Are Vacation Rentals ever cash flow positive?
Most Popular Reply
Military · Pensacola, FL · Member since 2014 · 53 posts · 63 votes
11yI own a waterfront VR in Pensacola Beach, FL. The minor cash flow it produces is almost meaningless. Even those who say that VRs CF would likely concede that their money and time could be spent more productively elsewhere. I liken it to a timeshare with equity buildup. Appreciation is the big unknown on these properties...but that's not CF.
VRs have expenses you wouldn't ordinarily pay on a std rental. Below are a sampling that I've seen to date. These are real numbers on a $750k house. I wrote this for a friend, but I'll post here for general use.
Mgmt: 10-20% of gross rent. 10% if I coordinate the bookings, and 20 if I do a complete handoff. I strongly believe in the former. I control my brand, I have extreme agility with my rates, I control my marketing, etc. if it doesn't rent, I have only myself to blame...which is my preference as a control freak. I convert about 1/10 inquiries to bookings. Each inquiry takes about 5-15 min of work. This is a game of minutes...you have to act fast or your prospective guest will move on to their next choice.
Utilities: You pay all utilities. My power bill was $450 last month. Tenants are not shy about temp set points in the 60's. I know because I have wi-fi thermostats and I monitor them. This also allows me to put them in 'vacation mode' from afar if I have some vacancy. You're also paying for a full cable/internet/phone bundle. WIFI is expected, and a landline phone is handy for reaching your guests mid-stay. Cost: $100 Water/sewer is standard for a home of this size: $120
Marketing: VRBO and Homestay is $400/year for the lowest plan option. Up to $1200/year for highest search ranking. They also allow you to run "specials" which I've used to pump out discounts. $20/week, 2-week min. FAcebook ads are giving me limited success. I've dropped about $200 there, but now sure how much conversion I've had off these.
Turnover: Cleaning and linen for my house is $250. This provides hotel quality cleanings with the same crew each week. They also provide towels, sheets, soap, shampoo, sponges and dish soap. (Think Country Inn & Suites).
Damage waiver is $50. This is like a pooled insurance policy through the Mgmt company. Better than a large security deposit in my eyes.
Credit card fees. Somewhere around 2-3% of gross costs. I'm paying $50-80/booking.
Hotel Tax 11.5% on rent, cleaning and damage waiver. All these fees/taxes are charged to the tenant (except CC fees), but they serve to limit profits. If a family's budget is 4k, you'll only be able to get rent in the 3200 range...then pay Mgmt compactly 10% plus CC fees.
Furnishings: Dishes, furnishings, AV, games, etc. you need to provide a full home, replete with everything they need that isn't consumable. Beach chairs, sand toys, board games, grill are all expected. A full kitchen is also expected. (Including baking ware, crock pot, griddle, etc). When gramma wants to make her traditional pie for summer vacation, she needs everything to do it. Keep in mind everything in this list needs to be refreshed periodically.
Concierge service. When people drop $4k/week, they feel entitled to ask for anything and I don't blame them. Even tho 25% of that cost is straight to fees. I have sent flowers, picked up specific kitchen items, coordinated fishing charters, and helped draw out weekly itineraries. I make it clear that once they check in, all requests go through The mgmt company (to eliminate urgent requests of me), but up front, I probably spend 2hrs per booking to give them a custom vacation. And I don't bill for the small stuff.
Maintenance Coastal homes have a high maint burden, and VRs have a very high std for functionality. There can't be any 'idiosyncrasies' about the home. Everything just has to work. This was my biggest initial expense, along with furnishings (even tho house was bought furnished).
Time: I spend about 30min/day on marketing, inquiries, pre-arrival comms, and post-guest follow up. It's gotten easier, but still needs to be done if you want to run it like a business.
Liability insurance: Std fare for you but don't forget it. I'm at $525/yr just for liability. Flood is $6k. Taxes are somewhere around $12k. Fire/wind is $2600. Lease fee is $800.
Owner use: You're obviously losing revenue, but also have to budget for cleaning, either in terms of your own time or $$. I pay the $$ because all my discretionary time is spent on maintenance. I don't have 2-3 hrs to clean at the end of a sun drenched weekend.
Future costs: VRs are getting mainstream. I forecast having to provide paddle boards/kayaks/fishing gear to differentiate myself in the next season or two. I'm also considering a strategic partnership with a fishing charter service, but will wait until offseason to begin those discussions.
Bottom Line: There are market specific items that will improve your bottom line. In my area, proximity to the beach, a pool, and heads-in-beds directly translate to higher rents. "Check as many boxes" in your market, and get a deal on the home and you have a chance to make $$$. (Ex: Having a dock in my area is a large expense that doesn't translate to much more revenue).
Hope some of this helps.
-Tim
125 Replies
@Jeff Kehl, sending you a PM to avoid posting a link here. Unsure on the rules.
- Rental Property Investor · Panama City Beach, FL · Member since 2017 · 44 posts · 44 votes8yJeff Kehl not sure you can get them to positive cash flow without self managing. That happens to be one of those 10 factors. Here are the 10 factors in my opinion that you need to get right to make them work: 1. Buy in a good property/resort 2. Keep the HOA at a reasonable amount 3. Don’t overpay and generally stick to 3 and 4 bedroom units to maximize profits 4. Find the right market (Example: Panama City Beach provides much better ROI than Destin or SeaSide because of the price point). 5. Create a stunning listing on VRBO, HomeAway, AirBnb, flipkey and booking.com 6. Renovate or rehab the property to make sure the decorations are better than the competition so that you stand out amongst the other 15,000 properties you are competing against. If needed hire a high end decorator to make it stunning. 7. Figure out how to get professional pictures for the listings/ads to stand out 8. Use all tools to increase your rankings on the listing sites such as responsiveness, pricing, reviews, etc, 9. Make sure to provide outstanding responsiveness to get nearly 100% 5* reviews. Very important. 10. Self manage to maximize profits.
- Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes8y
LOL! This discussion topic is a bit mind-boggling for me. YES, you can absolutely make cash flow in vacation rentals. I make $25K+ per year clean pre-tax cash throw off (i.e. after cap ex and financing expense) on each of my larger two vacation rental condos on Okaloosa Island, FL and about $10K on my STUDIO in Fort Walton Beach. I self manage and use VRBO and Airbnb. I know a number of other people who pretty much use the cash flow from their vacation rentals here on the Gulf Coast of Florida as their primary source of income. I'm not familiar with vacation rental markets in other parts of the country, so can't really comment on that, but.... with the right location, right property and right management/pricing approach, you can definitely get positive cash flow. If you have any specific questions, please message me.
- Real Estate Agent · Fort Walton Beach, FL · Member since 2018 · 219 posts · 275 votes8y
@Brandon Richardson I'm in Fort Walton Beach. All three of my condos have almost year round occupancy. I'm surprised to read your comment about your Destin condo not being rented from October to May. That seems like a waste. I can share the links to my places for you to see what I get booked, etc. I live in Fort Walton Beach and in addition to being a real estate agent I have a business that assists vacation rental owners who manage their properties on their own from a distance. If there is any way I can assist or if you have any questions, etc, please feel free to message me.
thanks for starting this thread @Jeff Kehl . Between the HOA fees and insurance, I've had a hard time analyzing a vacation property that produces positive cash flow. Looking forward to sifting through the 5 pages of replies!
- Rental Property Investor · Englewood, FL · Member since 2016 · 30 posts · 21 votes8y
Just my 2 cents
When doing Vacation Rentals I stay away from Condos and places that have HOA's
Condos and HOA'S tend to have restrictions on Vacation Rentals, usually minimum stay periods. Usually min stay of 1 week or 2 week
Example. Here on Manasota Key in Southwest Florida our Winter Season starts in October and Goes to the end of April
With January February March and April being the high season.
Most renters in high season are staying 1 full month if not 3 or 4 months. So not a problem with condos and HOA'S
But now in the summer month (low season) most of our renters are 3 and 4 day getaway vacationers.
These vacationers can not stay at most Condos and HOA'S
So my 1 quad plex as example did just over $9175.00 in June all 3 and 4 days not 1 person rented for a whole week.
Our friends that have 5 units in condos say they did not break $2000 for June , they had only 2 vacationers that rented for a week in June.
Yes it is more work doing a bunch of 3 and 4 days but well worth collecting pennies to make a dollar.
- Realtor · Murrieta, CA · Member since 2016 · 373 posts · 203 votes8y
Yes, yes and yes. We love it so much we are closing on our 2nd soon. As other people have mentioned here, the goal is to look for a market with year-round travel. There are many places in the U.S. people are ALWAYS traveling too. Figure out why people go to that area, capitalize on that. Hope that helps!
- Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes8y
@Villy Ellinger Yes, but you self-manage. I'm looking for one where I don't have to manage it. Why? If I have to manage it, I am better off just buying regular rentals and using the cash-flow to pay for my vacations. Then I can go wherever I want. I know lots of people do well managing their own but I don't particularly want another job.
@Travis Rasmussen Do you self-manage?
- Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes8y
@Peter Hagemann that's interesting. Do you just have a quadplex or do you also rent SFRs? How many br/ba in the quadplex? Do the apartments have an ocean view and how far are they from the ocean? I've been told to make beach rentals work you need to be oceanfront but I kind of like the idea of just buying an entire small multi-family building that is close but not right on the beach.
Also, are your insurance costs really high? That really concerns me. Do you carry separate flood insurance?
@Jeff Kehl, I DM'd you my most recent STRV that will net 27% CoC roi. I personally manage a few others for friends and family and even getting paid my management fee they're typically making 10-15% per year while using the properties a few weeks per year.
I'm not sure why you're still so skeptical? Every property I own nets a minimum of 20% which equates to roughly $40,000-$60,000 per unit at my price point. This is with me taking out a traditional 30year mortgage and putting the required 30% down, paying the HOA fees, remodeling it, paying electricity, etc. Very cash flow positive, 90%+ occupancy rates, and great reviews. I even successfully completed a BRRRR with one of my STVRs and pulled out 102% of every dime I put in, making this CoC essentially infinity.
It’s very possible. You Just need to find the right market and get over this paralisys.
- Investor · Atlanta, GA · Member since 2015 · 19 posts · 40 votes8y
@Villy Ellinger I didn't say it doesn't rent from October to May. Snowbirds rent all the winter months. And it's pretty much full from March through October.
I'm 100% happy with it. It's exactly what I wanted -- a place on the beach where I can spend 4-6 weeks a year, paid for by renters. Would it cashflow if I managed it myself? Absolutely. Do I want to deal with that headache from 5.5 hours away? Absolutely not. My time is better spent doing other things.
- Realtor · Murrieta, CA · Member since 2016 · 373 posts · 203 votes8y
Sure do!
- Rental Property Investor · Englewood, FL · Member since 2016 · 30 posts · 21 votes8y
@Jeff Kehl Currently we have 2 completed 4 plexes . The first one has 2 large 1 bedroom units upstairs about 750 sq feet each, downstairs we have 2 2 bedroom 2 bath units.
Our 2nd Quad is 2 2bedroom 1 bath units upfront and in back we have 1 1bedroom unit downstairs and up stairs we have 1 2 bedroom 2 bath unit
We just purchased a 5 plex on May 1st and will be getting the 5 units ready for season January 1st.
4 1 bedroom units and 1 2bedroom 2 bath unit.
all 3 of our buildings are 3 houses or about 200 feet from beach. Yeah beachfront would be nice but we have had no complaints from our guest walking 150 to 200 feet to the beach.
In Florida most beach areas are on a key or island separated from mainland by intercostal water way, so being on a key or island you are most likely going to need flood insurance. But you factor that into your rental rates
On the question about SFR, I have them in Orlando but not here on the beach, yet
The reason I don't have them on the beach is because when I do Vacation rentals I have 2 criterias,
1 being can you pay mortgage, insurance and taxes with the season rentals
2 being if the vacation rental market dried up or the law change could you rent long term.
What I have found is on the beach especially where we are , Manasota Key the wages here support rents of about $1000 to $1200 a month
Rents like that usually will not cover a long term rental mortgages on a SFR
but by going with multi family units all 3 of my building units can be rented for $1000 a month long term and I would be able to cover my Mortgage, insurance and taxes each month.
In Orlando I have units that are getting $2400 a month because the higher paying jobs are there.
Now I figure when I get a few more multi family units on the beach they will be able to carry SFR to be used as vacation rentals
- Specialist · Bozeman, MT · Member since 2016 · 237 posts · 153 votes8y
I net about $20k/year/unit on my personal units. This is after my costs. I started a few units a few years back, and am just finishing paying down the loans on those so my net should go up a bit (not that much). If you do your research before you purchase a STR property, you will see very quickly that not every spot which is touristy is a good buy. So maybe I would start with more market research on your end??
You need to get out there and get your boots on the ground. Visit during the high times of year. I just got back from doing a week of "market research" in some heavily touristed areas of the desert southwest, and it opened my eyes. I had previously thought: "How can a property costing $125k, in an area with 5 million tourists a year, not cash flow?" Basically, for many properties out there you're going to automatically figure a 50% vacancy, which is not ideal, but can work. The properties I select, very carefully, have over 75% occupancy. Please note that this is a number I make up in my head after doing months, sometimes years, of research before pulling the trigger.
You asked about management costs: One of my clients has a LTR market rate of around $1800-$2000 on their property. This breaks even on their loan after all costs are paid out including my commission. During STR operations of this same unit we pull in about $4500/mth after costs. We get about 3 months at 90-100% occupancy, about 3 months with 75%, and then we throttle it down to mid-term stays during the low periods.
This is the top few things which can help dramatically decrease your overhead:
-Handling some of your maintenance issues - I guess I don't need to elaborate here. Starting out in PMing as a kid, we would always do our own maintenance, as we would have been quickly underwater on some of our class C property. To give you an idea of market rates for labor of trades people (in my area) plumber: $35/hr, trim carpenter $45/hr, electrician $50/hr, day labor $20/hr, landscapers $30/hr
-Shopping around for a 25% or less commission. (PM's charge anywhere between 20-35%) I have an aggressive and competitive rate for my STR's but I also get paid on the maintenance and cleaning ends, and have a very low overhead compared to other PM companies in my area. I don't even need to advertise my services anymore, because other PM companies are such a rip off here.
-Invest widely - Know your market inside and out. Not just real estate, but commercial markets in the area, look up new business permits, look up new building permits, check your CCnR's before purchase, municipal regulations, and so much more... I never have a problem with this. "The Hunt" is my favorite part of the whole process. Don't over pay on a property just so you can own something in that market. I hope this isn't a newsflash but many markets are very over priced in this country and are teetering on the edge of a correction as it is. It's your job as an investor to identify those buys as 'bad'. I charge about $150/hr to review a property for a client... Not saying this part is easy at all, but you better know what you're doing here. I routinely turn down new clients because there is just no way to make some property cash flow. If they aren't interested in LTR management, sometimes there is nothing I can do for them because of municipal regs.
-Make sure your cleaning expenses are covered by cleaning fees - This is tough, when cleaners want to make $35/hr + $20/bed (recent quote I got from a cleaner). What we did was start a cleaning side business to make sure we are making money from our cleanings, not just 'breaking even'.
Those are the big ones, but it seems many of the ways to get these properties to cash flow nicely, you would delegate to your PM. I find that many new STR investors want what I call "money for nothing". You need to bring some sort of added value to your STR and make it stand out. We do that with our own interior design, amenities like a sauna or cable TV in a remote area, and other creative ways. Your guests will rate you, and you want the highest reviews possible or you will drop off the STR website's algorithm radar. It takes a lot of effort to stay relevant and interesting to guests in this flooded STR market.
Anyways, good luck! You can PM me if you'd like me to elaborate on anything I just typed.
- Investor · Greater Boston, MA · Member since 2018 · 11 posts · 0 votes8y
Great thread all...one question. Do you feel that waterfront versus waterview versus walking to waterfront can make a huge difference on occupancy rates and your ability to demand good rents? Or, Oceanfront versus cove front?
The difference in NE between these can be $100k or more.
- Rental Property Investor · New York, NY · Member since 2017 · 300 posts · 168 votes8y
Hi Jeff,
I do believe vacation rentals can be cashflow positive but there are a few things to consider. Through observing my sister's Airbnb experiences with her apartment in Santa Monica, there is a lot of profit to be made. However, I would not consider this passive income. Short term renting often feels like you're in the hospitality business, which essentially, you are. A solution to this is to hire an "Airbnb manager" that takes care of all the guests, cleaning, etc. for a percentage (usually 10%-20%). Another thing to consider is the laws regulating short term rentals. For example, in Santa Monica (and all of LA county), it is illegal to do short term renting. This law wasn't enforced until halfway of my sister's lease and prevented her from renting her apartment any further. Laws regulating sites like Airbnb, Vrbo, etc are generally becoming more prevalent and can present risk. Good luck!
- Member since 2021 · 1 post · 0 votes5y
I have an apartment in Galveston I rent out. I spend a good part of the summer there, so it doesn't completely pay for itself over the year, but comes very close. I basically get a very cheap weekend home I get about half the year.
- Rental Property Investor · Charlottesville, VA · Member since 2012 · 1k+ posts · 726 votes5y
It's been 6 years since I posted this and I have to say, I now have 2 vacation rentals that are cashflow positive, a condo at the beach and a house in a mountain ski resort. One key thing is I don't manage either of them. Many people posted on here that they cash flow vacation rentals but they are self-managing. I definitely did not want something else to do... Also I don't have financing on either of them which makes it a lot easier to cash flow.
My original point in posting this was to compare vacation rentals to the standard long term rentals I was buying. Hands down regular rentals are much better investments from a pure ROI standpoint. But having access to nice vacation rentals that throw off some cash flow is pretty great too.
- Member since 2018 · 4 posts · 0 votes5y
We have a beach front rental in Florida that is cash flow positive, but it's not a great ROI (about 3% cash on cash). The costs of upkeep for beachfront property are very high. The salty sea air just beats up everything - outdoor furniture, grills, exterior doors, and even the decking need frequent replacement. Windstorm/flood insurance costs are high. And since our rents are high because our property is beach front, clients expect a lot, and we often have unexpected costs to appease the guests.
We are making improvements that will increase cashflow, and are very optimistic long term about the appreciation and wealth building, but it's not a great cash flow play for us at the moment. I have to say though, it's a great feeling sitting on your own beach front property looking out at the ocean and watching the sunrise/sunset.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes5y
My friend says he is making a killing! I want to start but all my units are annuals. I just sent rent increase notices, and if one goes vacant I am going to convert and see how well I can do with it.
- 5yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Whether a property cash flows depends on a lot of factors. Whether you are servicing a mortgage, etc.
I own 6 properties in eastern TN, with mortgages on all but two. I have an annual positive cash flow of around $150K per year after debt service and all other expenses. That does not include the tax deductions I take for depreciation.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.