I'm just getting started here and currently don't own any properties. I'm definitely a "n00b". I have a full-time job and my short-term goal is to get my feet wet and have a property that generates cash flow of roughly $800/month, on average, after expenses. I'd like to build up a cash reserve through this first property so I can re-allocate the cash flow to additional properties in the future.
The reason I'm looking into PS is because I live in LA and it's a relatively close proximity, with seemingly good short-term rental demand throughout the year (although mostly during winter and spring months).
I'm wondering if anyone has any experience in this market? Specifically what the demand looks like and what to expect in terms of seasonality. I also understand that certain areas have short-term regulations (specifically Palm Springs). Others like La Quinta, PGA West, etc. have looser restrictions which is where I'm targeting.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
6y
Happy to chat! I've also got a great Realtor that used to run a STR management company, if you are looking for a referral to someone that knows the space and ordinances of the various cities really well.
This is a topic I have been diving into hard myself the last 3-4 weeks. I am also a Socal investor who likes vacation rentals I can drive to (and potentially use). I would reach out to John D (I need to do so myself) and his Realtor / PM friend and pick their brains heavily. PS has a lot of weird ordinances, STR restrictions, costs, etc. You need to get a serious handle on all that before you spend the time to investigate which type of property you want to invest in.
One thought off the bat: how did you arrive at wanting "generates cash flow of roughly $800/mo" and what is your goal, budget, and plan to do so? It's a pretty lofty goal for SFH STR with 25-30% management fees.
From my research, personally I believe that will be very difficult to attain, on net revenues accounting for PM fees, maint, capex, utilities, etc. Curious to hear your plan.
John will probably tell you (my assumption based on what I believe his business model to be) you need to go with a larger / higher end SFH that can house lots of people in a party pad type model, that go for $500+ a night. But that is higher cost and higher risk. Not a "get feet wet" type move.
I am currently in deep offer analysis on a MF prop that you can only LTR (yearly lease) or STR of 28 or more nights (basically monthly rentals, for snowbirds, summer crash pad, etc.). No nightly rentals (what most consider STR) due to city ordinances. Different business model you really have to account for and plan to execute on correctly. I think I can cash flow $700-1000/mo but really depends on the maint/capex costs. If I remodel enough at purchase I should be good for a while, but you never know.
Look forward to hearing your responses to my question above. I do love this market, it is a high demand area with many bustling scenes and great weather, and IMO fairly recession robust because it is more of a high end destination, meaning most visitors are not as affected by downturns. And the restrictions -do- create opportunity if you find them, because of limited inventory.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
6y
There are some options in Cat City that will be a good blend of lower price point, and substantial cashflow. Just need to be ready to pounce when they change the rental ordinance again, or set up a long escrow.
There are some options in Cat City that will be a good blend of lower price point, and substantial cashflow. Just need to be ready to pounce when they change the rental ordinance again, or set up a long escrow.
Hey John are you still using a pricing tool like Wheelhouse or Beyond Pricing on your PS rentals? Saw you mention it in an older thread. I'm looking into them. Wondering if they've gotten any better with dynamic pricing around all the big events in PS that pop rates up. Or do you mainly do manual tweaking? Thx
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
6y
I am using Wheelhouse, but we price the Festivals and major Holidays by hand @Tom Kastorff. It's a great tool but no matter what pricing software you use, you'll need to steer it.
Rental Property Investor · Las Vegas, NV · Member since 2014 · 137 posts · 118 votes
6y
Thanks @John D. I will give Wheelhouse a 30 day trial when the time comes. Appreciate the insight. Agree on the need to steer/guide just to make sure, too many big events in PS to overlook and miss out on revenue.
One thought off the bat: how did you arrive at wanting "generates cash flow of roughly $800/mo" and what is your goal, budget, and plan to do so? It's a pretty lofty goal for SFH STR with 25-30% management fees.
Thanks for chiming in TJ. I currently don't have management fees baked into my model, which is why this figure seems high. My mom could potentially serve as property manager to save these costs, but TBD if that would work logistically. Assuming I go with property management, cash flow would look more like $500/mo. This assumes ~40% average occupancy rate annually.
Happy to discuss more offline too. I'm going through a lot of research right now and planning on a visit to the area on the ground to dig deeper.
Rental Property Investor · Las Vegas, NV · Member since 2014 · 137 posts · 118 votes
6y
Good add-on thoughts @Jeff Davis. I am open to chatting anytime if you want to ping me. Some reactions to your inputs:
If you plan to STR in PS, you have to add 25-30% PM fees to your gross estimates. Period. Unless your mom lives around the corner and wants to manage 30-150 cleans and maintenance checks a year for free, that is not going to work. I'm a momma's boy but I doubt my mom would put in tens of hundreds of hours of work for me for nothing. So no matter how you slice this, you will need to pay something somewhere. This sector is the biggest eater of margins and can decide a profitable holding versus a loser. I see no logical way you can go from $800/mo cash flow to only $500/mo factoring in PM fees. You have to take 25-30% margins off the estimated gross rents. Something like this as an example of a simple SFH purchase in PS with PM fees.
$600k SFH purchase price (decent 3br/2ba with pool in walkable area)
25% down 4.5% non-owner occupied loan rate = around $3000/mo PITI allin
let's say you can do 1% rule on $600000 place is $6000/mo in gross rents which would be awesome for PS ($72k a year, way above avg)
$6000/mo * 30% PM fee = $1800 fees = $4200 left net to you
Add in for STR you pay all the utilities - power, pool, gas, heater, AC (summer in PS baby!), pool cleaner, lawn, maintenance, cable, internet, netflix
How much will you really have after $4200 minus $3000 PITI minus all your utilities and expenses and factoring in maint / capex / etc?
Probably not $500-800 ...
And $72k annual gross on a $600k house in PS is likely VERY generous. Prob closer to $50-60k annual gross
Also I didn't even factor in the $944 annual permit cost for STR in PS, and the 12% town TOT taxes you pay on every rental. $$$$
You will need a lot higher booking rate to make money.
Some data to chew on.
Open to chatting anytime. As you can see I have been doing my homework too. If this is the route you want to go - SFH rental - I would call John D, that is what he is doing with volume. He can probably steer you in a better direction. I am trying to stay away from the SFH model.
Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
6y
@Tom Kastorff most vacation rental investor are looking for closer to 2%, not 1% (excluding TOT tax from the rental revenue). No way the numbers work at 1% of PP per month in gross rents.