Dilemma Short Term Vacation Rental Property or Long Term Rental

Atanas Petrov · 2022-04-21T15:34:12-07:00

Hello everyone,I've been deliberating whether to purchase a vacation home, with the intention to run it as a short term rental preferably within 2-5 hours from Los Angeles where I live. I can not identify a vacation rental market where the word "saturation" is not mentioned which make me insecure whether or not the property will positively cashflow, considering it's a decent house with nice touches, furniture etc. In other words my biggest fear is to put a 20% downpayment may be less, decorate and furnish the place nicely which is easily 20k if it's a 3 bedroom 2 bath, push it on AIR BNB and VRBO, and then not cashflow positively a few months later. I know it will take around 2 months to set up the place and get the permits for short term rental which I can certainly cover financially, and pay the mortgage for up to 4-6 months if necessary. Would any of you vacation rental investors say just go for it, and would you recommend markets that are relatively consistent and would cashflow, and it's not only 1 season market like some of the national parks.I do have 2 single family long term rentals in Los Angeles, a condo, and currently building a 1200 sq ft ADU on one of the properties which will cashflow very very well after it's complete. So I have some experience with long term rentals, tenants, and all the small and big issues that comes with that. I could repeat the process of buying another single family home in LA, rent it out right a way and I will be able cashflow 200-300$ may be more with 20% downpayment with no or minor improvements, talking on about a 1 million price tag of a home. Because of my experience with long term rentals, I would encourage anyone to get into real estate, weather it's house hacking which I have done for the past 6 years, or buying a house and renting it out, perhaps duplexes, of course multifamily I would say just do it, start anywhere you can. Yet when I have to overcome my fear of buying a vacation rental I'm very hesitant and indecisive. What do you think? Are vacation rentals a good strategy to expand outside of long term rentals for better cashflow and appreciate with extra work, or a safer equity long term rental approach.Thank you in advance for any opinions

Marshall Leipprandt

Real Estate Agent · Miramar Beach, FL · Member since 2016 · 285 posts · 245 votes

4y

@Atanas Petrov Hey Atanas, I am an agent and investor here in LA as well. I have a long-term rental in LA and two STRs in the Florida Panhandle. I think just about every good STR market is saturated as you mentioned, but the key to finding a property that will stand out amongst the other options available to guests is finding something that has unique features that renters desire. Things like a high bedroom count to support larger groups, a private pool, newly renovated interior and finishings, etc. One of my properties in FL is basically a duplex although it is a SFH. I rent it as one property and it has done really well with larger groups of friends/families who like having their own kitchen, primary suite, living room, etc. but want to stay at the same property.

I think you could probably find something in your range if you really wanted to go that route, but with CA being generally restrictive on STRs and your desire to be within 2-5 hours of LA, I would think buying another SFH or small multifamily in LA might be your best value for your time. STRs will require A LOT more time, attention, and upkeep and if you only cashflow a couple hundred dollars more per month, it might not be worth your time/hassle.

Although I do like the idea of diversifying into different strategies and markets, I think that your knowledge and understanding of the LA long-term rental market and what it takes to run that system will be easier to scale. You already have all of your systems in place and could add to your portfolio relatively easily. If you buy a STR 2-5 hours away, you will have to establish contacts with the following to help make sure your business runs smoothly: cleaner, handyman, plumber, electrician, HVAC, pest control, landscaping, to name a few. On top of that, you'll likely have to remit state and county taxes (Airbnb/VRBO might do this for you depending on county) for revenue generated as well as get permits with your local city/county.

You may not cash flow as much in the short-term with a long-term SFH or multifamily rental, but adding to an LA portfolio long-term will really build your net worth over the long run.

1 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

4y

If STRs are allowed in your local beach communities, they are an every season STR. However, you have to gauge the STR sentiment as if they get banned or limited that could significantly affect your plans and cash flow.

Mountain areas can have good year round use also. Ski in the cold season. Hike, fish, etc in the warm season. Again you need t judge the STR sentiment.

A lot of people have recently jumped into various desert STR locations such as Joshua Tree. To me JT, death Valley, Borrego, etc are too hot in the summer and only good for ~50% of the year. JT also has had the number of STRs go up so quickly I question if there are that many people who desire to stay in STRs at JT. I have gone to JT virtually every year for the last decade. I camp and enjoy camping at the campground where I can climb at late as possible.

I question your definition of cash flow on your LA LTR. At 80% LTV it is a very rare property in LA that has positive cash flow when properly allocating for expenses. If you can actually achieve the cash flow that you indicated, then that is a great options as the cash flow will improve as the rents increase and historically LA has outstanding property appreciation. Are you familiar with the 50% rule? What does the 50% rule indicate the cash flow?

IMO RE investing is in So Cal is more risky than it has been for years. We have had 10 years of outstanding appreciation, we have a political climate that is anti LL, we have saturation in some of the RE derivatives (STR, furnished 30+ day rentals, etc.).

Good luck

2 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Hey Dan,

Thank you for taking the time to input your knowledge and experience. To answer to some of the details you noted, I will start with clarifying that I'm not looking to do STR anywhere in LA or beach cities, it can be done for up to 90 days per year I believe, with some limitations. I was thinking of some of the ares like you mentioned above because you can technically have permit to run it as a business all year around. Of course some of those markets are very saturated, many people are buying just to buy in these hot STR markets where more experienced investor have already owned and operated property for couple of years at least.

I agree that mountains offer more potential year around, as I myself enjoy the great outdoors very much.

On the question Long Term Rental. On the 2nd house I did it with 15% down payment on 975,000 property, rented it out right a way last year. I put a slightly higher monthly rent in the add just to see what the interest is. There were not only different tenants that were interested, but the ones I rented the house to paid upfront for the whole year. The lease covers my mortgage and the gardener, and of course the rest of the monthly bills are covered by the tenants. Technically I'm cash-flowing 100$ per month with 15% down, and haven't had any issues with the property where I had to spend money thus far, except trimming a tree. May be I got lucky.

Thank you again

Thank you

0 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Quote from @Marshall Leipprandt:

@Atanas Petrov Hey Atanas, I am an agent and investor here in LA as well. I have a long-term rental in LA and two STRs in the Florida Panhandle. I think just about every good STR market is saturated as you mentioned, but the key to finding a property that will stand out amongst the other options available to guests is finding something that has unique features that renters desire. Things like a high bedroom count to support larger groups, a private pool, newly renovated interior and finishings, etc. One of my properties in FL is basically a duplex although it is a SFH. I rent it as one property and it has done really well with larger groups of friends/families who like having their own kitchen, primary suite, living room, etc. but want to stay at the same property.

I think you could probably find something in your range if you really wanted to go that route, but with CA being generally restrictive on STRs and your desire to be within 2-5 hours of LA, I would think buying another SFH or small multifamily in LA might be your best value for your time. STRs will require A LOT more time, attention, and upkeep and if you only cashflow a couple hundred dollars more per month, it might not be worth your time/hassle.

Although I do like the idea of diversifying into different strategies and markets, I think that your knowledge and understanding of the LA long-term rental market and what it takes to run that system will be easier to scale. You already have all of your systems in place and could add to your portfolio relatively easily. If you buy a STR 2-5 hours away, you will have to establish contacts with the following to help make sure your business runs smoothly: cleaner, handyman, plumber, electrician, HVAC, pest control, landscaping, to name a few. On top of that, you'll likely have to remit state and county taxes (Airbnb/VRBO might do this for you depending on county) for revenue generated as well as get permits with your local city/county.

You may not cash flow as much in the short-term with a long-term SFH or multifamily rental, but adding to an LA portfolio long-term will really build your net worth over the long run.

Thank you so much Marshall, I really appreciate your input. I have been doing a lot of research, talking to many people, networking simply trying to learn more about STR. As a matter of fact my first choice for a STR market was initially specifically the Florida Panhandle. Then I realized that it's hard and expensive to get a direct flight from LAX, and I would have to spend some time there 2-3 months to set it up, make contact and find people to work with in all of the above, cleaners, handy man and so on, and set it all up which is easier said than done. Unfortunately I can not take off 2-3 months from my work life in LA and focus on identifying, purchasing, perhaps upgrading, and setting it all up for a STR. I admire that you did it and soon or later I will get to that point owning a property in a different state.

I will keep the STR options on my mind and keep a close eye on the opportunities here in LA and I'm sure that it will all come into place in the next 2 months before I make a decision and commit to either strategy.

Thank you again

2 Reply

Jossalyn Wallace

Real Estate Agent · Destin, FL · Member since 2019 · 116 posts · 111 votes

4y

Hey Atanas, I am a realtor and investor in the FL panhandle and our STR market is very desirable here. If you can't find something in LA would definitely suggest taking a look here. Miramar Beach, Destin, Panama City Beach, and Fort Walton typically have the best returns. Let me know if you have any questions!

3 Reply

Kevin Pillow

Realtor · OK · Member since 2020 · 139 posts · 165 votes

4y

I would second what Jossalyn said about the Florida Panhandle. Also, Governor Desantis just announced the longest Red Snapper fishing season ever in state history. This is just one more example of how the state supports tourism growth, especially on the coast and STR property owners here are the ones that benefit the most.

0 Reply

Marco Egurvide

Rental Property Investor · Los Angeles CA · Member since 2021 · 28 posts · 15 votes

4y

@Marshall Leipprandt I also reside in SoCal looking to invest in FL, cost to entry and appreciating values. I would love to connect , pick your brain on where you stand with your boots on the ground team in Florida. Thanks for sharing your experiences.

0 Reply

Brian G.

Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes

4y

@Atanas Petrov if you have time freedom to respond to the occasional issue, are willing to learn how to self manage remotely (lots of people do this!), run a more active business and your goal is primarily to increase your income then STR is the answer. If however you don't have time freedom or the desire to learn the biz or if you prefer a more passive investing approach then LTR is your answer. FWIW, STRs bring more drama and occasional issues but the returns can definitely make it worthwhile. Good luck with your decision!

0 Reply

Josh Maier

Real Estate Agent · Panama City Beach, FL · Member since 2021 · 23 posts · 24 votes

4y

Hey there @Atanas Petrov,

I think to speak to your hesitations of the saturation of STRs many people get intimidated by the amount of competition that these markets bring. Competition will definitely increase the risk in theory of diving into any market whether it is LA,FL,TN, ETC. Where there are more rentals there are more options for guests to choose where to stay. However competition also speaks to the health of that market as well. Where there is a solidified STR market there is much less likelihood of future legislation prohibition. Also in these areas with healthier STR markets there is much longer history of sustained travel to these locations limiting the chances of decrease travel over time. Finally in the more matured markets the vendors to include agents,lenders,cleaner, handymen, managers, etc are all seasoned and know the ins and outs of the industry. This allows you to have a much smoother transition and acquisition of team members initially to make you successful.

Wish you the best of luck my friend!

1 Reply

Villy Ellinger

Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes

4y

Hi, @Atanas Petrov! First of all, glad to meet a fellow Bulgarian investor :-)! (Аз съм от София. Сега живея във Форт Уолтън Бийч, Флорида, близо до Дестин :-)). I don't know much about the California market, so I will not comment there. I see several comments above about the Emerald Coast of Florida/ Panhandle (that is where I am). I'm a real estate agent here, but primarily I'm an investor and my main investments are short term/vacation rentals. I have done some flips and rehabs, and I have also done some long-term rentals (in Memphis). I like short term rentals the best. I find the industry enjoyable and challenging and I like being hand's on. Also, profit potential is definitely better with STRs. If you do not want to "deal with it" and want someone else to manage for you, that is fine. BUT, in STR (in my opinion) you will never make the kind of profit that you can unless you do it yourself and you do it hands-on. STR is NOT a passive type investment. It is a hospitality business. So it's more like running a hotel than a rental.

I'm a control freak, lol, so I don't like that in a long term rentals I have no idea what the tenants are doing in the property and if I need to evict them, it becomes a legal nightmare.

I do like rehabs... to a point. Babysitting contractors and vendors gets old, lol. Also, I do some of the finishes myself, so I'm not always in the mood to grout tile, lol.

All that said.... currently the market here is ... stupid expensive and hot. So buying something that will cashflow immediately is super hard. I like smaller condo, because I find the rent per sq ft is higher and there is better ease to maneuver marketing strategy when the market shifts. They are definitely more labor-intensive per sq ft, I agree. Last week I made an all cash offer (condo in Sandestin, FL) with 20 day close, no contingencies and $10K over ask price ... and I did not get it. There were 9 other offers. People are buying here in FL because they are afraid the inventory (close to the beach is limited). If you are looking to buy here, I would say make sure you like the area, so you can visit enough and also, maybe look at in long-term. Cuz prices are definitely not "a deal" right now. Also, if you are looking to finance, might prepare for significant appraisal gaps on desirable properties. And definitely use a local lender if you finance a condo.

Успех!

1 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Quote from @Jossalyn Wallace:

Hey Atanas, I am a realtor and investor in the FL panhandle and our STR market is very desirable here. If you can't find something in LA would definitely suggest taking a look here. Miramar Beach, Destin, Panama City Beach, and Fort Walton typically have the best returns. Let me know if you have any questions!

Hey Jossalyn,

Thank you for reaching out. I'm confident I can find a property but whether or not the numbers will make sense is another story. Regardless I'm planning a trip to the 30a area to explore and learn about your local market . I will reach out

0 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Quote from @Kevin Pillow:

I would second what Jossalyn said about the Florida Panhandle. Also, Governor Desantis just announced the longest Red Snapper fishing season ever in state history. This is just one more example of how the state supports tourism growth, especially on the coast and STR property owners here are the ones that benefit the most.

Thank you for your input Kevin, I have been learning and hearing so much about the Florida Panhandle and will certainly come down to become more familiar and knowledgeable.

0 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Quote from @Josh Maier:

Hey there @Atanas Petrov,

I think to speak to your hesitations of the saturation of STRs many people get intimidated by the amount of competition that these markets bring. Competition will definitely increase the risk in theory of diving into any market whether it is LA,FL,TN, ETC. Where there are more rentals there are more options for guests to choose where to stay. However competition also speaks to the health of that market as well. Where there is a solidified STR market there is much less likelihood of future legislation prohibition. Also in these areas with healthier STR markets there is much longer history of sustained travel to these locations limiting the chances of decrease travel over time. Finally in the more matured markets the vendors to include agents,lenders,cleaner, handymen, managers, etc are all seasoned and know the ins and outs of the industry. This allows you to have a much smoother transition and acquisition of team members initially to make you successful.

Wish you the best of luck my friend!

Hey Josh,

I agree with you 100% I am going to start traveling and looking into properties and meeting with local agents to get a first hand perspective, and that would help me to move quicker. I appreciate the support, it honestly gave me a burst of motivation, because for the past month I started doubting by strategy but after hearing so many people's opinions and encouragement I'm mentally ready to make a move. Thank You

0 Reply

Atanas Petrov

OP

Investor · Los Angeles · Member since 2021 · 16 posts · 10 votes

4y

Quote from @Villy Ellinger:

Hi, @Atanas Petrov! First of all, glad to meet a fellow Bulgarian investor :-)! (Аз съм от София. Сега живея във Форт Уолтън Бийч, Флорида, близо до Дестин :-)). I don't know much about the California market, so I will not comment there. I see several comments above about the Emerald Coast of Florida/ Panhandle (that is where I am). I'm a real estate agent here, but primarily I'm an investor and my main investments are short term/vacation rentals. I have done some flips and rehabs, and I have also done some long-term rentals (in Memphis). I like short term rentals the best. I find the industry enjoyable and challenging and I like being hand's on. Also, profit potential is definitely better with STRs. If you do not want to "deal with it" and want someone else to manage for you, that is fine. BUT, in STR (in my opinion) you will never make the kind of profit that you can unless you do it yourself and you do it hands-on. STR is NOT a passive type investment. It is a hospitality business. So it's more like running a hotel than a rental.

I'm a control freak, lol, so I don't like that in a long term rentals I have no idea what the tenants are doing in the property and if I need to evict them, it becomes a legal nightmare.

I do like rehabs... to a point. Babysitting contractors and vendors gets old, lol. Also, I do some of the finishes myself, so I'm not always in the mood to grout tile, lol.

All that said.... currently the market here is ... stupid expensive and hot. So buying something that will cashflow immediately is super hard. I like smaller condo, because I find the rent per sq ft is higher and there is better ease to maneuver marketing strategy when the market shifts. They are definitely more labor-intensive per sq ft, I agree. Last week I made an all cash offer (condo in Sandestin, FL) with 20 day close, no contingencies and $10K over ask price ... and I did not get it. There were 9 other offers. People are buying here in FL because they are afraid the inventory (close to the beach is limited). If you are looking to buy here, I would say make sure you like the area, so you can visit enough and also, maybe look at in long-term. Cuz prices are definitely not "a deal" right now. Also, if you are looking to finance, might prepare for significant appraisal gaps on desirable properties. And definitely use a local lender if you finance a condo.

Успех!

здравей Villy ;), it's pleasure to meet you as well. I wrote a very long reply and somehow it didn't post so this time I will be brief. It sounds that you have had quite a bit of experience and you are no hands on the STR business, which is wonderful. I personally am familiar with LTR rentals and as far as the STR approach, I'm very aware that I would be managing it myself especially in the beginning so that I can learn and make the most out of it. I have been running a small e-commerce business for quite a few years, and have years of experience with customers, customer service, marketplaces, selling platforms, softwares, problem solving, and so much more that it makes me very confident that I will transition to STR rather quickly compared to someone who has no experience in anything online and long term rentals

The competitive nature of the market in your area sounds a lot like what has been happening in LA and some of the vacation rental markets that I have been analyzing.

Thank you for your advice regarding the financing and the appraisal gaps. This has been the trend in many vacation rental markets, many agents have mentioned it right a way, and I hear about more and more properties outside of a vacation market that went through a similar ordeal. One of the reasons many single family homes get back on the market is due to not being appraised at the selling price, which is so high due to the bidding wars.

Thank you for sharing your life experience and professional opinion and advice.

Do skoro

0 Reply

Jossalyn Wallace

Real Estate Agent · Destin, FL · Member since 2019 · 116 posts · 111 votes

4y

Quote from @Atanas Petrov:

Quote from @Jossalyn Wallace:

Hey Atanas, I am a realtor and investor in the FL panhandle and our STR market is very desirable here. If you can't find something in LA would definitely suggest taking a look here. Miramar Beach, Destin, Panama City Beach, and Fort Walton typically have the best returns. Let me know if you have any questions!

Hey Jossalyn,

Thank you for reaching out. I'm confident I can find a property but whether or not the numbers will make sense is another story. Regardless I'm planning a trip to the 30a area to explore and learn about your local market . I will reach out

Yea, I am not familiar with the CA market so can't speak to that but we do have some good cap rates around here. Sounds good!

0 Reply

Dilemma Short Term Vacation Rental Property or Long Term Rental

Dilemma Short Term Vacation Rental Property or Long Term Rental

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