Are vacation rentals a good first investment?

Question

Hello. My name is Rob Farris, I'm from the Stockton, CA area. I am super new to the real estate world, but am ready to learn and grow.

Initially, I was interested in getting in to the buy and hold strategy to create a large enough cash flow over 15 years to be able to retire and an younger age. I still love that idea, but at a local real estate investors get together, we had a guest speaker talk about vacation rentals-specifically through Air BnB. We were basically shown a site that lets you enter in the data from the prospective property, which it will then tell you the average price per night per bed/bath and the average occupancy rate through the year. It also has areas to enter in expenses.

After having the idea in my head I went and looked at a few houses around my area and then at popular tourism areas within 4 hours of where I live. The numbers were undeniably impressive. Like I mentioned earlier, I am very new to this world, but even after entering in what I would consider to be pessimistic numbers, the properties I analyzed still cash flowed significantly more than traditional renting would.

Now here comes my two dilemmas. The first being that I am currently a full-time student, so financing is a little tricky for me. I am a veteran so I always planned on using the VA loan offered to do a "house hacking" situation, but I honestly don't know that they would help for a commercial investment like this. I have enough saved to put about 15% down on a house and still be able to do a light rehab, but I'm not sure that would be the best way to go with my money. The second dilemma is that I am simply unsure that these deals are as good as they seem to be. I'm not sure if it's common in new investors to have this much uncertainty. If there are any suggestions on how to improve property analysis, I would sincerely appreciate them. Also, if you have any advice for me and my introduction to becoming a real estate investing career even beyond the vacation rental stuff, I would LOVE to hear it. Thank you for you time and have a wonderful day!

DJ Dawson · Answer

@Robert Farris the VA loan will only work up to 4 units so keep that in mind, competence breeds confidence, the more you analyze deals and run numbers it will make you that much better at the process and thus more confident that you know what you’re looking at. My suggestion? Just rent rooms on a lease out the gate, get your feet wet as a property owner and landlord in a situation w much less variability that would come with short term rental guests maybe 10-15 different guests every month. It may be a bit much for a full time employee and first time investor to bite off and ensure you’re working with an agent who is not only an agent but an INVESTOR. They need to be able to know exactly what your goals are and help you run numbers accordingly

Sharon Beatty · Answer

@Robert Farris I think it's possible to combine your house hacking with an Airbnb rental. There are people that rent out rooms in their house on a short-term basis. That will allow you to use your VA loan which is very valuable due to the low down payment requirements. I know because we used my husband's VA loan for our house. We created a separate apartment in the basement and rent that out. We signed a covenant with the city of Portland where we live to say that we won't do a short-term rental for 10 years. But a work around is that we could rent month to month and I'm seriously thinking about that after our bad tenant experience. If you have money for a light rehab perhaps you could do something like convert the basement?

Are vacation rentals a good first investment?

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