Palm Springs

Short-Term & Vacation Rental Discussions
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Palm Springs

Mike R.
Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes

I have had a vacation rental in Big Bear Lake for 2 years now which has done very well  (over 200 nights a year- grossing over $50k a year) on less than 200k investment. I'm also managing 3 other properties in Big Bear which are doing just as well. I was thinking of buying another place but since prices have gone up in Big Bear and not much has been on the market I was considering buying a home in Palm Springs instead.

Would love to hear what people think about the area and what kind of returns and how many nights they have been getting. 

Obviously I'm looking for a mid-century modern which seem to price in at least $525k so not sure I'd get even close to the ROI I get in Big Bear- but thought it would be nice to have a home in a different place so I'm not "All the eggs in one basket" (And who doesn't want to own a Wexler long term?!)

Also any issues with short term rentals? 1 or 2 nights? I Heard PS is taking meetings on this- but any chance they will ban short term like Ojai just did? 

Thanks for any thoughts on areas of PS, what renters are looking for and avg gross per year. 

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David M Trapani
Rental Property Investor · Franklin, TN · Member since 2019 · 160 posts · 125 votes
6y
Hi Anna,

If you're interested in STR's Palm Desert is out. Palm Springs is great, however, pricing is higher (almost double) and you can only have 1. La Quinta is hot. You can still get a pool house near downtown LQ for $375k-$400k. I don't think this will last long at these prices as folks from LA and San Diego (and other places) are on the track and it appears there's upward pressure on appreciation. These should generate around $50k per year gross per house.Permitting is user friendly. As you've intimated, want to avoid 50+ communities, and I would add - avoid gates and HOA's. The less restrictions the better. I know some very good agents, if you wish a referral, please let me know. Cheers & good luck.
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  • John Lee
    Santa Ana, CA · Member since 2016 · 39 posts · 54 votes
    10y

    Just came back from checking out a few properties in Palm Springs area. Do not currently own anything, but am interested in the area like you. Talked to a resident about the city council meeting about short-term rentals (STRs) in Palm Springs. It was brought to the council due to a petition and several complaints about STRs, with a vote pending on issuing a moratorium (suspension of new licenses, but currently licensed STRs could continue to operate). The mayor decided to suspend a vote on the matter, issuing a statement that the vacation rental market has always been a strong driver of the local economy, so more information is needed (from both sides) before taking the vote on a moratorium to the council. So new licenses will continue to be given out for now.

    Think that's a good sign. As far as I know, Palm Springs itself is the only city to bring this up, Rancho Mirage, Palm Desert, Desert Hot Springs, La Quinta, Coachella, etc. -- they all regulate STRs and charge a TOT (Transient Occupancy Tax) from around 8%-12%.

    Talking to some store owners, high season starts after November, slows down around New Year's week, then picks up quickly all the way through April as all the snow-birds come in to vacation (strong Canadian market). Summer is slow, due to the 100+ degree weather. You get some seasonal events: tennis tournaments, golf tournaments, Coachella, Stagecoach, various festivals. I estimate vacancy on the properties I am interested in to be at 50% - 67%, with the potential to value-add and decrease that number.

    Would appreciate input from anyone currently doing STRs in the area. Just did a bunch of research, but have no personal experience there.

    0Reply
  • Eric Dowling
    Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes
    10y

    @Mike R. @John Lee I have a vacation rental in Cathedral City that does similar numbers as your big bear place and are in for 230k. After a couple years we are over 60k gross on over 200 days rented. Palm Springs mid century's do very well. It is the most sought after property (which the price tag reflects as well). I think the overal ROI will rival your big bear place.

    As far as what renters are looking for in my opinion you have to have a pool. A place with out a pool will not rent in the summer. A place with a pool rents out every weekend in the summer. 

    The city council vote is concerning and something to consider, but it is such a big part of the economy out there, I don't personally see vacation rentals going away.

    John is pretty right on with the high season, but I would not really call summer slow, since we rent out every weekend in the 110 degree heat (not sure why any one goes there this time of year!) My occupancy rate is 58%, and I use 50% when analyzing new properties, since the first year is the slowest building up reviews and repeat guests.

    2Reply
  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

        I am seeing similar numbers to many of you in the Coachella Valley area and am typically looking for 25% of the investment in gross rents annually.  Year 1 is looking less as the property builds some reputation, and year 2 more.  You can get those numbers in Palm Springs, but I think it's a little easier in Palm Desert / La Quinta / Indio as the purchase prices are much lower, and for the right types of places people are willing to take the drive.

    1Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    10y

    @John D. I was thinking that too- look in surrounding areas- but those seem so tied into events and not "reputation of location" like Palm Springs. People want to go there for vacations no matter what is going on. 

    But sounds like @Eric Dowling is doing well with his Cathedral City one- so maybe! 

    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    10y

    And the big question- if they suspend licenses for 6 months- better to buy after that as prices will come down or buy a place before- as you'll be locked in and thus less new competition for awhile? 

    0Reply
  • Eric Dowling
    Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes
    10y

    @Mike R. I agree with the surrounding areas. I'm keen on Cathedral City since it is right next to Palm Springs, so we get the reputation and location bump year round. The festivals are great, but if they go away it won't impact our business. 

    I'm also a fan of going farther down in the valley for the right place. A 5+ bedroom anywhere in the valley will do very well.

    I don't see a moratorium having any impact on the market as far as prices. Although it is a tourist destination, the majority of home sales are still owner occupants. And as far as competition goes i have seen my competition double and I my numbers still grow every year. There is plenty of demand out there and I encourage people to buy vacation rentals in my neighborhood.

    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    10y

    @Eric Dowling thanks! LOve to hear more about where your place is and what works and doesn't. Do you have a VRBO or AirBnB link you can send me here or in private? Congrats on all your success! 

    0Reply
  • Gerard Lester
    Portland, OR · Member since 2016 · 40 posts · 11 votes
    10y

    I agree that the current delay on restrictive ordinances is a good sign. I work with a company that manages vacation rentals throughout the desert, as well as in Big Bear and Idyllwild. As John D points out, there are good deals to be had in Palm Springs, but we have been reluctant to direct investors to buy there until the regulatory environment is settled. As others point out, there is more and more STR inventory, but if you are good at managing the constant changes in the marketing end of the vacation rental industry and don't mind the high touch property management work, Palm Springs will be a good market. Mike, as you suggest, geographic diversification is important and if you're interested in talking about other markets that may be appealing, hit me up offline.

    0Reply
  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    10y

    @Eric Dowling Vacation rentals represent 10% of housing stock in PS, and are the ability to vacation rent is a consideration in approximately 25-30% of transactions according to the realtors I have talked to, with the specific intent of renting representing something like 15% of purchases.  I would definitely expect a moratorium on new rentals to impact prices, should they put one in place, in particular with very specific housing stock many investors are targeting.

    2Reply
  • Melissa Nash
    Rental Property Investor · Orange County, CA · Member since 2016 · 740 posts · 529 votes
    10y

    I had a deal go sour in Anaheim last month bc of the city STR ban. They gave STR owners 18 months to close up. I work with investors buying vacation homes because the returns are so great---moving out of Anaheim area now.....

    0Reply
  • Phillip Vaughan
    Investor · Cathedral City, CA · Member since 2017 · 76 posts · 25 votes
    9y

    Mike,  I happen to live in Cathedral City and am looking to purchase a vacation rental in Big Bear as soon as the market comes down a bit. Do you mind if I ask what management company you use up there?

    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    Hey @Phillip Vaughan, I actually use my company! Ha. I was doing so well with my home, I took on a few other clients and now am up to 5 cabins.  I charge less than the management companies up there, I let you keep your own account so you don't lose reviews if you decide to leave me and I make sure you approve all repairs. My goal isn't to nickel and dime owners like many companies, I simply want to make you money and give you renters a great stay. I have also teamed up with my best friend of 20 years who is a realtor, so we take you around, show you which places and locations will make the best income. It's been fun! 

    3Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    And looks like it's a very good thing I didn't invest in Palm Springs- their new short term rental situation seems awful. 

    0Reply
  • Phillip Vaughan
    Investor · Cathedral City, CA · Member since 2017 · 76 posts · 25 votes
    9y

    Yes it does seem like they are cracking down on vacation rentals. I have seen a bit of news come my way on limiting Cathedral City as well. Big Bear seems to be more vacation friendly becasue that is pretty much their main bread and butter. 

    I am not really sure how to PM on Bigger Pockets yet, but I would like to talk to you more about your management company.

    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    I just sent you a PM

    0Reply
  • Zack Clark
    Seattle, WA · Member since 2017 · 32 posts · 10 votes
    9y
    Hey Mike R. ... I'm still pretty interested in the Palm Springs market. I believe it is 32 rental contracts per year for short term rentals (VRBO, Air BnB) ... Can still make money with it if structured well and you buy right. Very good spot as far as activities and vacationers also. Based on other cities that are completely shutting people out...I actually like that Palm Springs is trying to work with rental investors even if it is not perfect. I say all that having done only basic research though and as a newbie so feel free to poke holes.
    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    The problem is, 32 rental contracts is nothing. If most of those are weekends that's only 64 nights a year. Big Bear I rented out 225 nights last year. I figure if anyone tries ti limit, it's time to move on. Seems like a low ROI for a high buy in too.

    0Reply
  • Zack Clark
    Seattle, WA · Member since 2017 · 32 posts · 10 votes
    9y
    Agreed on the high buy in ... Unless of course you are patient and get "the deal" there. Most of what I have seen is people renting with 7 day minimum. So in that case it is 32 weekly rentals. If the rental for short term stays is significantly higher than long term it could make sense. But yes...it is restrictive and maybe doesn't work for many people. Maybe you make as much or close to it in 32 weeks as you would with more contracts and your actual wear on the property is substantially less along with utilities, clean fees, etc making the actual return a good one and overall "work" (or expenses) less. Again, I'm just processing on paper here. Have not thought through it in great detail. I just really like the area so maybe I'm trying to convince myself it is still worth it.
    0Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    I agree- I love the area- and was looking even thought without their restrictions it would have been a low ROI- with houses in Big Bear under $300k and mid century homes in Palm Springs being over $500k - but I hear ya- great area and some really cool homes!

    I was hoping these restrictions would cause a housing sell off- get in cheaper and then hope they lifted the rules. 

    0Reply
  • Zack Clark
    Seattle, WA · Member since 2017 · 32 posts · 10 votes
    9y
    Yeah. I'm not all that familiar with Big Bear. Hear it is a great spot. And I wouldn't be surprised if you do see some sell off because of the restrictions ... But owners may be holding out hoping for more changes that occur somehow in their benefit. Maybe the delay in them selling is 6-18 months out or maybe it doesn't happen. Worth the continued look just in case that owner that just doesn't want to deal with the decrease to what he/she has been getting for 20 years sells off at a bargain.
    0Reply
  • Caleche Ryder
    Santa Monica, CA · Member since 2017 · 9 posts · 4 votes
    9y

    @Eric Dowling would love to pick your brain about a Palm Springs rental property....

    0Reply
  • Eric Dowling
    Real Estate Agent · Los Angeles, CA · Member since 2015 · 201 posts · 82 votes
    9y

    @Caleche Ryder always happy to chat!

    0Reply
  • Meti Kay
    Staten Island, NY · Member since 2012 · 58 posts · 4 votes
    9y
    Wondering if any investors here were able to manage these OOS... 200 days out of the year seems amazing
    0Reply
  • John D.
    Rental Property Investor · La Quinta, CA · Member since 2014 · 1k+ posts · 779 votes
    9y

        Smaller, well located properties have no problem with 250+ days occupancy.  I even have an 8 bedroom house that will come close to 200 days this year.  I'm not sure if occupancy is all that useful of a metric though.  Underprice your property and your occupancy will be huge.....but then again you'll also net less and have more same-day turns to deal with.

    2Reply
  • Mike R.
    OP
    Investor · Valley Glen, CA · Member since 2013 · 247 posts · 111 votes
    9y

    Underprice and you'll get some very bad renters. The goal is to find the sweet spot of slightly over price (upscale your home as well)  to attract better renters yet still not too over so you can get over 200 nights

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