Anyone invest in vacation rentals?

Question

We will be in the Pensacola/destin area soon. And were considering investing in a Condo or some kind of vacation rental. Anyone have success, or know anything about this type of rental? We live in Illinois, so we would need to have someone else manage the property.

Julie McCoy · Answer

Hey @Heather Rodden! I own four vacation rentals; one in California, three in the Smoky Mountains of Tennessee. They've effectively gotten me to financial freedom. They can be awesome investments in the right market. I don't own anything in Florida, but I hear Destin and the surrounding areas can do quite well. @Matt 'Roar' Gardner is a great resource there, and so is @Avery Carl.

Zachary Yelder · Answer

@Heather Rodden great plan in doing a vacation rental. I'm in Phoenix and warm climate markets do well with these depending on the city and what attracts them there. A few things I would focus on for your rental is, convenience, does it have high walking score neighborhoods and cater to grocery stores, food, bar, major attractions, etc. Proximity to airport for travelers. Crunch your neighbors for the low season and base your cash flow off of that. If you can cash flow decently off of the slow months, it's something to pick up. I actually have a video on my page about short term renting. Follow my Instagram link and it's there for you. I hope that helps a little.

Karl McGarvey · Answer

@Heather Rodden keep in mind that the area in FL you are wanting to invest in will possibly not rent out year round because it gets cold in North FL during the winter months. Just something to factor into your analysis. That being said, tons of people are successful there!

Matt "Roar" Gardner · Answer

@Julie McCoy - Thanks for the shout out! :)

@Heather Rodden - I would love to connect with you when you're in the area.  I have a larger AirBnB in Destin that sleeps 14, and I'm closing on a smaller condo this Friday (hopefully) that sleeps 8 in Okaloosa Island.  I have helped clients from big to small find investments along the coast.  @Melissa Jolley nailed it with most of the things that she said.  If you have the capacity to self manage, then you should have no problem cash flowing if you buy right.  If you are looking to get a STR management company, they generally take a large portion (if not all) of your profits.

Depending on your investment goals, either course of action may work for you.  I have plenty of clients who are happy to have minimal cash flow but are able to access their beach house in the off season with their family.  Others never visit their property and never intent to do so.

Let me know if I can help you out in any way.  I think you're going to love it here. :)

Also, I have a monthly meetup https://www.biggerpockets.com/forums/521/topics/737785-real-estate-investing-and-exp-realty).  If you're in the area, we are meeting this Wednesday!

Brant Richardson · Answer

Check out this post on the forums "I'm selling my long term rentals and moving to the beach"https://www.biggerpockets.com/forums/311/topics/700529-im-selling-my-long-term-rentals-and-buying-beach-property

Melissa Jolley · Answer

@Heather Rodden I am a local real estate agent in the Destin area. The benefit of a vacation rental in this area really depends on the strength of the marketing skills (photography too), the number of nights the owner plans on staying at the property and whether or not you can self-manage.

Closer proximity to the beach and the number of beds will be the basis for what you can charge. Full-service property management runs anywhere from 18%-25% here. Some have additional fees on an annual basis for marketing.

If you are looking into a condo...make sure the association is keeping adequate funds for capital expenditures. Condo-tel type rentals sometimes do better with owners who can't self manage but don't want to pay HOA fees and PM.

Let me me if I can help.

Matt "Roar" Gardner · Answer

@Wendy Schultz, thanks for the point out! As far as expected return, it weighs heavily on how you buy and how you manage.  For example, we purchased my first AirBnB at $565K, and we made about $58K from March to August.  My goal is $80K annually on this house, but we'll probably hit closer to $70K.  That is with my partner and I self-managing. Contrast those numbers with what I was told my house would produce if I went with a larger management company in the area -- I was told by that manager that my house would produce a maximum of $45K gross... I was thoroughly unimpressed and underwhelmed by them.

Wendy Schultz · Answer

My suggestion when investing in vacation rentals is to determine your primary goal and then work from there. Is this a property you intend to use for your family and offset/earn income with rentals or is this a place that's purely an investment? If you are planning to use it purely for investment, then the next thing I would do is to talk with someone who knows the market and what things cost and what the average gross rent is for the area. ie, I've been told Destin is about a 10% annual gross revenues of the cost of house. A $800,000 house will bring in about $80,000 gross annually. @Matt 'Roar' Gardner would be a good resource for you. Other areas like Kissimmee can get closer to 20% gross annual revenues. Currently, my rental there we bought for $365,000 and we have gotten about $40,000 ytd in its first year. I expect that number to continue to grow. When there are a lot of vacation properties for renters to choose from and there's more supply than demand, you have only two ways to make money... stand out because you're the cheapest or stand out because you're the best.

Will Spence · Answer

Vacation rentals can be a great investment that can produce fantastic returns if done correctly. If the rental you are looking to invest in is walking distance or a short drive to the beach or local hangouts/restaurants, that would be ideal. Convenience is vital, so think about if you could see yourself feeling at ease and comfortable on your vacation if you were going to be staying in the rental.

Once you have found a location that is easily accessible and close to nearby hotspots and amenities, you should conduct a market analysis. Comparing other rentals and what they are producing for landlords monthly, along with what the demand is like in that area is very important to get the most bang for your buck out of the purchase. Look at properties similar to the one your interested in and see how profitable they are and the time they spent on the market.

The biggest key is obviously to make sure your going to be bringing in more money than you are having to spend, so making sure that the place is not going to be high maintenance and if you won't be managing it yourself, that your extra money isn't immediately going to your property manger. You'll also want to account for the winter months or time spent when it is vacant when thinking about the amount of money you'll be bringing in compared to what you'll be spending on the mortgage.

Overall a rental near the beach in that area is likely a great investment when done properly. Hope everything works out great for you!

Wendy Schultz · Answer

@Mike Ko Some property managers will out perform the owners but that depends on how savvy the property manager is or how savvy the property owner is. We've found most owners undervalue their properties leaving a lot of money on the table.

Anyone invest in vacation rentals?

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