Macro Discussion: Vacation Rentals in Retirement Areas

6 Replies

Hi everyone,

I have been exploring some options buying properties (as previously posted) but have not found an attractive deal yet. A family member of mine owns ~8 rental properties, mix of annual lease and AirBnB vacation rentals.

He has been pushing me towards a couple areas on the coast in Florida such as Naples and Cape Coral. There are pockets of areas that have not returned to pre-recession levels but activity has been on the rise and he has been able to upcharge for vacation rentals in the area.

My issue is that when I look, there appears to be a large supply on the market. When I asked a broker about it, he mentioned these areas are predominantly retirees etc. who have passed away and the family is selling the home, or downsizing due to move into assisted living facilities.

I'm wondering if you agree or disagree with me here. I read about the aging population etc. and how it should be a tailwind for this type of market, but I think it's possible that as more and more of the baby boomer pass away, run through retirement funds (something like 60+% of retirees have less than $100k), unfunded pensions that never come to fruition, move into nursing homes, etc. that the price appreciation in the area is muted as there will be more and more supply in the market despite more and more investment money sloshing around. Surprisingly enough, I think the Millennial population is growing faster than the baby boomers, and thus one would actually look into areas where millennials are getting new jobs (Nashville, Austin, SoCal, etc.) 

Just a thought, maybe I'm wrong and more and more demand will be prevalent as more people retire, but when I look at the macro trends I get more concerned about projects luxury good sales (such as nice rentals on the water in Cape Coral) and more and more bullish on cost-efficient healthcare services (think adult day care centers that provide basic care but lower the cost on the healthcare system by keeping people out of expensive nursing facilities and into cheaper care).

I don't know that there are any "cheap" old age/retirement facilities. None that I have seen at least.

If you can find a cost effective adult day care/retirement facility/whatever the politically correct term is, please let me know I would be all over that.

Personally I think Cape Coral is an excellent market to be in. The amount of new builds in that county is very nice. You can still get lots there cheap.

Luka - if you’d like, PM me and we can have a more focused conversation on healthcare facilities. I’m a private equity professional and have invested in businesses in that space, but I think it’s off topic for this thread. 

Mike - that is my sense as well, I’m just kicking the tires and trying to get a better sense as to the macro trends and key drivers for driving price appreciation in the area. Looking at Naples and Fort Lauderdale you see similar homes on the canalfront/waterfront priced much higher. I’m wondering if Cape Coral can inch it’s way near those levels. The key is understanding the supply demand balance in the area.

I see a ton on the market in Cape Coral. If the reason for that is retirees passing away or moving into healthcare facilities, I’m wondering how long that supply continues with an aging population. 

Also you brought up new builds. I agree, that appears to be at play there. A lot of old homes on the market. Does that materially impact rental opportunities? I.e. the more new homes put up, the less attractive an older home becomes in the area for vacationers. The demographics are important. Itd also be interesting to look at the land to building value ratio (I just made that up, but the price of the land compared to the price of the land+building) and see at what point it becomes attractive to buy for a teardown. I see some really nice locations with some older crappier looking homes right on the water for pretty cheap. Maybe those are good teardown opportunities but tough to value?

Naples is a much more expensive market than Cape Coral. I would look at Port Charlotte over Cape Coral, but Naples is better than both. Also see Sarasota and Bradenton.

@Troy Hebert Cape Coral is a nice area to vacation. I own properties there, but they are yearly rentals. The problem with vacation rentals is the main season is from Christmas to the end of march. So called snow birds fill up the area. After that it is pretty thin on vacationers. I do agree that Naples is a much higher end area. I think you might compare the crime rates of  Fort Lauderdale to Cape Coral / Naples. 

Good Luck in your search.   

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