here's an example of what I mean (although a 42% commission is still very high):
The average all inclusive commission offer on our site is 28%, and I'm happy to help anyone compare rates in your area if you'd like.
Another option to consider is the fixed (or guaranteed) income model. Here, you and a property manager decide on a fixed monthly income for you to be paid—regardless of occupancy.
I'm also happy to help you compare fixed income if you'd like.
6. Finally, keep up with the industry.
The short-term rental industry is rapidly changing, so make sure you're following relevant blogs & sites to see the latest in terms of regulations, technology, etc. The VRMA is a great source for an overview of industry trends, and I'm happy to refer you to a number of my favorite vacation rental blogs.
@Monika Haebich Nice post which openly declares the expense to become hands-off. IMO, 42% would kill many operations.
@Jeff B., I agree with you comment on the 42% rate, and as I said, that commission is ridiculous. I would not recommend a homeowner work with a manager charging that percentage; the chart was simply meant to illustrate my point that homeowners need to do their due diligence in comparing their options—especially when it comes to comparing vacation rental property managers & their pricing.
That is not to say, however, that any form of professional property management would kill an operation. From what I've seen, the average self-managing homeowner simply cannot compete with professional managers. With lower costs, preference from OTAs, full-time staff, sophisticated technology, etc., property managers are usually able to outcompete homeowners, which is why they are able to offer homeowners guaranteed income that is often just as high as a host's net income from self-management.
50% management fees are normal in Colorado ski resort towns. I don't think a VR would be very lucrative at those rates. But I've been very successful with self management of mine. As long as you're continuously improving your processes, you're getting closer and closer to hands off operation. I agree, it's never going to be completely hands off, but I'm pretty darn close at this point.
Good vs bad vacation rentals totally depends on the area. I'm assuming you're talking about investing in the Big Bear area. I have a vacation rental at Mammoth Mountain a few hours north that does really well. I self-manage, which allows me to pocket a lot more, but also takes up a lot of time. In Mammoth we have a newer vacation rental management company that has been showing great returns and only charges 35%, which for here and most ski resorts is really good. I'd be happy to give you more info on that and potential rentals in Mammoth if you're interested. We paid 145k for a one bedroom condo that is scheduled to gross 40-45k this year. We are netting 1600-1700/mo including our mortgage, hoa dues, and the transient occupancy tax we pay here (which is another 14%) Cutting another 35% off of that to have another company manage is still really good return, I think.
We have some long term rentals as well, but our returns are BY FAR better doing the vacation rental.
Vacation Rental is a very safe investment. First of all, you will own Real State, so even if something doesn't go well or you need cash, you can sell at any time (and if you chose a location wisely, its value will increase).
We have been doing vacation rental management in Florida for years and the returns are great! After taxes and management fees, the owner can get 10% + gain directly in the pocket without doing anything.
Sharing economy websites like Airbnb or VRbo are a great platform but you should not rely only on this channel. Airbnb has a big issue with resort and sale taxes. In most cities, they don't collect them and since the competition is hard, you won't be able to charge it to the guests. The best if to gather all advertising channel in one tool to maximize your revenue.
Booking com, Hotels com, Expedia com are great but you really know to know what you are doing otherwise you may rent at lost. Also, make sure you are aiming properties in "Hotel" or "Bed & Breakfast" zoning. If your short-term rental is illegal, you won't be able to maintain a sustainable income and you will risk heavy fines from the city or the IRS.
We are working a lot on Merritt Island and Cocoa Beach in Florida since the real estate is cheap over there and you short rental is legal there.
Bottom line, if you live in a touristic city with no restrictions it's manageable to manage 1 or 2 units. Otherwise, I strongly recommend checking hotel or resort investment program to keep your mind in peace :)
We have a "condotel" on St Pete Beach in Florida. If you haven't heard of the condotel model, you'll want to look it up. Ours is at the Tradewinds resort in the Jacaranda building. We net between $45-50k per year and do zero for it. No cleaning, no calls, nothing. Our LLC bought it 5 years ago, and could be convinced to sell off a percentage. Oh, by the way, each 25% includes a free 7 night vacation at the resort (or broken up nightly) with all on site amenities included. Gulf front, 6th floor (so your views are over the tops of the palm trees) master bedroom with a king to sleep and an ensuite, two other queens, another bath and full kitchen.
You might consider this a hybrid investment with vacation benefits. This is not a time share in any way. Our LLC is on the deed and they sell like regular real estate.
Cheers