Anyone else built passive income from Vacation Rentals?
Branson, MO · Member since 2014 · 27 posts · 28 votes
Who else has been able to leave their job and have freedom in their life from owning vacation rentals listing on Airbnb and Homeaway? I live in Branson, MO and love my business. Who else is out there?
I'll do $500k gross in vacation rents this year, and $1mil next, averaging more then $150k/door/year. No problem leaving my day job, but in the short term I have definitely created another one!
I don't own vacation rentals but it is an interesting niche. If I were to get into it, I'd want a place that could work either as a LT or ST rental, and in a market where ST is not as seasonal but instead drives year round traffic.
Another interesting way to play this niche ... anybody out there master leasing the property, then managing it as a ST rental and pocketing the diff between ST and LT master lease rent? I'd favor this route if it is in a market with little appreciation. Maybe couple with a purchase option if in an appreciation market.
Yet another profitable way to play I would think would be on the PM side ... I've heard 30-40% gross rents as PM fees ... yikes for the owners, yay for the PM. Guess there are enough folks that just want their own personal vacation property, totally hands off, that are thrilled if they can break even or hold for small loss that they can get away with this.
Thoughts?
@Craig Power in my opinion you're not overthinking at all. This is exactly what I do, and you're spot on with the need for a turn person. Once you solve for that, the rest can be done remotely if you want with little to no issues. But finding that turn person is key.
@David Faulkner the lease to Vacation Rental model is an interesting one. You'd have to get someone willing to let you do this with their property and to me the risk was always if they see you have success, what's to stop them from not renewing your lease and trying it themselves at some point? Then the time investment of the listing, furnishing, etc is lost at a future date. That's really what stopped me from looking into it further but I've always been interested to see if the idea would work at scale, anything beyond a property or two.
@Craig Power in my opinion you're not overthinking at all. This is exactly what I do, and you're spot on with the need for a turn person. Once you solve for that, the rest can be done remotely if you want with little to no issues. But finding that turn person is key.
@David Faulkner the lease to Vacation Rental model is an interesting one. You'd have to get someone willing to let you do this with their property and to me the risk was always if they see you have success, what's to stop them from not renewing your lease and trying it themselves at some point? Then the time investment of the listing, furnishing, etc is lost at a future date. That's really what stopped me from looking into it further but I've always been interested to see if the idea would work at scale, anything beyond a property or two.
Agreed those are risks, but think you could target your audience and tweak lease terms to minimize. For example, an older long term landlord that doesn't want the hassle of being a landlord, has a nice property but is a bit burned out as a LTR landlord, but still wants the steady income. I'd think that type would not be likely to turn it into a STR they manage themselves ... too much work and hassle from them. You could also set the term of the master lease to 2-5 years to protect you, and maybe couple with a purchase option.
Another would be the type of owner that just wants a personal vacation rental for themselves but no hassle. In that case, you could structure the master lease such that they get so many days a year for personal use, etc. This would be an alternative to using a PM, with guaranteed rental income from a LT lease (which banks prefer for financing BTW), and again not the hassle of self management, which I could see being a real selling feature for vacation rental owners.
Granted, I haven't done any of this but have done plenty of "transaction engineering" on purchase and lease terms for other types of properties, so take these words with a grain of salt. Just me thinking out loud to spark some conversation and learn something ...
I've thought about the older landlord situation too @David Faulkner and it's a great thought to provoke conversation! If I found the first example, the older long term landlord, I might be tempted to fish for a price that he'd be willing to owner finance at, if the situation works. I'd much rather have full control and that owner holding the paper than try a master lease. But that almost never works. :D
The personal VR with a set day/schedule holdback is really interesting, hadn't thought of that angle before. Especially if you can show a record of past performance. Hmmm.
One of the new goals I have set for myself is to get a beach condo in Florida. It'll likely be a couple of years before I make the leap, but I am definitely looking forward to having a condo that I can live in for a few months out of the year, and then use for vacation rental income the next year.
Craig - I have been doing homeaway for past 13 years and Airbnb for last 3 in NH White mountain area. You are correct in that finding someone to turn the unit is important but I wouldn't let this slow you down. It's fairly easy to get referrals from other owners once you pick a location. Bigger issue in New England is finding a property with a year round draw. My area has a great pull for winter skiing and summer, but you will find slow months April May and June for example that can kill your ROI. Also property management in a vacation market typically take a huge even chunk of your revenue as they are catering to 2nd home people and not true investors. So self managing is a must.
Would be happy to talk to you more if you send a PM.
I just sold a log home in the White Mountains for $195k and my clients rented it out ST on Homeaway.com - their annual gross rents were $20k, just to give you an example. They used a husband and wife team who did all their cleaning and repairs. The place was in pristine shape. It was located in Bath, NH, and they tended not to get older couples vs families because it wasn't super-close to the ski areas. Happy to help out if you need a hand with values in this area etc.......
@Peter R. Thanks for the help! This is probably the biggest thing holding me back right now, finding someone I can trust to be my boots on the ground while I'm 100+ miles away.
@John McRae I will definitely send you a PM! Very interested in hearing more about your experience. That's an area I was looking at.
@Richard Dale-Mesaros Thanks Richard! Any idea if they had a 2 or 3 day minimum on their short-term rentals? I've seen a few different philosophies regard length of rental.
Yes, they had a 2-day minimum, that they would be flexible on, if bookings allowed for a 1 day to fit in here and there. I'm looking for stuff for myself, whether it's long-term hold or flip properties, so I can add you to my list of other investors to call if I happen to get an off-market deal to wholesale etc. I tend to focus on the White Mountain region, which is where I live and have the deepest knowledge of the market.
I'll be converting and managing my grandma's house in Palolo Valley (Oahu, HI) into an Airbnb. I believe the location has a lot of potential in that it is close to Waikiki and maybe even more important, in close proximity to University of Hawaii. I say this because in Hawaii you cannot have a Short-term VR without a non-conforming use certificate, which hasn't been issued since the late 80's (bogus politics in part of the big hotel lobbyists). That being said, there is a way around this (sorta)...you can legally run an Airbnb as long as it's 30 days or longer at which point it wouldn't be considered a short-term rental. This would bring me back to why UofH would possibly be of greater importance in that working professionals or professors w/ longer tenures would be more likely to fulfill the 30days as opposed to the 1 weeker tourist from Waikiki. I know..sucks, right? One would think that, but I've been managing AirBnB's in Santa Monica, CA which mind you has the same regulation and it hasn't stopped occupancy from happening! On the contrary, because of the stays being 1 month or even in a very special case 1 year long, the work load is decreased due to far less turn over. In this "long-term" situation it's not uncommon for guests to stay 2-3 months at a time and this is all at a short-term rate (potentially double what you'd get in an annual lease type agreement).
I've tried to evaluate why these units in Santa Monica have been working so well amidst the regulations and I came up with this:
1. SFH w/ backyards.
Families love it and finding one in Santa Monica is increasingly becoming harder to find. As an owner it's also a plus not to have to deal with HOA's or temperamental neighbors.
2. Location.
This is obvious and possibly one of the more important factors. Santa Monica beach/ pier attracts millions of visitors every year, but it's not just a tourist destination. It's a place thriving with fresh up and coming businesses, schools (SMC, UCLA) and hospitals (Ronald Reagan, St Johns, etc). Let's not get it twisted though, the beach is in walking distance so that helps too, ha!
3. Type of demographic due to location
I've had a stage crew company, parents visiting kids going to UCLA, a group of engineers for a tech company, an investor on business who brought his family along. Working professionals and families of business men / women. These are the type of ppl that need a place to stay a month or longer and don't want to cough up more @ a hotel.
Btw, if ever staying a month in Santa Monica always book 31 days as you will get charged what is called a TOT or transient occupancy tax, which is a whopping 14% in SM! Yes, you would literally pay 14% more just for booking 30 days instead of 31. I love how a difference of a day defines a person as a transient. Good stuff.
In the end, I'm all for Airbnb and the VR niche! I've seen massive gains even despite the heavier upfront costs and the increased involvement if self-managing. I would gladly take this on than be confined to a 9-5 (that's just me, of course).
🙏🏽🤙🏽
Laine
Good call on the 31 days ... I've heard similar about less work and same income ... more targeted towards corporate housing than vacation rentals. Similar strategy to what @J. Martin is doing in Oakland.
VACATION RENTAL INCOME IS NOT PASSIVE, it actually sounds better than it is most of the time....
I want to share with some of you newbies my experience with nightly rentals over the past 10+ years. I have owned ski rentals, a nightly rental property management company that managed over 80 properties, and a 5000 sq ft house in southern Utah that sleeps 20+ people that I rented nightly. I have been investing in real estate for the past 13 years and have flipped a lot of homes and have had many long term rentals.
This is my opinion of the nightly rental business. Some make a lot of money and some make very little. The properties that make a lot of money are generally in very touristy areas that do 25+ nights/very therefore are very expensive to buy. The people that really make out well are folks that purchased these high producing properties 15+ years ago for a fraction of the price and are getting a massive return on their investment. But then the other question lingers in situations like this: What kind of a return could you be getting on that massive amount of equity that you have in a property like that?
The last nightly rental I owned was a large home in southern utah where we have very nice weather year 'round with the exception of some heat in the summer although that didn't slow things down much for me. I did about 200 nights the first year at an average of about $300/night. Out of my $60k gross income, I had to pay for a landscaper, utilities, soap, shampoo, propane for the grill, repairs, not to mention furnishing an entire home. Out of that $60k gross, I put about $25k in my pocket and that was managing the property myself. It always sounds much better than it actually is when a fried of yours says that they are making six figure incomes from their nightly rentals unless they have 5-10 homes. Its like anything whether a long-term property, short-term property, fast food restaurant, or another franchise. If you only have one you aren't going to get rich but if you have a bunch of them you can do very well. If I had paid a company to manage the property for me I would have ended up with about $1000-$2000 for the year! That is why I managed it myself. I'm not saying that you can't get a great return from nightly rentals but I think some people don't realize how many expenses go into it and how much more time it takes than long term rentals. I could have rented out this house for $1500-$2000/mo, the renters would have paid the utilities, and I wouldn't have had to furnish 5000 sq ft. What I think is nuts is how many people are paying 30-50% more for a property because it is zoned for nightly rentals in my town. The numbers just don't make sense and I don't think they are sustainable. Nightly rentals still take way more time than long term rentals. If you are managing the property and the smoke detectors go off in the middle of the night due to an error guess who they are going to call? Yep, it happened to me....twice. I built 4 brand new homes in the last 12 months that I have been renting out long term and they probably take 5% of my time compared to that one nightly rental. And that nightly rental was 2 blocks from my office. I am getting about 12% on my money from these long term rentals with 25% down and they will all be paid off in 15 years.
On top of all of this the amount of competition with vrbo, airbnb, flipkey, etc is rising tremendously. The number of listings on vrbo in my town went from 300 listings to over 500 in less than 2 years. The more people list their homes the more prices will have to be cut. Then you get into the restrictions from Cities and HOAs and I wonder why anyone would take the risk unless it was actually zoned for nightly rentals? Mine was legal, I had a conditional use permit from the city but probably only 40-50% of the listings on vrbo were legal in my town.
The one situation that I think makes a lot of sense as a nightly rental is a home in a vacation spot where you like to travel. That way you can enjoy using the home the extra 100+ nights that you don't book it and you don't have to pay for a hotel. The downside is it isn't going to be close to you so you would have to pay someone to manage it.
I know I will be getting some criticism from this post and I'm sure there are still some areas where you can buy real estate at decent prices and get a large return on a nightly rental but I think that is rare. Not only that you don't have real figures typically to know what your return will be until you actually do it unless the person selling the home has a history of nightly rentals. This differs from a long term rental that has very easy figures to budget. Just my 2 cents.....
I'll be converting and managing my grandma's house in Palolo Valley (Oahu, HI) into an Airbnb. I believe the location has a lot of potential in that it is close to Waikiki and maybe even more important, in close proximity to University of Hawaii. I say this because in Hawaii you cannot have a Short-term VR without a non-conforming use certificate, which hasn't been issued since the late 80's (bogus politics in part of the big hotel lobbyists). That being said, there is a way around this (sorta)...you can legally run an Airbnb as long as it's 30 days or longer at which point it wouldn't be considered a short-term rental. This would bring me back to why UofH would possibly be of greater importance in that working professionals or professors w/ longer tenures would be more likely to fulfill the 30days as opposed to the 1 weeker tourist from Waikiki. I know..sucks, right? One would think that, but I've been managing AirBnB's in Santa Monica, CA which mind you has the same regulation and it hasn't stopped occupancy from happening! On the contrary, because of the stays being 1 month or even in a very special case 1 year long, the work load is decreased due to far less turn over. In this "long-term" situation it's not uncommon for guests to stay 2-3 months at a time and this is all at a short-term rate (potentially double what you'd get in an annual lease type agreement).
I've tried to evaluate why these units in Santa Monica have been working so well amidst the regulations and I came up with this:
1. SFH w/ backyards.
Families love it and finding one in Santa Monica is increasingly becoming harder to find. As an owner it's also a plus not to have to deal with HOA's or temperamental neighbors.
2. Location.
This is obvious and possibly one of the more important factors. Santa Monica beach/ pier attracts millions of visitors every year, but it's not just a tourist destination. It's a place thriving with fresh up and coming businesses, schools (SMC, UCLA) and hospitals (Ronald Reagan, St Johns, etc). Let's not get it twisted though, the beach is in walking distance so that helps too, ha!
3. Type of demographic due to location
I've had a stage crew company, parents visiting kids going to UCLA, a group of engineers for a tech company, an investor on business who brought his family along. Working professionals and families of business men / women. These are the type of ppl that need a place to stay a month or longer and don't want to cough up more @ a hotel.
Btw, if ever staying a month in Santa Monica always book 31 days as you will get charged what is called a TOT or transient occupancy tax, which is a whopping 14% in SM! Yes, you would literally pay 14% more just for booking 30 days instead of 31. I love how a difference of a day defines a person as a transient. Good stuff.
In the end, I'm all for Airbnb and the VR niche! I've seen massive gains even despite the heavier upfront costs and the increased involvement if self-managing. I would gladly take this on than be confined to a 9-5 (that's just me, of course).
🙏🏽🤙🏽
Laine
Good call on the 31 days ... I've heard similar about less work and same income ... more targeted towards corporate housing than vacation rentals. Similar strategy to what @J. Martin is doing in Oakland.
I like the "long short" stay, as @Al Williamson calls it. But not quite passive. You either have to respond to inquiries yourself, or outsource it to someone.
@Chris Potter hit the nail on the head.
It still takes some active management.. Better traveling the world than sitting in an office though! :)
Hello @Nancy Bachety, the program is great for both the investor interested in VR and anyone interested in a better vacation club for lack of another word. This program, over time, returns the original purchase price in full and provides credits that cover the cleaning fees and maintenance making your earning off the rental pure profits or your vacations free. Its genius!!!
For the investor they would purchase blocks of unit/weeks then rent them as an absentee owner with all the turn over work check in and out work done by the Hotel Resort. Each week provides for it own set of credits to apply towards maintenance of which the first monthly payment is not due until year 6 of ownership. Also provided on year 6 is the first of 4 refunds payments of your initial investment, year 6 through 9 your will receive 25% return of principle each year and continue to receive the credits that cover maintenance and cleaning when you use the unit. With the credit the first 5 years and the refund over the next 4 years you are literally being paid to vacation.
Hello @Peter R. thank you for the insight, I have been renting VR homes and condos in SW Florida since 96' The trend early on was weekly then I found the shift to monthly then multiple months to date with many recent calls back to the weekly. In the summer months we do receive many Floridian from the East coast, I only deal in waterfront so I am not familiar with those looking for off water activity as golf and such. I am new in the Melbourne area so very excited to see how the weekly rental units sell and rent. What will be great about the above program is that as we add additional properties to the program an owner or its guest will be able to trade to other locals.
Brian, I have mentored others to set up their business/properties but do not manage for others.
Brad :-)
Marley and I are hopefully converting half of a duplex in the orlando area into a short term rental and am excited to see the results. Hoping the market here is not too saturated for airbnb and VRBO. will keep yall posted on the journey!
if anyone is operating a VRBO or airbnb in Orlando, I would love your insight and to hear about your overall experiences
@Justin Stamper Yep, I have vacation rentals in Orlando. Very oversaturated area, definitely on the decline because of the immense competition. Thinking of converting some to long term rentals.
@Brad Moncado When you say "mentored others" are you referring to the materials that you sell and is it based in your region? I'd think that setting up a business includes helping to choose a high yielding property. It's unclear on your website.
You just answered your own question!
Traditionally, from what I've seen, VR managers would charge 40 % or so for 'taking care' of everything. That is reason alone not to invest in one. People would accept that bc they think "why not? It's empty anyway." That's certainly not the rationale among investors here.
It's true that it's a much more customer service intensive strategy. That's why there are investors and cohosts/managers and investors who cohost/manager. Like with annual rentals. Do it yourself or hire a PM. Either way, you build managing expense into your ledger. Like anything else, it has to fit your investment strategy and style.
@Ana Garcia Congratulations! It's great to hear that your tenant left, it might seem bad, however, it was actually better for you.
It reminds me of the 80/20 rule explained by Perry Marshall. One of the ideas of the 80/20 rule talks about letting go some clients and also stop doing things that just keep us busy but not very productive.
Perry Marshall was in BP Podcast #217:
https://www.biggerpockets.com/renewsblog/bp-podcas...
I recommend everyone to listen to this podcast, it has given me a different perspective on business and life in general.
I wish you much success!