What is a good Cash on Cash return for Vacation Rentals?

11 Replies

I am just getting into vacation rental investing and I am curious what other investors look for in regards to expected profits from a vacation rental.  Is it comparable to long term rentals?  

My first vacay purchase "should" do better than most of my long term rentals with lots of extra benefits. Not sure this is the norm though.

Aaron,

I don't mess with anything less than 20% returns on any real estate investments.

Jim Sakalis

I like @Jim Sakalis approach, but there are some nuances to vacation rentals that don't necessarily apply to long term rentals.  VR's are furnished properties so make sure to account for this cost.  Also, because your success (and failures) for rental activity and rates are largely dependent upon presentation of your property (photos), you'll likely end up with some rehab expenses or paying a bit more for a furnish ready property.  I expect to hit, if not exceed, Jim's 20%, but certainly not year 1 as you initially lower rental rates to gain some rental traction.

I am looking to bring a few properties online in the next 6 months and am projecting over 20% returns... after year 1. Just as @Michael Greenberg discussed, I am buying properties that have been updated nicely and I will be spending money on furniture. I'll be pricing lower early on in order to gain traction.

Originally posted by @Jake Knight :

I am buying properties that have been updated nicely and I will be spending money on furniture. I'll be pricing lower early on in order to gain traction.

 Are you saying you bought some units in the area solely to do vacation rentals, or are you converting some of your existing units?

I am working with an agent to buy the right property/s- out of state. Been looking at a few markets to determine feasibility, but it will primarily be used for corporate/relocation renting as opposed to strictly vacation. I will leverage airbnb as needed though. @Andrew Wong

How do you plan to get into the corporate housing market? In my brief experience, it is almost impossible to call a big company that has employees needing temporary housing. All the companies have voice response systems designed to prevent all contact with a human.

@Aaron Cooper I look for at least 20% too.

@Bob H. With online advertising today and our Google overlords you can really target the people you are looking for. I have been able to direct ads to the people I need like travel nurses, visiting interns and students. It's kind of crazy. Facebook works well for this too. Plus if you're on Airbnb people are looking there for longer term/ corporate housing now.

@Blair Russell is right. There are multiple ways of marketing the property, including Airbnb or free platforms such as FB or Craigslist. But there are also sites that focus more on this demographic such CHBO. I have spoken with 2 of the 3 primary employers in the first city I am going into. One contracts out their housing needs but said that sometimes visiting execs look on their own. The other is a large university that has it's own listing site which private owners can list on (for cheap). I haven't had many issues with reaching the right people (I've spoken with employers in other cities as well). When you find the person you are looking for, just say that you may be able to help them and their employees, or ask if they have a list of housing options they provide staff.

4-6 months of rent to recoup the purchase price of a house is my criteria.  The houses are short term furnished rentals, all bills paid.  They are rented out to contractors at a local refinery.  It may take 6-8 months to get 4-6 months worth of rent from a house, since my average stay is around 2 months.

20% minimum. Here's why - Furnishing a place is expensive and i want to recoup those costs.  Stuff will break and everything will wear out faster. Its more work than anticipated responding to bookings, coordinating with the cleaning crews, answering ridiculous questions.  Higher risk with the constant turnover, my specific situation is seasonal and most of the revenue is generated in the summer months.    

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