Buy & Hold vs. Vacation Rental

9 Replies

Hello BP - I'm interested in opinions on Buy & Holds vs. Vacation Rentals. We recently our first 2 buy & holds. We're going to do a HELOC on our primary residence to fund the down payment on this next purchase.

The money from the HELOC could potentially fund 2 buy & holds in the area we are starting. It could also fund a pretty nice vacation home in Sarasota, which we could also use for family vacations.

Thanks in advance for any thoughts/advice. 

How often would you use this for your own enjoyment? Do you currently pay property management? The advantage to the buy and holds is that you can more easily keep tabs on them. That seems like a tremendous benefit to me. Have you run the numbers? What's the difference in cash flow for you between 2 holds in your area vs the one vacation rental?

We would only use it 1 or 2 weeks a year. We pay property management in the area with our long term rentals but know that fees are different for vacation properties. 

Its difficult to run the numbers on the vacation property. 2 long term rentals would net us in the area of $1000/mth.

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I'm not too familiar with Vacation rentals, but I know some areas are cracking down on them a bit. Making it harder to manage them. Depends on the area though. Might want to look into localities. 

Personally I'd go with buy and hold, but that's because I could keep tabs on the property myself. If you can find a good management company for the vacation rentals go for it, just make sure you understand what's going on with the local regs and short term rentals.

 I ask myself the same question. 

I have 3 buy and holds, which net a nice monthly flow.  But im thinking vacation property for house #4. 

 Problem is,  per my hubby, he likes to vacation in different areas and thinks I will make him work during our vacations :)

I dont know much about Calvert county to advise either way.  But overall,  I  would be hesitant about taking a helicopter on primary. Just out of caution. ..

You know...Buy and Hold also refers to vacation rentals right?  What you are discussing is long term rentals vs short term vacation rentals.  There are pros and cons to each...I've owned both.  Below are just a few of the differences between the two.

Long-term   Short term
One tenant for 6 months or more   2 to 3 guests per month
2 bdrm condo up to $2000 mo   2 bdrm VR condo $5000 mo.
Vacancy rate 5%-8% yr on average   Vacancy rate 15% to 30% yr on average
Manage yourself or PM   Manage yourself or PM
Time: couple hours a month   Time: 1 hour a week - email inquiries

Personally, I would prefer to go with Vacation Rental in mind...then if for some reason I decided years later I wanted to go long term rental I can do that, but thinking long term and then eventually VR may not work for you if you are buying a single family home.

Hope that helps.

Aloha,

Jeff

@Tobey Porter @Jeff Graves  there are several opportunities for vacation rental ownership on many of the Florida Keys along the Gulf coast. Sarasota is home to one of the highest rated beaches in North America (often voted as the best), which is known as Siesta Key Beach.myour research may have already lead you to this information, my wife a and I have looked at several properties on a number of the keys close to us. There are opportunities a plenty that have onsite property management. In man cases those properties manage bookings, at a higher than normal management fee (13-20%). 

The vacation rental is attractive to us, but we won't use it as we live just down the road. We have crunched a lot of numbers, and both in my opinion are buy and hold. But the residential rental option may be our first move. We are still looking and learning at this point. 

Jeff makes a VERY compelling point in his post, time to give that strategy another hard look.

Mike

@Mike Scott-Smith Thanks Mike.  I love living near the beach.  And as you pointed out one critical factor for vacation rentals to succeed is the destination.  As Michael pointed out for Florida they have one of the highest rated beaches, Maui is often rated the #1 or #2 island in the US and World - so both places have a phenomenal attraction to people all over the world.  This is key.  

What's on your bucket list?

Not that it has to be beaches...obviously, but it should be something that perhaps not readily available, but highly desirable. A place people dream about going to or doing some particular activity. 

It's not always all about the ROI...

Each investor will have their own objectives they wish to achieve from their investments...so with that in mind, which is best, a long term rental or short term rental?  Neither...or both...it's up to you.

Aloha,

Jeff

Anthony's concerns about local ordinances that restrict vacation rentals is significant. There are a lot of nimbys (not in my backyard) and enough companies who manage vacation rentals poorly that many communities question whether they want to permit short term rentals. Be certain of the local situation before assuming you can run a vacation rental.

If you want an accurate projection of how any particular home will perform as a vacation rental, that is something I can help with. I work with a team of analysts who can crank out projections, so contact me offline if you are interested. There's no fee for a projection, as it does help my company gather additional data about any area where we market and manage rentals.